Sealed Air Corp/DE – ‘DEFM14A’ on 2/13/98

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Definitive Proxy Solicitation Material — Merger or Acquisition   —   Schedule 14A
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: DEFM14A     W.R. Grace & Company                                 163    907K 

Document Table of Contents

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SCHEDULE 14A
(RULE 14A-101)

INFORMATION REQUIRED IN PROXY STATEMENT 

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES 
EXCHANGE ACT OF 1934

Filed by the Registrant [X]                                                     

Filed by a Party other than the Registrant [ ]                                  

Check the appropriate box:                                                      

                                                        [Enlarge/Download Table]
                                                                                        
[ ]  Preliminary Proxy Statement                                                        
[ ]  Definitive Proxy Statement                                                         
[X]  Definitive Additional Materials                                                    
[ ]  Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12                      
[ ]  Confidential, for the Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

W. R. Grace & Co. 
--------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)

--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)

Payment of Filing Fee (Check the appropriate box):                              

[X]  No fee required.                                                           

[ ]  Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.   

(1)  Title of each class of securities to which transaction applies:  

        ------------------------------------------------------------------------

(2)  Aggregate number of securities to which transaction applies:     

        ------------------------------------------------------------------------

(3)  Per unit price or other underlying value of transaction computed 
         pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):  

        ------------------------------------------------------------------------

(4)  Proposed maximum aggregate value of transaction:                 

        ------------------------------------------------------------------------
(5)  Total fee paid:                                                  

        ------------------------------------------------------------------------

[ ]  Fee paid previously with preliminary materials.                            

[ ]  Check box if any part of the fee is offset as provided by Exchange Act Rule
  0-11(a)(2) and identify the filing for which the offsetting fee was paid
    previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.                   

(1)  Amount Previously Paid:                                          

        ------------------------------------------------------------------------

(2)  Form, Schedule or Registration Statement No.:                    

        ------------------------------------------------------------------------

(3)  Filing Party:                                                    

        ------------------------------------------------------------------------

(4)  Date Filed:                                                      

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INFORMATION STATEMENT 
GRACE SPECIALTY CHEMICALS, INC. 
(TO BE RENAMED W. R. GRACE & CO.) 
COMMON STOCK

W. R. Grace & Co. (Grace) is sending you this Information Statement,  
together with a Joint Proxy Statement/Prospectus that describes the proposed    
combination of Grace's packaging business with the business of Sealed Air       
Corporation (Sealed Air). Grace intends to combine these businesses by first    
transferring all of its specialty chemicals businesses to a new company, Grace  
Specialty Chemicals, Inc. (New Grace), spinning off New Grace to Grace          
stockholders (the Spin-off), and then combining with Sealed Air (the Merger). We
refer to Grace after the Spin-off and the Merger as "New Sealed Air."           

    This Information Statement relates to the shares of New Grace that will be
issued to you in the Spin-off. It provides important information about New      
Grace. You should read the entire document carefully. For information about New 
Grace's businesses, earnings and financial position, please review "Business of 
New Grace and Grace Specialty Chemicals" beginning on page 23 and the pro forma 
financial information beginning on page 16. You should also pay particular      
attention to the information set forth in "Certain Risk Factors" beginning on   
page 11. For more detailed information on the transactions, including the       
proposals relating to the Spin-off and the Merger that will be considered at    
Grace's special meeting of stockholders, see the Joint Proxy                    
Statement/Prospectus.                                                           

     If completed, the Spin-off and Merger will result in the following changes:

GRACE STOCKHOLDERS WILL OWN:                                                    

- 100% of New Grace; and                                              

    - a 63% equity interest in New Sealed Air, through ownership of New Sealed
Air common and convertible preferred stock.                       

NEW GRACE WILL:                                                                 

- own and operate Grace's specialty chemicals businesses;             

 - retain Grace's asbestos, environmental and certain other liabilities;

   - receive approximately $1.2 billion from Grace (the Cash Transfer) prior
to the Spin-off; and                                              

- be renamed "W. R. Grace & Co."                                      

NEW SEALED AIR WILL:                                                            

 - own and operate Grace's packaging business and the business of Sealed
Air;                                                              

 - be recapitalized so that Grace stockholders will own shares of common
      stock of New Sealed Air and shares of a new series of voting convertible
     preferred stock of New Sealed Air (with stockholders of Sealed Air also
receiving shares of New Sealed Air common stock in the Merger);   

 - retain the obligation to repay the approximately $1.2 billion of debt
used to finance the Cash Transfer; and                            

- be renamed "Sealed Air Corporation."                                

     The diagrams on the following pages show the effects of these transactions.

     These transactions will occur only if they are approved by the stockholders
of Grace and Sealed Air and the parties either satisfy or waive the other       
conditions described in the Joint Proxy Statement/Prospectus. The Spin-off and  
Merger are expected to be tax-free to Grace and its stockholders for U.S.       
federal income tax purposes.                                                    

 We expect New Grace's stock to be listed on the New York Stock Exchange
under the symbol "GRA."                                                         
------------------------

 NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS DETERMINED IF THIS DOCUMENT IS ACCURATE OR ADEQUATE OR APPROVED  
THE NEW GRACE COMMON STOCK TO BE ISSUED. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.                                                               
------------------------

THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A  
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.                                 

The date of this Information Statement is February 13, 1998.

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The following diagrams illustrate the proposed transactions in general
terms and are not comprehensive. For a more complete description of the proposed
transactions, see "The Spin-off" on page 14 of this Information Statement and   
"The Distribution and Merger Agreements" on page 65 of the Joint Proxy          
Statement/Prospectus.                                                           

[CURRENT STRUCTURE FLOW CHART]

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[CASH TRANSFER FLOW CHART AND SPINOFF FLOW CHART] 
---------------                                                                 

* Grace and a packaging subsidiary will borrow a total of approximately $1.2    
billion and transfer the borrowed funds to New Grace or a subsidiary of New 
Grace.                                                                      

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[RECAPITALIZATION FLOW CHART AND MERGER FLOW CHART] 

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[POST-TRANSACTION STRUCTURE FLOW CHART] 

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NEW GRACE INFORMATION STATEMENT 

TABLE OF CONTENTS 

                                                        [Enlarge/Download Table]

                                                                                      PAGE
                                                                                      ----
                                                                                          
QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS........................................     4
SUMMARY.............................................................................     5
  New Grace.........................................................................     5
  The Spin-off and the Merger.......................................................     5
  Tax Consequences of the Spin-off..................................................     6
  Certain Risk Factors..............................................................     6
CAPITALIZATION......................................................................     7
GRACE SUMMARY SELECTED FINANCIAL DATA...............................................     8
NEW GRACE PRO FORMA SUMMARY FINANCIAL INFORMATION...................................    10

CERTAIN RISK FACTORS................................................................    11
  No Operating History as an Independent Company....................................    11
  Asbestos-Related Matters..........................................................    11
  No Prior Market for New Grace Common Stock........................................    11
  Dividend Policy and Share Repurchases.............................................    12
  Restrictions on New Grace to Protect Tax-Free Treatment...........................    12
  Certain Anti-Takeover Provisions..................................................    13
  Environmental Matters.............................................................    13
  Competition.......................................................................    13

THE SPIN-OFF........................................................................    14
  Manner of Effecting the Spin-off..................................................    14
  Certain Federal Income Tax Consequences...........................................    14
  Conditions; Termination...........................................................    14
  Relationships after the Spin-off..................................................    15
  Listing and Trading of New Grace Common Stock.....................................    15

REGULATORY MATTERS..................................................................    15

PRO FORMA FINANCIAL INFORMATION.....................................................    16
  Unaudited Pro Forma Condensed Consolidated Balance Sheet..........................    16
  Unaudited Pro Forma Condensed Consolidated Statement of Operations................    17
  Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet and Statement of      
     Operations.....................................................................    21

BUSINESS OF NEW GRACE AND GRACE SPECIALTY CHEMICALS.................................    23
  Overview and Strategy.............................................................    23
  Specialty Chemicals Industry Overview.............................................    23
  Products and Markets..............................................................    24
  Research Activities...............................................................    27
  Patents and Other Intellectual Property Matters...................................    27
  Environmental, Health and Safety Matters..........................................    27
  Legal Proceedings and Regulatory Matters..........................................    28
  Properties........................................................................    33

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                                                                                     PAGE
                                                                                     ----
                                                                                         
MANAGEMENT..........................................................................   35
  Board of Directors................................................................   35
  Committees of the Board of Directors..............................................   37
  Compensation of Directors.........................................................   37
  Executive Officers................................................................   38
  Executive Compensation and Employee Benefits prior to the Spin-off................   38
  Executive Compensation and Employee Benefits following the Spin-off...............   38
  Compensation Committee Interlocks and Insider Participation.......................   39

CERTAIN AGREEMENTS BETWEEN NEW SEALED AIR AND NEW GRACE.............................   40

CERTAIN RELATIONSHIPS AND TRANSACTIONS..............................................   40

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.....................................   41

BENEFICIAL OWNERSHIP OF MANAGEMENT..................................................   41

DESCRIPTION OF NEW GRACE CAPITAL STOCK..............................................   42
  Authorized Capital Stock..........................................................   42
  New Grace Common Stock............................................................   42
  New Grace Preferred Stock.........................................................   42
  New Grace Rights..................................................................   42
  Preemptive Rights.................................................................   44

CERTAIN ANTI-TAKEOVER PROVISIONS....................................................   45
  Classified Board of Directors.....................................................   45
  Number of Directors; Removal; Filling Vacancies...................................   46
  No Stockholder Action by Written Consent; Special Meetings........................   46
  Advance Notice Provisions for Stockholder Nominations and Stockholder Proposals...   46
  New Grace Preferred Stock.........................................................   47
  Rights to Purchase Securities and Other Property..................................   48
  Amendment of Certain Provisions of the New Grace Certificate of Incorporation and      
     the New Grace By-laws..........................................................   49
  New Grace Rights..................................................................   49
  Certain Anti-Takeover Features....................................................   49
  Anti-Takeover Statute.............................................................   49

LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS.............................   51
  Limitation of Liability of Directors..............................................   51
  Indemnification of Directors and Officers.........................................   51
  Certain Other Information.........................................................   52

WHERE STOCKHOLDERS CAN FIND MORE INFORMATION........................................   53

STOCKHOLDER PROPOSALS...............................................................   53

INDEX OF DEFINED TERMS..............................................................   54

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                                                        [Enlarge/Download Table]
                                                                                                 
ANNEXES                                                                                          
A     --  Form of Amended and Restated Certificate of Incorporation of New Grace............  A-1
B     --  Form of Amended and Restated By-laws of New Grace.................................  B-1
C     --  Form of New Grace 1998 Stock Incentive Plan.......................................  C-1
D     --  Form of New Grace 1998 Stock Plan for Nonemployee Directors.......................  D-1
E     --  Grace 1997 Proxy Excerpt..........................................................  E-1
F     --  Grace Financial Information for the Year Ended December 31, 1996 (including the        
            Consolidated Financial Statements, Financial Summary and Management's Discussion     
            and Analysis of Results of Operations and Financial Condition)..................  F-1
G     --  Grace Financial Information for the Quarter Ended September 30, 1997 (including        
            the Third Quarter Financial Statements and Management's Discussion and Analysis      
            of Results of Operations and Financial Condition)...............................  G-1

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QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS

Q.  WHEN WILL THE SPIN-OFF OF NEW GRACE OCCUR?                                  

A.  We expect to complete the Spin-off shortly after the Grace and Sealed Air   
stockholder meetings, late in the 1998 first quarter, so long as Grace  
stockholders approve the Spin-off and Merger, and other conditions      
   (including approval of the Merger by Sealed Air stockholders) are satisfied
or waived.                                                              

Q.  WHAT WILL BE NEW GRACE'S BUSINESSES?                                        

A.  After the Spin-off, New Grace will operate the specialty chemicals          
businesses currently owned by Grace: Grace Davison, Grace Construction  
 Products and Darex Container Products. Please read the information on New
Grace's business and the associated risks beginning on pages 11 and 23. 

Q.  WHAT WILL I RECEIVE IN THE PROPOSED TRANSACTIONS?                           

A.  As a result of the Spin-off, for every share of Grace common stock you own, 
you will receive one share of New Grace common stock, together with an  
associated preferred share purchase right similar to the rights you have
  with your existing Grace shares. Just before the Merger, your Grace common
stock will be recapitalized (the Recapitalization). As a result of the  
   Recapitalization, Grace stockholders will also receive shares of New Sealed
 Air common and convertible preferred stock representing, in total, 63% of
    New Sealed Air. Within a few weeks after the transactions are completed, you
will receive your New Grace common stock and written instructions for   
exchanging your existing Grace common stock for shares of New Sealed Air
common and convertible preferred stock.                                 

Q.  DO I HAVE TO PAY TAXES ON THE RECEIPT OF NEW GRACE COMMON STOCK?            

A.  The Spin-off is expected to be tax-free to Grace stockholders for U.S.      
   federal income tax purposes. After the transactions are completed, you will
    receive information on the allocation of your tax basis among your shares of
    New Grace and New Sealed Air. To review the tax consequences of the Spin-off
and Merger in greater detail, see the Joint Proxy Statement/Prospectus. 

Q.  WILL NEW GRACE PAY DIVIDENDS?                                               

A.  New Grace is not currently expected to pay dividends.                       

Q.  WILL MY NEW GRACE STOCK BE LISTED ON THE NEW YORK STOCK EXCHANGE?           

A.  Yes, we anticipate that New Grace common stock will be listed for trading   
under the symbol "GRA."                                                 

Q.  WHAT DO I NEED TO DO NOW?                                                   

A.  Complete, sign and mail your proxy card in the enclosed return envelope as  
soon as possible, so that your shares will be represented at the Grace  
   stockholder meeting. YOU SHOULD NOT SEND IN YOUR STOCK CERTIFICATES AT THIS
    TIME. If you continue to hold your Grace shares at the time of the Spin-off,
   you will automatically receive New Grace shares. After the Merger, you will
receive instructions for exchanging your Grace stock for New Sealed Air 
common and convertible preferred stock, as well as cash instead of      
fractional shares, as described in the Joint Proxy Statement/Prospectus.

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SUMMARY 

     This summary highlights selected information from this document. It may not
contain all of the information that is important to you. To better understand   
the transactions, and for a more complete description of the Spin-off and the   
Merger, you should carefully read this entire document, the Joint Proxy         
Statement/Prospectus and the other documents we refer to. See "Where            
Stockholders Can Find More Information."                                        

   If you have questions about Grace or New Grace or your holdings in either
company, please contact:                                                        

W. R. Grace & Co.       
One Town Center Road    
Boca Raton, FL 33486    
(800) 354-8917          

NEW GRACE (SEE PAGE 23)                                                         

New Grace will be the parent company of W. R. Grace & Co.-Conn. (Grace
Specialty Chemicals*), which is primarily engaged in specialty chemicals        
businesses on a worldwide basis. Grace Specialty Chemicals primarily operates   
through the following three units:                                              

    - Grace Davison manufactures catalysts, including fluid cracking catalysts
that "crack" crude oil into transportation fuels and other        
petroleum-based products, as well as polyolefin catalysts that are
  critical in the manufacture of polyethylene resins for plastic film,
high-performance pipe and household containers. Grace Davison also
  manufactures silica and zeolite adsorbents, which are used in a wide
      variety of products, such as plastics, toothpastes, paints and insulated
       glass, as well as in the refining of edible oils. Grace Davison accounted
for approximately 43% of Grace Specialty Chemicals' 1996 sales and
revenues from continuing operations.                              

  - Grace Construction Products produces construction chemicals, including
     performance-enhancing concrete admixtures, cement additives and masonry
    products; and specialty building materials, including fireproofing and
waterproofing materials. Grace Construction Products accounted for
     approximately 25% of Grace Specialty Chemicals' 1996 sales and revenues
from continuing operations.                                       

 - Darex Container Products produces container and closure sealants that
     protect food and beverages from bacteria and other contaminants, extend
     shelf life and preserve flavor, and coatings used in the manufacture of
     cans and closures. Darex Container Products accounted for approximately
       16% of Grace Specialty Chemicals' 1996 sales and revenues from continuing
operations.                                                       

   Grace Specialty Chemicals' strategy has been and, following the Spin-off,
will be to enhance stockholder value by profitably growing its specialty        
chemical businesses on a global basis and achieving high levels of financial    
performance. To achieve these objectives, Grace Specialty Chemicals plans to (i)
use the funds to be received in the Cash Transfer to repay borrowings and to    
invest in its businesses; (ii) invest in research and development activities,   
with the goals of introducing new value-added products and services and         
enhancing manufacturing processes; (iii) make selected strategic acquisitions;  
and (iv) continue to implement process improvements and cost-management         
initiatives, including rigorous controls on working capital and capital         
spending. These plans are designed to make Grace Specialty Chemicals a          
high-performance company focused on the strengths of its global specialty       
chemicals businesses.                                                           

THE SPIN-OFF AND THE MERGER (SEE PAGE 14)                                       

Grace and Sealed Air have agreed to combine Sealed Air with Grace's   
packaging business, which we refer to as the "Packaging Business." In order to  
separate the Packaging Business from Grace's other                              

---------------                                                                 

* Information concerning Grace Specialty Chemicals in this Information Statement
is given on a pro forma basis, excluding Grace's packaging business (but    
including specialty chemicals businesses sold in 1996 and 1997).            

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businesses (which we refer to as the "Specialty Chemicals Businesses") and to   
complete the Spin-off and the Merger, we will take the following steps:         

  - Grace will separate the Packaging Business and the Specialty Chemicals
Businesses into separate groups of subsidiaries.                  

- Grace and a Packaging Business subsidiary will then make the Cash   
Transfer ($1.2 billion, subject to adjustment) to Grace Specialty 
      Chemicals, funded by new debt incurred by Grace and a Packaging Business
subsidiary.                                                       

    - Grace will transfer the stock of Grace Specialty Chemicals to New Grace,
    so that Grace Specialty Chemicals becomes a wholly owned subsidiary of
New Grace.                                                        

 - Grace will distribute the shares of New Grace common stock to Grace's
stockholders, completing the Spin-off.                            

   - Grace (then consisting only of the Packaging Business and the debt used
     to finance the Cash Transfer) will be recapitalized, so that each share
      of Grace common stock will be exchanged for a fraction of a share of New
 Sealed Air common stock and a fraction of a share of New Sealed Air
     convertible preferred stock. The actual amount of New Sealed Air common
      and convertible preferred stock that you will receive will be calculated
    shortly after the Recapitalization, using the formulas described under
    "The Distribution and Merger Agreements -- Reorganization of Grace" on
page 65 of the Joint Proxy Statement/Prospectus.                  

    Immediately after the Recapitalization, a wholly owned subsidiary of Grace
will be merged into Sealed Air in the Merger, so that Grace will become the     
parent company of both Sealed Air and the Packaging Business. We refer to the   
Spin-off, the Cash Transfer, the Recapitalization, the Merger and related       
transactions as the "Transactions."                                             

    As a result of the Transactions, former stockholders of Grace will own (i)
100% of the Specialty Chemicals Businesses, through their ownership of New Grace
common stock, and (ii) a 63% interest (on an as-converted basis) in the         
Packaging Business and the businesses of Sealed Air, through their ownership of 
New Sealed Air common and convertible preferred stock.                          

   Immediately after the Transactions, New Grace will change its name to "W.
R. Grace & Co." and Grace will change its name to "Sealed Air Corporation."     

TAX CONSEQUENCES OF THE SPIN-OFF                                                

For U.S. federal income tax purposes, the Spin-off is expected to be  
tax-free to Grace and its stockholders. For a description of the material U.S.  
federal income tax consequences of the Transactions to Grace and its            
stockholders, please refer to "The Reorganization and Merger -- Certain United  
States Federal Income Tax Consequences" on page 32 of the Joint Proxy           
Statement/Prospectus.                                                           

CERTAIN RISK FACTORS (SEE PAGE 11)                                              

   Stockholders should carefully review the matters discussed under "Certain
Risk Factors."                                                                  

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CAPITALIZATION

     The table below shows the capitalization of Grace at September 30, 1997 and
the pro forma capitalization of New Grace at that date, giving effect to the    
Transactions and other related transactions described in the notes to the       
unaudited pro forma condensed consolidated balance sheet and statement of       
operations. You should read this table along with those notes, our consolidated 
financial statements for the year ended December 31, 1996 (the Consolidated     
Financial Statements) and our unaudited consolidated financial statements for   
the quarter ended September 30, 1997 (the Third Quarter Financial Statements),  
included in Annexes F and G, respectively, to this Information Statement.       

                                                        [Enlarge/Download Table]

                                                                           SEPTEMBER 30, 1997   
                                                                        ------------------------
                                                                          GRACE        NEW GRACE
                                                                        HISTORICAL     PRO FORMA
                                                                        ----------     ---------
                                                                         (DOLLARS IN MILLIONS,  
                                                                           EXCEPT PAR VALUE)    
                                                                                                
Debt, including short-term debt........................................  $ 1,104.2      $    -- 
Shareholders' equity:                                                                           
  Grace common stock:                                                                           
     Common stock, $.01 par value: 300,000,000 shares authorized;                               
     80,316,000 issued; 74,092,000 outstanding.........................  $      .8           -- 
  New Grace common stock:                                                                       
     Common stock, $.01 par value: 300,000,000 shares authorized;                               
     74,092,000 outstanding............................................         --      $    .7 
  Paid in capital......................................................      593.1        258.7 
  Retained earnings....................................................      377.0           -- 
  Cumulative translation adjustments...................................     (154.0)       (67.0)
  Deferred compensation trust..........................................       (5.2)        (5.2)
  Treasury stock, at cost..............................................     (331.7)          -- 
                                                                          --------       ------ 
     Total shareholders' equity........................................      480.0        187.2 
                                                                          --------       ------ 
     Total capitalization..............................................  $ 1,584.2      $ 187.2 
                                                                          ========       ====== 

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GRACE SUMMARY SELECTED FINANCIAL DATA 

The tables below show summary selected financial data of Grace. The   
information for the years ended December 31, 1992 through 1996 is based on the  
Consolidated Financial Statements, which have been audited by Price Waterhouse  
LLP, independent certified public accountants. The information for the          
nine-month periods ended September 30, 1997 and 1996 is based on the unaudited  
Third Quarter Financial Statements, which, in the opinion of management, include
all adjustments necessary for a fair presentation. Certain amounts in prior     
periods have been restated to conform to the current period's basis of          
presentation. Operating results for the nine months ended September 30, 1997 are
not necessarily indicative of the results for the year ended December 31, 1997. 

It is important that you read this selected consolidated financial    
information together with "Management's Discussion and Analysis of Results of   
Operations and Financial Condition," the Consolidated Financial Statements and  
the Third Quarter Financial Statements included elsewhere in this Information   
Statement.                                                                      

                                                        [Enlarge/Download Table]

                                                                                       NINE MONTHS ENDED 
                                             YEARS ENDED DECEMBER 31,                    SEPTEMBER 30,   
                               ----------------------------------------------------   -------------------
                                 1996       1995       1994       1993       1992       1997       1996  
                               --------   --------   --------   --------   --------   --------   --------
                                              (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)               
                                                                                                         
STATEMENT OF OPERATIONS DATA:                                                                            
Sales and revenues...........  $3,454.1   $3,552.6   $3,128.5   $2,824.7   $2,985.2   $2,460.7   $2,603.2
Income/(loss) from continuing                                                                            
  operations.................     213.8     (179.6)     (35.1)      28.1        7.7      222.5      333.0
Earnings/(loss) per share                                                                                
  from continuing                                                                                        
  operations.................      2.32      (1.87)      (.38)       .30        .08       2.92       3.42
Dividends declared per common                                                                            
  share......................       .50      1.175       1.40       1.40       1.40       .415       .375
BALANCE SHEET DATA (AT END OF                                                                            
  PERIOD):                                                                                               
Total assets.................  $4,945.8   $6,360.6   $6,230.6   $6,108.6   $5,598.6   $4,200.0   $5,346.8
Long-term debt...............   1,073.0    1,295.5    1,098.8    1,173.5    1,354.5    1,062.7      741.6
Total liabilities............   4,313.4    5,128.8    4,726.1    4,591.0    4,053.6    3,720.0    4,076.4
Total equity.................     632.4    1,231.8    1,504.5    1,517.6    1,545.0      480.0    1,270.4

RECENT RESULTS                                                                  

   On February 3, 1998, Grace reported income from continuing operations for
the fourth quarter of 1997 of $26.1 million, or $.35 per share, compared to a   
loss of $1.44 per share in the prior-year quarter. Included in the results for  
the 1997 quarter were special charges that reduced earnings by $.58 per share.  
Results for the 1997 quarter also reflected a $.06 per share negative impact on 
earnings due to foreign currency translation and a nonrecurring charge of $.05  
per share reflecting an adjustment to the carrying values of certain capitalized
assets.                                                                         

     The special charges in the 1997 quarter included an asset impairment charge
of $34.4 million ($24.5 million after-tax), primarily comprised of the write-off
of capitalized software projects no longer needed in Grace's operations, the    
write-down of certain production equipment of the Packaging Business, and the   
write-off of certain corporate research facilities; and restructuring charges of
$15.1 million ($9.2 million after-tax), consisting of costs for corporate and   
international staff reductions relating to the Spin-off and Merger. Also        
included in the 1997 quarter was an unbudgeted charge of $13 million ($8 million
after-tax) for long-term incentive compensation plans, resulting from the       
continued above-market performance of Grace common stock in the quarter. Other  
costs related to the Spin-off and Merger were $1.7 million ($1.1 million        
after-tax).                                                                     

Sales (excluding divested businesses) were $852 million in the 1997   
quarter, up 2% from the prior-year level of $832 million. Excluding the effect  
of currency translation, sales were up 8% compared to the 1996 quarter.         

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     Full-year 1997 income from continuing operations was $249 million, or $3.36
per share, compared to $214 million, or $2.32 per share, in 1996. In addition to
the fourth quarter special charges, full-year 1997 earnings included an         
after-tax gain of $63 million ($.85 per share) from the second quarter sale of  
Grace's specialty polymers business and an after-tax restructuring charge of $8 
million ($.11 per share) associated with the second quarter reorganization of   
the Packaging Business. Currency translation had a $.20 per share negative      
impact on full-year results. Income from continuing operations for the full-year
1996 included after-tax charges of $70 million ($.76 per share) for             
restructuring and $149 million ($1.62 per share) for asbestos and after-tax     
gains of $210 million ($2.28 per share) on sales of businesses.                 

Full-year 1997 net income was $261 million, including $12 million from
discontinued operations, primarily relating to Grace's divested cocoa business  
unit, as well as the gains and charges discussed above. Net income of $2.9      
billion in 1996 included a $2.5 billion gain from the disposition of Grace's    
former health care unit.                                                        

 Sales for 1997 (excluding divested units) increased 3% over 1996, or 8%
before currency translation.                                                    

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NEW GRACE PRO FORMA SUMMARY FINANCIAL INFORMATION 

The tables below show pro forma summary financial information for New 
Grace. It is important that you read this pro forma summary financial           
information together with the unaudited pro forma financial information included
elsewhere in this Information Statement. The pro forma financial information in 
these tables may not be indicative of the future financial position or results  
of operations of New Grace as a separate, stand-alone company. Operating results
for the nine months ended September 30, 1997 are not necessarily indicative of  
the results for the year ended December 31, 1997. See "Grace Summary Selected   
Financial Data -- Recent Results."                                              

                                                        [Enlarge/Download Table]

                                                                                  Nine Months Ended  
                                                Years Ended December 31,            September 30,    
                                            --------------------------------     --------------------
                                            1996(a)     1995(b)     1994(b)      1997(a)     1996(b) 
                                            --------    --------    --------     --------    --------
                                                  (Dollars in millions, except per share data)       
                                                                                                     
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS DATA:                                                    
Sales and revenues........................  $1,718.7    $1,860.5    $1,711.0     $1,114.1    $1,336.2
Income/(loss) from continuing                                                                        
  operations..............................     145.2      (299.6)     (167.6)       135.4       267.2
Primary earnings per share from continuing                                                           
  operations..............................      1.54       (3.07)      (1.78)        1.78        2.75

                                                        [Enlarge/Download Table]

                                                                             SEPTEMBER 30, 1997
                                                                             ------------------
                                                                                               
UNAUDITED PRO FORMA BALANCE SHEET DATA (AT END OF PERIOD):                                     
Total assets................................................................      $2,516.7     
Long-term debt..............................................................            --     
Total liabilities...........................................................       2,329.5     
Total equity................................................................         187.2     

---------------                                                                 
(a) The unaudited pro forma summary financial information for New Grace has been
  derived from the historical consolidated statement of operations of Grace,
adjusted to reflect the separation of the Packaging Business and the    
  reduction in interest expense expected to result from the use of the funds
 received in the Cash Transfer to repay borrowings. This pro forma summary
financial information has been prepared on the assumption that the      
Transactions occurred on January 1, 1996.                               

(b) The unaudited pro forma summary financial information for New Grace has been
  derived from the historical consolidated statement of operations of Grace,
adjusted to reflect the separation of the Packaging Business and an     
   allocation of interest expense to the Packaging Business based on the ratio
  of the net assets of the Packaging Business to Grace's total capital. This
   pro forma summary financial information also differs from the unaudited pro
forma summary financial information for New Grace for the year ended    
 December 31, 1996 and the nine months ended September 30, 1997 in that it
does not give effect to the Cash Transfer or the resultant repayment of 
Grace Specialty Chemicals borrowings using funds received in the Cash   
Transfer.                                                               

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CERTAIN RISK FACTORS

    In evaluating New Grace and the Specialty Chemicals Businesses, you should
carefully review the following risk factors, together with the other information
in this Information Statement. You should also carefully review "Certain Risk   
Factors" in the Joint Proxy Statement/Prospectus.                               

We also caution you that this Information Statement contains          
forward-looking statements, which include all statements regarding New Grace's  
expected financial position, results of operations, cash flows, dividends,      
financing plans, business strategy, budgets, capital and other expenditures,    
competitive positions, growth opportunities for existing products, benefits from
new technology, plans and objectives of management, and markets for stock.      
Although we believe that our expectations reflected in such forward-looking     
statements are based on reasonable assumptions, such expectations may not prove 
to be correct. Important factors that could cause actual results to differ      
materially from the expectations reflected in our forward-looking statements    
include those set forth below as well as general economic, business and market  
conditions, customer acceptance of new products, efficacy of new technology,    
changes in U.S. and non-U.S. laws and regulations, costs or difficulties        
relating to the establishment of New Grace as an independent entity and         
increased competitive and/or customer pressures.                                

NO OPERATING HISTORY AS AN INDEPENDENT COMPANY                                  

 New Grace was formed in August 1997 to facilitate the Transactions. New
Grace, in the form in which it will exist after the Transactions, does not have 
an independent history as a stand-alone public company. For many years, the     
Packaging Business has generated funds from operations that have been used in   
the Specialty Chemicals Businesses and for Grace's general corporate purposes,  
such as dividends and share repurchases. Following the Spin-off, New Grace will 
not have access to the cash flow of the Packaging Business.                     

ASBESTOS-RELATED MATTERS                                                        

  Grace Specialty Chemicals is a defendant in property damage and personal
injury lawsuits relating to previously sold asbestos-containing products and    
anticipates that it and/or New Grace will be named as a defendant in additional 
asbestos-related lawsuits in the future. We cannot predict whether and to what  
extent asbestos-related property damage lawsuits and claims will be brought     
against us in the future, or the expenses involved in defending against and     
disposing of such lawsuits and claims. At September 30, 1997, the liability     
recorded on Grace's books with respect to the defense and disposition of        
asbestos-related lawsuits and claims was $910.5 million, including a current    
liability of $135.0 million. In addition, at September 30, 1997, Grace had      
recorded a receivable of $295.4 million, reflecting amounts that Grace believes 
will ultimately be recovered from insurance carriers with respect to its        
asbestos-related lawsuits and claims. For information regarding noncash charges 
previously recorded by Grace in respect of its asbestos-related lawsuits and    
claims, see "Asbestos-Related Liability" in Note 2 to the Consolidated Financial
Statements included in Annex F to this Information Statement. We believe that we
do have adequate experience to reasonably estimate the number of                
asbestos-related personal injury claims that will be brought against us through 
2001 and have recorded non-cash charges for those claims. New Grace's ultimate  
exposure with respect to its asbestos-related lawsuits and claims will depend on
the number and nature of claims filed and the extent to which insurance will    
cover damages for which it may be held liable, amounts paid in settlement and   
litigation costs. See "Business of New Grace and Grace Specialty                
Chemicals -- Legal Proceedings and Regulatory Matters" for further information. 

NO PRIOR MARKET FOR NEW GRACE COMMON STOCK                                      

   There is no current public trading market for New Grace common stock. New
Grace will apply to list its common stock on the New York Stock Exchange, Inc.  
(the "NYSE") under the symbol "GRA." New Grace expects approximately 75,000,000 
million shares to initially be issued and outstanding, approximately 4,000,000  
million shares to be subject to outstanding options and approximately 16,000    
holders of record.                                                              

     We expect "when-issued" trading in New Grace common stock to develop before
the time when the Spin-off occurs (the "Time of Spin-off"); this means that     
shares may be traded before the Time of Spin-off                                

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and before New Grace stock certificates are issued. We cannot predict the prices
at which New Grace common stock may trade, either before the Spin-off on a      
"when-issued" basis or after the Spin-off. Until an orderly market develops, the
trading prices of such stock may fluctuate significantly. The trading prices of 
New Grace common stock will be determined by the marketplace and may be         
influenced by many factors, including the depth and liquidity of the market for 
such shares, investor perceptions of New Grace and the industries in which it   
participates, New Grace's dividend policy and general economic and market       
conditions. Such prices may also be affected by certain anti-takeover provisions
of the Amended and Restated Certificate of Incorporation of New Grace (the "New 
Grace Certificate"), the Amended and Restated By-laws of New Grace (the "New    
Grace By-laws") and the New Grace Rights (as defined below), in each case as in 
effect following the Spin-off. See "-- Restrictions on Grace to Protect Tax-Free
Treatment" and "Certain Anti-Takeover Provisions."                              

   The New Grace common stock will be freely transferable, except for shares
of New Grace common stock received by "affiliates" of New Grace under the       
Securities Act. Persons who may be deemed affiliates of New Grace after the     
Spin-off generally include its directors and executive officers, as well as any 
principal stockholders of New Grace. See "Security Ownership of Certain         
Beneficial Owners" and "Beneficial Ownership of Management." Affiliates of New  
Grace will be permitted to sell their shares of New Grace common stock only     
pursuant to an effective registration statement under the Securities Act or an  
exemption from the registration requirements of the Securities Act, such as the 
exemption afforded by Rule 144 under the Securities Act. New Grace does not     
currently intend to file any such registration statement under the Securities   
Act. Based on the number of shares of New Grace common stock expected to be held
by directors and executive officers of New Grace following the Spin-off,        
approximately 74,900,000 shares of New Grace common stock will be available for 
sale pursuant to such exemptions.                                               

DIVIDEND POLICY AND SHARE REPURCHASES                                           

  New Grace does not intend to pay dividends on the New Grace common stock
following the Spin-off. In addition, although New Grace may repurchase shares of
its common stock from time to time as circumstances allow, the declaration and  
payment of cash dividends and the repurchase of shares will be at the sole      
discretion of the New Grace Board of Directors (the "New Grace Board") and will 
depend on New Grace's ability to declare and pay dividends and to repurchase    
shares under its credit and financing agreements, as well as on the future      
operating results and financial condition of New Grace, its capital requirements
and future prospects, general business conditions and other factors. See        
"Management's Discussion and Analysis of Results of Operations and Financial    
Condition -- Financial Condition -- Liquidity and Capital Resources" included in
Annexes F and G and "-- Restrictions on Grace to Protect Tax-Free Treatment" and
"Certain Anti-Takeover Provisions."                                             

RESTRICTIONS ON NEW GRACE TO PROTECT TAX-FREE TREATMENT                         

  To protect the tax-free treatment of the Transactions under U.S. federal
income tax laws, Grace and Sealed Air have agreed that, for two years after the 
Merger, subject to certain exceptions:                                          

- New Grace and its affiliates may not repurchase 20% or more of New  
    Grace's equity securities (subject to certain additional limitations).

- New Grace and its affiliates may not issue or sell New Grace equity 
 securities, and they may not solicit, support or participate in any
    tender offer for New Grace equity securities, or approve or permit any
     business combination or other transaction, that (alone or together with
       the Merger) will result in one or more persons obtaining a 50% or greater
interest in New Grace.                                            

     - New Grace must continue to operate the Specialty Chemicals Businesses and
 may not sell or otherwise dispose of more than 60% of the Specialty
     Chemicals Businesses' assets except in the ordinary course of business.

  - The subsidiaries engaged in the Specialty Chemicals Businesses may not
voluntarily dissolve, liquidate, merge, consolidate or reorganize.

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    These restrictions may limit the ability of New Grace to engage in certain
business transactions that otherwise might be advantageous for New Grace and its
stockholders, and could deter potential acquisitions of control of New Grace.   
The restrictions are designed to protect the tax-free treatment of the          
Transactions for U.S. federal income tax purposes. Accordingly, New Grace may   
engage in a restricted transaction so long as it (i) obtains a ruling from the  
Internal Revenue Service ("IRS") or an opinion of tax counsel that the          
transaction will not adversely affect the tax-free treatment of the Transactions
and (ii) indemnifies New Sealed Air against adverse tax consequences arising    
from the transaction. See "The Reorganization and Merger -- Certain United      
States Federal Income Tax Consequences" in the Joint Proxy Statement/Prospectus.

CERTAIN ANTI-TAKEOVER PROVISIONS                                                

    The New Grace Certificate, the New Grace By-laws, the New Grace Rights and
the Delaware General Corporation Law (the "Delaware Law") contain provisions    
that could delay or prevent a change in control of New Grace in a transaction   
not approved by the New Grace Board. In addition, the New Grace Board has       
adopted certain other programs, plans and agreements with its management and/or 
employees which may make such a change of control more expensive. See           
"-- Certain Federal Income Tax Consequences" and "Certain Anti-Takeover         
Provisions."                                                                    

ENVIRONMENTAL MATTERS                                                           

     Like others in similar businesses, Grace is, and New Grace will be, subject
to extensive U.S. federal, state and local and foreign environmental laws and   
regulations. Although New Grace's environmental policies and practices are      
designed to ensure compliance with these laws and regulations, future           
developments (including increasingly stringent regulation) could require New    
Grace to make unforeseen expenditures relating to environmental matters.        
Although the amount of future expenditures for such matters cannot be determined
with any degree of certainty, based on the facts presently known to us, we do   
not believe that such costs will have a material effect on New Grace's financial
position, results of operations, or liquidity. See "Management's Discussion and 
Analysis of Results of Operations and Financial Condition -- Environmental      
Matters," included in Annexes F and G, and "Business of New Grace and Grace     
Specialty Chemicals -- Environmental, Health and Safety Matters" and "-- Legal  
Proceedings and Regulatory Matters -- Environmental Proceedings."               

COMPETITION                                                                     

New Grace's Specialty Chemicals Businesses are in highly competitive  
industries. The Specialty Chemicals Businesses are market leaders in most of    
their product lines and are subject to significant competition from other       
manufacturers worldwide. Competition is based on, among other things,           
technological capability, product performance, customer service and price.      

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THE SPIN-OFF

   In the Spin-off, holders of Grace common stock will receive a dividend of
one share of New Grace common stock for each share of Grace common stock held of
record at the Time of Spin-off. The terms and conditions of the Spin-off are set
forth in the Distribution Agreement by and among Grace, Grace Specialty         
Chemicals and New Grace (the "Distribution Agreement"), and the Agreement and   
Plan of Merger, dated as of August 14, 1997, by and among Grace, a Packaging    
Business subsidiary and Sealed Air (the "Merger Agreement," and, together with  
the Distribution Agreement and related agreements, the "Transaction             
Agreements"). See "Certain Agreements between Grace and New Grace." Following   
the Spin-off, New Grace will be the parent company of Grace Specialty Chemicals 
(which, in turn, will continue to own and operate the Specialty Chemicals       
Businesses), and New Sealed Air's operations will consist of the Packaging      
Business, which will be combined with Sealed Air in the Merger.                 

Holders of record of Grace common stock with inquiries relating to the
Spin-off should contact ChaseMellon Shareholder Services, L.L.C. (the           
"Distribution Agent") by telephone at (800) 648-8392 or should contact W. R.    
Grace & Co. in writing at One Town Center Road, Boca Raton, Florida 33486-1010  
or by telephone at (800) 354-8917.                                              

MANNER OF EFFECTING THE SPIN-OFF                                                

At the Time of Spin-off, Grace will effect the Spin-off by delivering 
certificates representing all of the issued and outstanding shares of New Grace 
common stock to the Distribution Agent, which, in turn, will distribute such    
shares on the basis of one share of New Grace common stock for each share of    
Grace common stock held of record at the Time of Spin-off. No holder of Grace   
common stock will be required to pay any cash or other consideration for the    
shares of New Grace common stock, or to surrender or exchange shares of Grace   
common stock, in order to receive shares of New Grace common stock. It is       
expected that certificates representing shares of New Grace common stock will be
mailed by the Distribution Agent to holders of Grace common stock as promptly as
practicable after the Time of Spin-off, and that such mailing will occur at     
approximately the same time as the mailing of the instructions for exchanging   
Grace stock certificates for New Sealed Air common and convertible preferred    
stock.                                                                          

    Shares Outstanding following the Spin-off.  The actual number of shares of
New Grace common stock to be distributed in the Spin-off will equal the number  
of shares of Grace common stock outstanding at the Time of Spin-off. Based upon 
the shares of Grace common stock outstanding on February 11, 1998, approximately
75,000,000 shares of New Grace common stock will be distributed in the Spin-off.
Following the Spin-off, approximately 225,000,000 shares of New Grace common    
stock will remain authorized but unissued, of which approximately 21,000,000    
will be reserved for issuance pursuant to employee and director stock plans. In 
the Spin-off and the Merger, employee stock options to purchase Grace common    
stock that are held by persons employed in the Packaging Business will be       
converted into options to purchase New Sealed Air common stock, and all other   
employee stock options to purchase Grace common stock will be converted into    
options to purchase New Grace common stock; in either case, options remaining   
outstanding following the Spin-off and the Merger will be adjusted to preserve  
their economic value. See "Management -- Executive Compensation and Employee    
Benefits following the Spin-off."                                               

  Intercompany Transactions.  Prior to the Spin-off, Grace and a Packaging
Business subsidiary will effect the Cash Transfer to the Specialty Chemicals    
Businesses by borrowing approximately $1.2 billion and transferring cash to the 
Specialty Chemicals Businesses in that amount, subject to certain adjustments as
described in the Distribution Agreement. See "Certain Agreements between Grace  
and New Grace."                                                                 

CERTAIN FEDERAL INCOME TAX CONSEQUENCES                                         

   For a description of the material U.S. federal income tax consequences of
the Transactions to Grace and Grace's stockholders, please refer to "The        
Reorganization and Merger -- Certain United States Federal Income Tax           
Consequences" in the Joint Proxy Statement/Prospectus.                          

CONDITIONS; TERMINATION                                                         

   The Spin-off is conditioned upon, among other things, (i) the approval of
the Transactions by Grace stockholders, (ii) the satisfaction or waiver of all  
conditions to the Transactions set forth in the Merger                          

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Agreement and the Distribution Agreement, and (iii) the compliance of the       
Transactions with applicable U.S. federal and state securities laws.            

     The Spin-off will be consummated immediately prior to the Recapitalization,
and the Recapitalization will be consummated immediately prior to the Merger.   
The Spin-off and the Recapitalization will each be consummated only after the   
satisfaction or waiver of all conditions to the Merger. In addition,            
consummation of the Spin-off is a condition to the consummation of the Merger.  
The Distribution Agreement may be terminated, and the Spin-off may be abandoned,
only following termination of the Merger Agreement, by and in the sole          
discretion of the Board of Directors of Grace (the "Grace Board"), without the  
approval of Grace's stockholders or any other party. See "The Reorganization and
Merger -- Conditions; Termination" in the Joint Proxy Statement/Prospectus. In  
the event of such termination or abandonment, Grace will have no liability to   
any person under the Distribution Agreement or any obligation to effect the     
Spin-off.                                                                       

RELATIONSHIPS AFTER THE SPIN-OFF                                                

 As a result of the Spin-off, New Sealed Air will cease to be affiliated
with New Grace and Grace Specialty Chemicals, and New Grace will operate as a   
separate publicly held company. After the Spin-off, shares of New Grace common  
stock will trade independently from shares of New Sealed Air common and         
convertible preferred stock. See "Certain Agreements between New Sealed Air and 
New Grace" and "Certain Relationships and Transactions."                        

LISTING AND TRADING OF NEW GRACE COMMON STOCK                                   

    The New Grace common stock is expected to be listed on the NYSE, under the
symbol "GRA." There is currently no public trading market for New Grace common  
stock. The prices at which New Grace common stock may trade prior to or         
following the Spin-off cannot be predicted. See "Certain Risk Factors -- No     
Prior Market for New Grace Common Stock." A when-issued trading market is       
expected to develop prior to the Time of Spin-off. The term "when-issued" means 
that shares can be traded before the Spin-off occurs and New Grace stock        
certificates are actually available or issued. The prices at which the shares of
New Grace common stock may trade on a when-issued basis or after the Spin-off   
cannot be predicted.                                                            

 At the Time of Spin-off, New Grace expects to have approximately 16,000
stockholders of record, based upon the number of holders of record of Grace     
common stock as of February 11, 1998. The transfer agent and registrar for the  
New Grace common stock will be ChaseMellon Shareholder Services, L.L.C. The     
number of shares covered by options to acquire Grace common stock and their     
exercise prices will be adjusted following the Spin-off to preserve the economic
value that they had prior to the Spin-off.                                      

New Grace common stock will be freely transferable, except for shares 
received by "affiliates" of New Grace under the Securities Act of 1933, as      
amended (the "Securities Act"). Persons who may be deemed to be affiliates of   
New Grace generally include its directors and executive officers, as well as any
principal stockholders of New Grace. Affiliates of New Grace may sell their     
shares of New Grace common stock only pursuant to an effective registration     
statement under the Securities Act or an exemption from the registration        
requirements of the Securities Act, such as the exemptions afforded by Section  
4(2) of the Securities Act and Rule 144 under the Securities Act. New Grace does
not currently intend to file any such registration statement under the          
Securities Act.                                                                 

REGULATORY MATTERS

Other than as described in the Joint Proxy Statement/Prospectus, all  
material U.S. federal or state and foreign regulatory approvals required in     
connection with the Spin-off have been obtained. For a discussion of U.S. and   
foreign regulatory approvals with respect to the Transactions, please refer to  
"The Reorganization and Merger -- Regulatory Matters" in the Joint Proxy        
Statement/Prospectus.                                                           

The Merger Agreement requires Grace and Sealed Air to use reasonable  
efforts to promptly make any filings or take other actions necessary to obtain  
required governmental approvals. In addition, the Distribution Agreement        
provides that Grace, Grace Specialty Chemicals and New Grace will cooperate to  
obtain all necessary consents and approvals, and to make all necessary filings  
and applications, that may be required for the consummation of the transactions 
contemplated by the Distribution Agreement.                                     

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PRO FORMA FINANCIAL INFORMATION 

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET                        

The table below shows the unaudited pro forma condensed consolidated  
balance sheet of New Grace. This balance sheet is based on the historical       
consolidated balance sheet of Grace at September 30, 1997 and assumes that the  
Transactions had occurred on that date. It is intended to give you an idea of   
what New Grace's business would have looked like had the Transactions already   
occurred.                                                                       

     It is important that you read this pro forma condensed consolidated balance
sheet together with the Consolidated Financial Statements included in Annex F,  
and the Third Quarter Financial Statements included in Annex G, to this         
Information Statement. You should not rely on this balance sheet as being       
indicative of the financial position of New Grace that would have resulted if   
the Transactions had occurred on September 30, 1997.                            

                                                        [Enlarge/Download Table]

                                                                               SEPTEMBER 30, 1997                        
                                                       ------------------------------------------------------------------
                                                                                            PRO FORMA                    
                                                                                           ADJUSTMENTS                   
                                                         GRACE         PACKAGING      ---------------------     NEW GRACE
                                                       HISTORICAL     BUSINESS(a)      DEBIT        CREDIT      PRO FORMA
                                                       ----------     -----------     --------     --------     ---------
                                                                             (DOLLARS IN MILLIONS)                       
                                                                                                                         
ASSETS                                                                                                                   
  Current Assets                                                                                                         
    Cash and cash equivalents.........................  $   66.2                      $1,240.8(b)  $1,104.2(b)           
                                                                                                      155.8(b)  $   47.0 
    Notes and accounts receivable, net................     616.0       $   272.8                                   343.2 
    Other current assets..............................     539.3           256.6           1.8(c)                  284.5 
                                                        --------                                                -------- 
        Total Current Assets..........................   1,221.5                                                   674.7 
  Properties and equipment, net.......................   1,771.5         1,082.3                                   689.2 
  Other assets........................................   1,207.0            71.7          17.5(b)                1,152.8 
                                                        --------                                                -------- 
        Total Assets..................................  $4,200.0                                                $2,516.7 
                                                        ========                                                ======== 
LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                     
  Current Liabilities                                                                                                    
    Short-term debt...................................  $   41.5                          41.5(b)               $     -- 
    Other current liabilities.........................   1,008.0           205.9                        4.8(c)     806.9 
                                                        --------                                                -------- 
        Total Current Liabilities.....................   1,049.5                                                   806.9 
  Long-term debt......................................   1,062.7                       1,062.7(b)                     -- 
  Other liabilities...................................     832.3            95.7          30.3(c)      40.8(c)     747.1 
  Noncurrent liabilities for asbestos-related                                                                            
    litigation........................................     775.5                                                   775.5 
                                                        --------                                                -------- 
        Total Liabilities.............................   3,720.0                                                 2,329.5 
                                                        --------                                                -------- 
Commitments and Contingencies                                                                                            
  Shareholders' Equity                                                                                                   
    Common stock......................................       0.8                           0.1(d)                    0.7 
    Paid in capital...................................     593.1                          33.6(d)                        
                                                                                         300.8(e)                  258.7 
    Retained earnings.................................     377.0         1,468.8         138.3(b)   1,240.8(b)           
                                                                                          13.5(c)     300.8(e)           
                                                                                         298.0(d)                     -- 
    Cumulative translation adjustments................    (154.0)          (87.0)                                  (67.0)
    Deferred compensation trust.......................      (5.2)                                                   (5.2)
    Treasury stock, at cost...........................    (331.7)                                     331.7(d)        -- 
                                                        --------                                                -------- 
        Total Shareholders' Equity....................     480.0                                                   187.2 
                                                        --------                                                -------- 
        Total Liabilities and Shareholders' Equity....  $4,200.0                                                $2,516.7 
                                                        ========                                                ======== 

    THE NOTES TO THIS UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
ARE AN INTEGRAL PART OF THE PRO FORMA FINANCIAL INFORMATION PRESENTED.          

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS              

The table below shows the unaudited pro forma condensed consolidated  
statement of operations of New Grace. This statement of operations is based on  
the historical consolidated statement of operations of Grace and assumes that   
the Transactions occurred on January 1, 1996. It is intended to give you an idea
of what New Grace's business would have looked like had the Transactions already
occurred.                                                                       

It is important that you read this pro forma condensed consolidated   
statement of operations together with the Consolidated Financial Statements     
included in Annex F, and the Third Quarter Financial Statements included in     
Annex G, to this Information Statement. You should not rely on this statement of
operations as being indicative of the historical results that New Grace would   
have had if the Transactions had already occurred, or the results that New Grace
will experience after the Transactions.                                         

                                                        [Enlarge/Download Table]

                                                             YEAR ENDED DECEMBER 31, 1996               
                                              ----------------------------------------------------------
                                                                            PRO FORMA                   
                                                                           ADJUSTMENTS                  
                                                GRACE       PACKAGING    ----------------     NEW GRACE 
                                              HISTORICAL   BUSINESS(f)   DEBIT     CREDIT     PRO FORMA 
                                              ----------   -----------   -----     ------     ----------
                                                   (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)      
                                                                                                        
Sales and revenues...........................  $ 3,454.1    $ 1,735.4                          $1,718.7 
Other income.................................       38.9          8.0                              30.9 
                                                --------     --------                          -------- 
     Total...................................    3,493.0      1,743.4                           1,749.6 
                                                --------     --------                          -------- 
Cost of goods sold and operating expenses....    2,071.0      1,079.5                             991.5 
Selling, general and administrative                                                                     
  expenses...................................      713.3        281.7                             431.6 
Depreciation and amortization................      184.4         92.0                              92.4 
Interest expense and related financing                                                                  
  costs......................................       71.6          2.0              $ 54.2(g)       15.4 
Research and development expenses............       93.9         43.5                              50.4 
Restructuring costs and asset impairments....      107.5         74.9                              32.6 
Provision relating to asbestos-related                                                                  
  liabilities and insurance coverage.........      229.1           --                             229.1 
Gain on sales of businesses..................     (326.4)          --                            (326.4)
                                                --------     --------                          -------- 
     Total...................................    3,144.4      1,573.6                           1,516.6 
                                                --------     --------                          -------- 
Income from continuing operations before                                                                
  income taxes...............................      348.6        169.8                             233.0 
Provision for income taxes...................      134.8         66.0    $19.0(h)                  87.8 
                                                --------     --------                          -------- 
Income from continuing operations............  $   213.8    $   103.8                          $  145.2 
                                                ========     ========                          ======== 
Earnings per share:                                                                                     
     Primary.................................  $    2.27                                       $   1.54 
     Fully diluted...........................  $    2.26                                       $   1.53 
Weighted average shares of common stock                                                                 
  outstanding (in thousands):                                                                           
     Primary.................................     94,085                                         94,085 
     Fully diluted...........................     94,480                                         94,480 
(CONT.)                                                                                                 

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                                                         NINE MONTHS ENDED SEPTEMBER 30, 1997           
                                              ----------------------------------------------------------
                                                                            PRO FORMA                   
                                                                           ADJUSTMENTS                  
                                                GRACE       PACKAGING    ----------------     NEW GRACE 
                                              HISTORICAL   BUSINESS(f)   DEBIT     CREDIT     PRO FORMA 
                                              ----------   -----------   -----     ------     ----------
                                                   (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)      
                                                                                                        
Sales and revenues...........................  $ 2,460.7    $ 1,346.6                          $1,114.1 
Other income.................................       36.5          3.4                              33.1 
                                                --------     --------                          -------- 
     Total...................................    2,497.2      1,350.0                           1,147.2 
                                                --------     --------                          -------- 
Cost of goods sold and operating expenses....    1,492.4        813.3                             679.1 
Selling, general and administrative                                                                     
  expenses...................................      467.9        226.7                             241.2 
Depreciation and amortization................      145.5         78.8                              66.7 
Interest expense and related financing                                                                  
  costs......................................       58.6           --              $ 51.7(g)        6.9 
Research and development expenses............       66.9         33.1                              33.8 
Restructuring costs..........................       12.4          8.4                               4.0 
Gain on sales of businesses..................     (103.1)          --                            (103.1)
                                                --------     --------                          -------- 
     Total...................................    2,140.6      1,160.3                             928.6 
                                                --------     --------                          -------- 
Income from continuing operations before                                                                
  income taxes...............................      356.6        189.7                             218.6 
Provision for income taxes...................      134.1         69.0    $18.1(h)                  83.2 
                                                --------     --------                          -------- 
Income from continuing operations............  $   222.5    $   120.7                          $  135.4 
                                                ========     ========                          ======== 
Earnings per share:                                                                                     
     Primary.................................  $    2.92                                       $   1.78 
     Fully diluted...........................  $    2.91                                       $   1.77 
Weighted average shares of common stock                                                                 
  outstanding (in thousands):                                                                           
     Primary.................................     76,180                                         76,180 
     Fully diluted...........................     76,572                                         76,572 

   THE NOTES TO THIS UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS ARE AN INTEGRAL PART OF THE PRO FORMA FINANCIAL INFORMATION          
PRESENTED.                                                                      

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS              

The table below shows the unaudited pro forma condensed consolidated  
statement of operations of New Grace for the years ended December 31, 1994 and  
1995 and the nine months ended September 30, 1996. This statement of operations 
is based on the historical consolidated statement of operations of Grace,       
adjusted to reflect the separation of the Packaging Business and an allocation  
of interest expense to the Packaging Business based on the ratio of the net     
assets of the Packaging Business to Grace's total capital. This unaudited pro   
forma condensed consolidated statement of operations also differs from the      
unaudited pro forma condensed consolidated statement of operations on the       
preceding page in that it does not give effect to the Cash Transfer or the      
resultant repayment of Grace Specialty Chemicals borrowings using funds received
in the Cash Transfer.                                                           

It is important that you read this pro forma condensed consolidated   
statement of operations together with the Consolidated Financial Statements     
included in Annex F, and the Third Quarter Financial Statements included in     
Annex G, to this Information Statement. You should not rely on this statement of
operations as being indicative of the historical results that would actually    
have resulted for New Grace had the Packaging Business been separated from Grace
on January 1, 1994.                                                             

                                                        [Enlarge/Download Table]

                                                                   YEAR ENDED DECEMBER 31, 1994               
                                                    ----------------------------------------------------------
                                                                                  PRO FORMA                   
                                                                                 ADJUSTMENTS                  
                                                      GRACE       PACKAGING    ----------------     NEW GRACE 
                                                    HISTORICAL   BUSINESS(f)   DEBIT     CREDIT     PRO FORMA 
                                                    ----------   -----------   -----     ------     ----------
                                                         (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)      
                                                                                                              
Sales and revenues................................   $ 3,128.5    $ 1,417.5                          $1,711.0 
Other income......................................        42.0          3.0                              39.0 
                                                      --------     --------                          -------- 
     Total........................................     3,170.5      1,420.5                           1,750.0 
                                                      --------     --------                          -------- 
Cost of goods sold and operating expenses.........     1,832.6        844.6                             988.0 
Selling, general and administrative expenses......       785.9        248.2                             537.7 
Depreciation and amortization.....................       164.6         59.9                             104.7 
Interest expense and related financing costs......        49.5          2.3                26.6(i)       20.6 
Research and development expenses.................        99.6         37.7                              61.9 
Provision relating to asbestos-related liabilities                                                            
  and insurance coverage..........................       316.0           --                             316.0 
                                                      --------     --------                          -------- 
     Total........................................     3,248.2      1,192.7                           2,028.9 
                                                      --------     --------                          -------- 
(Loss)/income from continuing operations before                                                               
  income taxes....................................       (77.7)       227.8                            (278.9)
(Benefit from)/provision for income taxes.........       (42.6)        78.0      9.3(h)                (111.3)
                                                      --------     --------                          -------- 
(Loss)/income from continuing operations..........   $   (35.1)   $   149.8                          $ (167.6)
                                                      ========     ========                          ======== 
Loss per share:                                                                                               
     Primary......................................   $    (.38)                                      $  (1.78)
     Fully diluted................................        --(1)                                          --(1)
Weighted average shares of common stock                                                                       
  outstanding (in thousands):                                                                                 
     Primary......................................      94,561                                         94,561 
     Fully diluted................................      94,595                                         94,595 

------------------------                                                        
(1) Not presented as the effect is anti-dilutive.                               

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                                                                   YEAR ENDED DECEMBER 31, 1995               
                                                    ----------------------------------------------------------
                                                                                  PRO FORMA                   
                                                                                 ADJUSTMENTS                  
                                                      GRACE       PACKAGING    ----------------     NEW GRACE 
                                                    HISTORICAL   BUSINESS(f)   DEBIT     CREDIT     PRO FORMA 
                                                    ----------   -----------   -----     ------     ----------
                                                         (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)      
                                                                                                              
Sales and revenues................................   $ 3,552.6    $ 1,692.1                          $1,860.5 
Other income......................................        41.2          4.3                              36.9 
                                                      --------     --------                          -------- 
     Total........................................     3,593.8      1,696.4                           1,897.4 
                                                      --------     --------                          -------- 
Cost of goods sold and operating expenses.........     2,151.2      1,023.8                           1,127.4 
Selling, general and administrative expenses......       913.7        297.0                             616.7 
Depreciation and amortization.....................       186.1         76.6                             109.5 
Interest expense and related financing costs......        71.3          3.0                41.4(i)       26.9 
Research and development expenses.................       111.6         42.8                              68.8 
Restructuring costs and asset impairments.........       169.0         17.7                             151.3 
Provision relating to asbestos-related liabilities                                                            
  and insurance coverage..........................       275.0           --                             275.0 
                                                      --------     --------                          -------- 
     Total........................................     3,877.9      1,460.9                           2,375.6 
                                                      --------     --------                          -------- 
(Loss)/income from continuing operations before                                                               
  income taxes....................................      (284.1)       235.5                            (478.2)
(Benefit from)/provision for income taxes.........      (104.5)        88.6     14.5(h)                (178.6)
                                                      --------     --------                          -------- 
(Loss)/income from continuing operations..........   $  (179.6)   $   146.9                          $ (299.6)
                                                      ========     ========                          ======== 
Loss per share:                                                                                               
     Primary......................................   $   (1.84)                                      $  (3.07)
     Fully diluted................................        --(1)                                          --(1)
Weighted average shares of common stock                                                                       
  outstanding (in thousands):                                                                                 
     Primary......................................      97,669                                         97,669 
     Fully diluted................................      98,011                                         98,011 

                                                        [Enlarge/Download Table]

                                                              NINE MONTHS ENDED SEPTEMBER 30, 1996           
                                                   ----------------------------------------------------------
                                                                                 PRO FORMA                   
                                                                                ADJUSTMENTS                  
                                                     GRACE       PACKAGING    ----------------     NEW GRACE 
                                                   HISTORICAL   BUSINESS(f)   DEBIT     CREDIT     PRO FORMA 
                                                   ----------   -----------   -----     ------     ----------
                                                        (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)      
                                                                                                             
Sales and revenues................................  $ 2,603.2    $ 1,267.0                          $1,336.2 
Other income......................................        6.3          4.6                              21.7 
                                                     --------     --------                          -------- 
     Total........................................    2,629.5      1,271.6                           1,357.9 
                                                     --------     --------                          -------- 
Cost of goods sold and operating expenses.........    1,565.7        785.9                             779.8 
Selling, general and administrative expenses......      546.5        210.7                             335.8 
Depreciation and amortization.....................      134.2         69.2                              65.0 
Interest expense and related financing costs......       54.9          1.5                37.5(i)       15.9 
Research and development expenses.................       75.0         33.2                              41.8 
Restructuring costs...............................       53.7         37.0                              16.7 
Gain on sales of businesses.......................     (326.4)          --                            (326.4)
                                                     --------     --------                          -------- 
     Total........................................    2,103.6      1,137.5                             928.6 
                                                     --------     --------                          -------- 
Income from continuing operations before income                                                              
  taxes...........................................      525.9        134.1                             429.3 
Provision for income taxes........................      192.9         43.9     13.1(h)                 162.1 
                                                     --------     --------                          -------- 
Income from continuing operations.................  $   333.0    $    90.2                          $  267.2 
                                                     ========     ========                          ======== 
Earnings per share:                                                                                          
     Primary......................................  $    3.42                                       $   2.75 
     Fully diluted................................  $    3.40                                       $   2.72 
Weighted average shares of common stock                                                                      
  outstanding (in thousands):                                                                                
     Primary......................................     97,166                                         97,166 
     Fully diluted................................     98,015                                         98,015 

---------------                                                                 
(1) Not presented as the effect is anti-dilutive.                               

   THE NOTES TO THIS UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS ARE AN INTEGRAL PART OF THE PRO FORMA FINANCIAL INFORMATION          
PRESENTED.                                                                      

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NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE 
SHEET AND STATEMENT OF OPERATIONS 
(DOLLARS IN MILLIONS, EXCEPT PAR VALUE) 
------------------------

    For accounting purposes, New Grace will receive the Cash Transfer and will
be deemed to receive a 63.0% equity interest in New Sealed Air and to           
immediately distribute such interest to the holders of Grace common stock;      
however, the receipt and distribution of the interest in New Sealed Air are not 
reflected in the pro forma condensed consolidated balance sheet and statement of
operations.                                                                     
------------------------

  (a) Reflects the separation of $1,381.8 (the net assets of the
  Packaging Business). The separation of the assets and liabilities of the
Packaging Business has been accounted for as a dividend to Grace      
  stockholders and, therefore, is not reflected in the pro forma condensed
consolidated statement of operations.                                 

(b) The Distribution Agreement provides that, prior to the  
   Transactions, Grace and a Packaging Business subsidiary will borrow funds
  and will transfer the net cash proceeds of such borrowings (estimated at
    $1,240.8, subject to adjustment as provided in the Distribution Agreement)
to Grace Specialty Chemicals; included in the Cash Transfer is        
  approximately $40.8, which represents costs to be borne by the Packaging
Business in connection with the Transactions. A substantial portion of
these proceeds is expected to be used to repay all of Grace Specialty 
  Chemicals borrowings, resulting in an aggregate reduction of $1,104.2 in
    its debt (consisting of $1,062.7 in long-term debt and $41.5 in short-term
   debt). In the event that all Grace Specialty Chemicals borrowings are not
     repaid, the pro forma condensed consolidated balance sheet would reflect an
     increase in cash and cash equivalents and debt, and the pro forma condensed
    consolidated statement of operations would reflect an increase in interest
    expense and related financing costs. The net cash proceeds remaining after
   the repayment of borrowings are expected to be used for general corporate
  purposes of New Grace. It is expected that New Grace will incur expenses
    totaling approximately $138.3 (net of $17.5 in tax benefits) in connection
with the Transactions, comprised primarily of debt retirement costs,  
non-U.S. taxes, and investment banking, legal and accounting fees.    

          (c) As provided in the Merger Agreement, New Grace will retain certain
assets and liabilities of the Packaging Business subsequent to the    
    Transactions. These retained assets and liabilities (including the related
deferred tax assets and liabilities) are primarily comprised of U.S.  
 pension plan assets and accruals related to other postretirement health
care and life insurance benefits, long-term incentive compensation,   
environmental remediation and certain tax benefits.                   

      (d) In connection with the Spin-off, holders of Grace Common Stock
  will receive one share of New Grace common stock for each share of Grace
 common stock held of record at the Time of Spin-off. The treasury stock
    held by Grace at September 30, 1997 is to be retired prior to December 31,
   1997 and therefore will not be transferred to New Grace and is eliminated
     in the pro forma adjustments. As a result of the retirement of the treasury
   stock, (i) the $331.7 of treasury stock will be eliminated, (ii) retained
  earnings will decrease by $298.0, (iii) paid in capital will decrease by
$33.6 and (iv) common stock will decrease by $0.1.                    

          (e) Represents an adjustment to eliminate a retained deficit resulting
from the Transactions and the retirement of Grace's treasury stock    
(discussed in note (d) above) against paid in capital.                

          (f) Represents the results of operations of the Packaging Business for
   the periods presented. Amounts have been derived from the Grace Packaging
   Special-Purpose Combined Financial Statements included in the Joint Proxy
Statement/Prospectus and have been adjusted to conform to Grace's     
historical classifications.                                           

      (g) For the year ended December 31, 1996, the assumed reduction in
debt as of January 1, 1996 would have the pro forma effect of reducing
   total interest expense and related financing costs by $54.2. For the nine
months ended September 30, 1997, the assumed reduction in debt as of  
January 1, 1996                                                       

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would have the pro forma effect of reducing total interest expense and
related financing costs by $51.7. The pro forma condensed consolidated
 statement of operations reflects interest expense and related financing
   costs incurred on borrowings outstanding during the respective periods in
excess of the Cash Transfer.                                          

      (h) Based on the U.S. federal statutory corporate tax rate of 35%.

      (i) In the Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the years ended December 31, 1994 and 1995 and the nine
     months ended September 30, 1996, interest expense has been allocated to the
  Packaging Business based on the ratio of the net assets of the Packaging
Business as compared to Grace's total capital, resulting in interest  
 expense of $26.6 for 1994, $41.4 for 1995 and $37.5 for the nine months
ended September 30, 1996.                                             
------------------------

    For historical financial information for Grace (including the Consolidated
Financial Statements, the Third Quarter Financial Statements and Management's   
Discussion and Analysis of Results of Operations and Financial Condition), see  
Annexes F and G to this Information Statement.                                  

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BUSINESS OF NEW GRACE AND GRACE SPECIALTY CHEMICALS 

   New Grace was incorporated in August 1997 as a wholly owned subsidiary of
Grace and currently has no assets. Prior to the Spin-off, Grace Specialty       
Chemicals will transfer the Packaging Business to a Packaging Business          
subsidiary and will distribute the stock of that subsidiary to Grace. Grace will
then contribute to New Grace all of the capital stock of Grace Specialty        
Chemicals and effect the Spin-off. Immediately following the Spin-off, the name 
of New Grace will be changed to "W. R. Grace & Co." New Grace's principal       
executive offices are located at One Town Center Road, Boca Raton, Florida      
33486-1010, and its telephone number is (561) 362-2000.                         

OVERVIEW AND STRATEGY                                                           

     Grace Specialty Chemicals is one of the world's leading specialty chemicals
companies. It began operating the Specialty Chemicals Businesses in 1954, when  
it acquired both the Dewey and Almy Chemical Company and the Davison Chemical   
Company.                                                                        

Grace Specialty Chemicals' businesses are catalysts and silica-based  
products; construction chemicals and specialty building materials; and container
sealants and coatings. Grace Specialty Chemicals believes that each of these    
businesses is an industry leader, offers high-value-added products, employs     
leading technology and has a global presence. Grace Specialty Chemicals'        
products and systems serve highly specialized market segments; accordingly,     
competition tends to be based primarily on technological capability, customer   
service, product quality, and, to a lesser extent, price. Grace Specialty       
Chemicals believes that it provides highly differentiated, superior products and
services through investments in research and development, manufacturing and     
technical facilities that enable Grace Specialty Chemicals to take advantage of 
expanding global opportunities, and technology platforms capable of providing   
multiple products to satisfy customers' specific needs.                         

   Grace Specialty Chemicals' strategy has been and, following the Spin-off,
will be to enhance stockholder value by profitably growing the Specialty        
Chemicals Businesses on a global basis and achieving high levels of financial   
performance. To achieve these objectives, Grace Specialty Chemicals plans to (i)
use the funds received in the Cash Transfer to repay borrowings and to invest in
its businesses; (ii) invest in research and development activities, with the    
goals of introducing new value-added products and services and enhancing        
manufacturing processes; (iii) make selected strategic acquisitions; and (iv)   
continue to implement process improvements and cost-management initiatives,     
including rigorous controls on working capital and capital spending. These plans
are designed to make Grace Specialty Chemicals a high-performance company       
focused on the strengths of its global specialty chemicals businesses.          

 From 1994 through 1996, Grace Specialty Chemicals' capital expenditures
totaled $561.7 million (including $178.3 million in 1996). These expenditures   
were primarily directed towards the expansion of existing facilities and the    
construction of new facilities. Grace Specialty Chemicals anticipates that its  
capital expenditures for 1997 will approximate $120 million.                    

   In the future, Grace Specialty Chemicals intends to continue its emphasis
on internal growth. In addition, it may effect acquisitions, joint ventures and 
strategic alliances that afford synergies or other benefits necessary to fulfill
strategic objectives of a business (such as a key technology or opportunities   
for geographic expansion) or that provide a combination of a close fit with an  
existing business with the potential for exceptional returns.                   

At year-end 1996, Grace Specialty Chemicals had approximately 6,000   
full-time employees worldwide in its continuing operations.                     

SPECIALTY CHEMICALS INDUSTRY OVERVIEW                                           

   Specialty chemicals, such as those produced by Grace Specialty Chemicals,
are high-value-added products used as intermediates in a wide variety of        
products and processes; they are produced in relatively small volumes and must  
satisfy well-defined performance requirements and specifications. Specialty     
chemicals are often critical components of the end products and processes in    
which they are used; consequently, they are tailored to customer needs, which   
generally results in a close relationship between the specialty chemicals       

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producer and the customer. Rapid response to changing customer needs and        
reliability of product and supply are important competitive factors in specialty
chemicals businesses.                                                           

 The management of Grace Specialty Chemicals believes that, in specialty
chemicals businesses, technological leadership (resulting from continuous       
innovation through research and development), combined with product             
differentiation and superior customer service, lead to high operating margins.  
Grace Specialty Chemicals believes that its businesses are characterized by     
market features that reward the higher research and development and customer    
service costs associated with its strategy.                                     

PRODUCTS AND MARKETS                                                            

  Catalysts and Silica-Based Products.  Grace Specialty Chemicals' Davison
unit ("Grace Davison"), founded in 1832, is composed of two primary product     
groups: (i) catalysts and (ii) silica products and adsorbents. These products   
principally apply silica, alumina and zeolite technology and are designed and   
manufactured to meet the varying specifications of such diverse customers as    
major oil refiners, plastics and chemical manufacturers, and consumer products  
companies. Grace Davison believes that its technological expertise provides a   
competitive edge, allowing it to quickly design products that meet changing     
customer specifications and to develop new products that expand its existing    
technology. For example, Grace Davison estimates that a substantial portion of  
its 1996 fluid cracking catalyst sales was attributable to products introduced  
in the previous five years.                                                     

 Grace Davison produces refinery catalysts, including (i) fluid cracking
catalysts used by petroleum refiners to convert crude oil into more valuable    
transportation fuels (such as gasoline and jet and diesel fuels) and other      
petroleum-based products, and (ii) hydroprocessing catalysts that remove certain
impurities (such as nitrogen, sulfur and heavy metals) from crude oil prior to  
the use of fluid cracking catalysts. Grace Davison also develops and            
manufactures fluid cracking catalyst additives used to reduce emissions and for 
combustion and octane enhancement. Oil refining is a highly specialized         
discipline, demanding that products be tailored to meet local variations in     
crude oil and the refinery's product output mix. Grace Davison works regularly  
with most of the approximately 360 refineries in the world, helping to find the 
most appropriate catalyst formulations for the refiners' changing needs. Grace  
Davison's business has benefited in recent years, in part, from refiners' use of
heavier crude oils, and could be adversely affected by an increase in the       
availability of lighter crude oil, which generally requires less fluid cracking 
catalysts to refine. Grace Davison's business is also affected by the capacity  
utilization of refiners' cracking units, as disproportionately greater amounts  
of fluid cracking catalysts are used at higher levels of capacity utilization.  
Competition in the refinery catalyst business is based on technology, product   
performance, customer service and price. Grace Davison believes it is one of the
world leaders in refinery catalysts and the largest supplier of fluid cracking  
catalysts in the world.                                                         

Grace Davison is a major producer of polyolefin catalysts and catalyst
supports, essential components in the manufacture of high density and linear low
density polyethylene resins used in products such as plastic film,              
high-performance plastic pipe and plastic household containers. Grace Davison   
catalysts are used in manufacturing nearly half of all such resins produced     
worldwide. The polyolefin catalyst business is technology-intensive and focused 
on providing products formulated to meet customer specifications. Manufacturers 
generally compete on a worldwide basis, and competition has recently intensified
due to evolving technologies, particularly the use of metallocenes. Grace       
Davison believes that metallocenes represent a revolutionary development in the 
making of plastics, allowing plastics manufacturers to design polymers with     
exact performance characteristics. Grace Davison is continuing to work on the   
development and commercialization of metallocene catalysts.                     

   Silica products and zeolite adsorbents produced by Grace Davison are used
in a wide variety of industrial and consumer applications. For example, silicas 
are used in coatings as flatting agents (i.e., to reduce gloss), in plastics to 
improve handling, in toothpastes as thickeners and cleaners, in foods to carry  
flavors and prevent caking, and in the purification of edible oils. Zeolite     
adsorbents are used between the two panes of insulated glass to adsorb moisture 
and are used in process applications to separate certain chemical components    
from mixtures. Competition is based on product performance, customer service and
price.                                                                          

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    Grace Davison's sales and revenues were $732 million in 1996, $700 million
in 1995 and $615 million in 1994; approximately 51% of Grace Davison's 1996     
sales and revenues were generated in North America, 35% in Europe, 12% in Asia  
Pacific and 2% in Latin America. Sales of catalysts accounted for 26% of the    
total sales and revenues of Grace Specialty Chemicals' continuing operations in 
1996, 23% in 1995 and 22% in 1994. Sales of silica products and zeolite         
adsorbents accounted for 17% of the total sales and revenues of Grace Specialty 
Chemicals' continuing operations in 1996, 14% in 1995 and 13% in 1994. At       
year-end 1996, Davison employed approximately 2,700 people worldwide in 10      
facilities (six in the U.S. and one each in Canada, Germany, Brazil and         
Malaysia). Grace Davison's principal U.S. manufacturing facilities are located  
in Baltimore, Maryland and Lake Charles, Louisiana. Grace Davison has a direct  
selling force and distributes its products directly to over 19,000 customers,   
the largest of which accounted for approximately 6% of Grace Davison's 1996     
sales and revenues.                                                             

  Most raw materials used in the manufacture of Grace Davison products are
available from multiple sources, and, in some instances, are produced by Grace  
Davison. Because of the diverse applications of products using Grace Davison    
technology and the geographic areas in which such products are used, seasonality
does not have a significant effect on Grace Davison's businesses.               

  Construction Products.  Grace Specialty Chemicals' construction products
business ("Grace Construction Products") is a leading supplier of specialty     
chemicals and building materials to the nonresidential (commercial and          
government) construction industry, and to a lesser extent, the residential      
construction industry. Its products fall into two main groups: (i) specialty    
construction chemicals (principally concrete admixtures, cement additives and   
masonry products) that add strength, control corrosion, and enhance the handling
and application of concrete; and (ii) specialty building materials that prevent 
water damage to structures (such as water- and ice-proofing products for        
residential use and waterproofing systems for commercial structures) and protect
structural steel against collapse due to fire. In North America, Grace          
Construction Products also manufactures and distributes vermiculite products    
used in construction and other industrial applications.                         

 Grace Construction Products has introduced a number of new products and
product enhancements in recent years. These new products and enhancements       
include an admixture that reduces concrete shrinkage and helps prevent cracking;
a product that enables contractors to pour and "work" concrete in colder        
temperatures; an admixture that inhibits corrosion and prolongs the life of     
concrete structures; new roof underlayments that provide added protection from  
ice and wind-driven rain; and enhancements to fireproofing products that make   
Grace Construction Products' fireproofing systems more price-competitive for    
smaller jobs. In addition to customer acceptance of these and other product     
introductions, Grace Construction Products' growth is dependent on the          
advancement of less developed economies (since, as economies develop, they      
typically increase their usage of ready-mix concrete, which allows for the      
application of more concrete admixtures).                                       

The materials produced by Grace Construction Products are sold to an  
extremely broad range of customers, including cement manufacturers, ready-mix   
and pre-stressed concrete producers, local contractors, specialty subcontractors
and applicators, masonry block manufacturers, building materials distributors   
and other industrial manufacturers, as well as construction specifiers, such as 
architects and structural engineers. For some of these customer groups (such as 
contractors), cost and ease of application are the key factors in making        
purchasing decisions; for others (such as architects and structural engineers), 
product performance and adaptability are the critical factors. In view of this  
diversity, and because Grace Construction Products' business requires intensive 
sales and customer service efforts, Grace Construction Products maintains a     
separate sales and technical support team for each of its product groups. This  
sales and support team sells products under global contracts, under U.S. or     
regional contracts and on a job-by-job basis. Consequently, Grace Construction  
Products competes globally with several large construction materials suppliers  
and regionally and locally with numerous smaller competitors. In recent years,  
the cement manufacturing business and the contracting business have experienced 
substantial consolidation, particularly in markets outside the U.S. Competition 
is based largely on technical support and service, product performance,         
adaptability of the product and price.                                          

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   Grace Construction Products' 1996 sales and revenues totaled $435 million
(64% in North America, 19% in Asia Pacific, 17% in Europe and less than 1% in   
Latin America), versus $397 million in 1995 and $387 million in 1994. Sales of  
specialty construction chemicals accounted for 15% of the total sales and       
revenues of Grace Specialty Chemicals' continuing operations in 1996, 12% in    
1995 and 11% in 1994. In addition, sales of specialty building materials        
accounted for 11% of the total sales and revenues of Grace Specialty Chemicals' 
continuing operations in 1996, 9% in 1995 and 11% in 1994. At year-end 1996,    
Grace Construction Products employed approximately 1,900 people at 56 production
facilities (26 in North America, 11 in Southeast Asia, seven in each of         
Australia/New Zealand and Europe, four in Latin America and one in Japan) and 76
sales offices worldwide. Grace Construction Products' capital expenditures tend 
to be relatively lower, and sales and marketing expenditures tend to be         
relatively higher, than those of Grace Specialty Chemicals' other businesses.   

   The construction business is cyclical, in response to economic conditions
and construction demand. The construction market experienced slow but steady    
growth through 1996 and into 1997 from a cyclical low in 1991. During this time,
management of Grace Construction Products has focused its efforts on            
streamlining its range of products by introducing new higher-value products,    
eliminating lower-growth and lower-margin products and reducing costs. For      
example, during this period, Grace Construction Products restructured its global
research activities and implemented a lower cost structure by consolidating     
manufacturing operations and streamlining its management structure. The         
construction business is also seasonal due to weather conditions. Grace         
Construction Products seeks to increase profitability and minimize the impact of
cyclical and seasonal downturns in regional economies by introducing technically
advanced value-added products, expanding geographically, and developing business
opportunities in renovation construction markets. However, there can be no      
assurance that Grace Construction Products' attempts to minimize the impact of  
the cyclicality and seasonality of the construction business will succeed, and  
such cyclicality and seasonality could adversely affect Grace Construction      
Products' business and results of operations.                                   

    The raw materials used by Grace Construction Products can be obtained from
multiple sources, including commodity chemical producers, petroleum companies   
and paper manufacturers. In most instances, there are at least two alternative  
suppliers for each of the principal raw materials used by Grace Construction    
Products. The worldwide supply of calcium lignin, a wood pulping by-product used
as a raw material in the production of concrete admixtures, had been decreasing 
as paper mills converted to new manufacturing processes. In 1996, additional    
supplies of calcium lignin became available, alleviating the shortage. However, 
there is no assurance that the additional supplies will remain available in     
sufficient quantities or at satisfactory prices.                                

Container Sealants and Coatings.  Grace Specialty Chemicals' container
sealants and coatings business ("Darex Container Products") consists primarily  
of three product lines: container sealants, closure sealants and coatings for   
metal packaging. Container sealants are applied to food and beverage cans, as   
well as to other rigid containers (such as industrial product containers and    
aerosol cans), to ensure a hermetic seal between the lid and the body of the    
container. Closure sealants are used to seal pry-off and twist-off metal crowns,
as well as roll-on pilfer proof and plastic closures, for the glass and plastic 
container markets (primarily in beverage and food applications). Coatings are   
used in the manufacture of cans and closures to protect the metal against       
corrosion, to protect the contents against the influences of metal, to ensure   
proper adhesion of sealing compounds to metal surfaces, and to provide base     
coats for inks and for decorative purposes. These products are principally sold 
to third parties that manufacture containers or perform canning and bottling for
food and beverage companies. Darex Container Products is expanding its product  
offering and is seeking to improve sales growth through new technologies, such  
as its oxygen-scavenging compounds. These new compounds are combined with       
closure sealants to eliminate oxygen in capped beer and beverage bottles, which 
management believes significantly extends shelf life of the product. Darex      
Container Products is commercially producing oxygen-scavenging compounds for    
several breweries and is testing such compounds with other breweries. Darex     
Container Products is also expanding in developing regions. However, future     
sales growth will likely be impacted by the trend toward can systems requiring  
fewer seams, as well as the increasing use of plastic and glass containers.     
Competition is based on providing high-quality customer service at customer     
sites, as well as on price, quality and reliability. In addition, because of the
relative concentration of the canning and bottling market, maintaining          
relationships with leading container manufacturers, canners and                 

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bottlers, and assisting them as they install new production equipment and       
reengineer processes, are key elements for success.                             

 Darex Container Products' sales and revenues were $275 million in 1996,
$280 million in 1995 and $253 million in 1994. Its products are marketed        
internationally, with 37% of 1996 sales and revenues in Europe, 24% in North    
America, 23% in Asia Pacific and 16% in Latin America. At year-end 1996, Darex  
Container Products employed approximately 1,400 people at 21 production         
facilities (seven in each of Latin America and Asia Pacific, four in North      
America and three in Europe) and 37 sales offices worldwide. Although the raw   
materials used in Darex Container Products' operations, including resins, rubber
and latices, are generally available from multiple sources, the prices of       
certain raw materials experienced upward pressure during most of 1996 and, to a 
lesser extent, 1997. Darex Container Products is seeking to establish global    
supply arrangements that would tend to alleviate this pressure; however, no     
assurance can be given that such arrangements can be entered into on acceptable 
terms. Although demand for container packaging and sealant products tends to    
increase slightly during the second and third quarters, the impact of such      
seasonality is not significant to Darex Container Products.                     

   Grace Specialty Chemicals is considering strategic alternatives for Darex
Container Products. These alternatives include acquiring one or more            
complementary businesses; entering into joint ventures or other combinations    
with such businesses; or selling Darex Container Products. However, there is no 
assurance as to whether or when any of these strategic alternatives will be     
accomplished.                                                                   

RESEARCH ACTIVITIES                                                             

Grace Specialty Chemicals engages in research and development programs
directed toward the development of new products and processes, and the          
improvement of, and development of new uses for, existing products and          
processes. Research is carried out by product line laboratories in North        
America, Europe, Asia and Latin America and includes research in catalysts and  
construction materials. Grace Specialty Chemicals' research and development     
strategy will be to develop technology platforms on which new products will be  
based, while focusing development efforts in each business unit on the          
improvement of existing products and/or the adaptation of existing products to  
customer needs.                                                                 

Research and development expenses relating to continuing operations   
amounted to $50 million in 1996, $66 million in 1995 and $62 million in 1994    
(including expenses incurred in funding external research projects). The amount 
of research and development expenses relating to government- and                
customer-sponsored projects (as opposed to projects sponsored by Grace Specialty
Chemicals) was not material.                                                    

PATENTS AND OTHER INTELLECTUAL PROPERTY MATTERS                                 

Grace Specialty Chemicals relies on numerous patents and patent       
applications, as well as know-how and other proprietary information. As         
competition in the markets in which Grace Specialty Chemicals does business is  
often based on technological superiority and innovation, with new products being
introduced frequently, the ability to achieve technological innovations and to  
obtain patent or other intellectual property protection is important. There can 
be no assurance that Grace Specialty Chemicals' patents, patent applications or 
other intellectual property will provide sufficient proprietary protection. In  
addition, other companies may independently develop similar systems or processes
that circumvent patents issued to Grace Specialty Chemicals, or may acquire     
patent rights within the fields of Grace Specialty Chemicals' businesses.       

ENVIRONMENTAL, HEALTH AND SAFETY MATTERS                                        

 Manufacturers of specialty chemical products, including Grace Specialty
Chemicals, are subject to stringent regulations under numerous U.S. federal,    
state and local and foreign environmental, health and safety laws and           
regulations relating to the generation, storage, handling, discharge and        
disposition of hazardous wastes and other materials. Grace Specialty Chemicals  
has expended substantial funds in order to comply with such laws and regulations
and expects to continue to do so in the future. The following table sets forth  
Grace Specialty Chemicals' expenditures in the past three years, and its        
estimated expenditures in 1997 and 1998, for (i) the operation and maintenance  
of environmental facilities and the disposal of wastes with respect             

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to continuing operations; (ii) capital expenditures for environmental control   
facilities relating to continuing operations; and (iii) site remediation:       

                                                                [Download Table]

                                           (I)                                    
                                       OPERATION OF          (II)         (III)   
                                      FACILITIES AND       CAPITAL        SITE    
                                      WASTE DISPOSAL     EXPENDITURES  REMEDIATION
                                      --------------     ------------  -----------
                                                      ($ IN MILLIONS)             
                                                                                  
1994.................................      $ 28              $ 16          $31    
1995.................................        34                12           31    
1996.................................        33                10           20    
1997 (est.)..........................        33                 7           34    
1998 (est.)..........................        35                 9           39    

 Additional material environmental costs may arise as a result of future
legislation or other developments. Grace Specialty Chemicals' earnings,         
competitive position and other capital expenditures have not been, and are not  
expected to be, materially adversely affected by compliance with environmental  
requirements. See "Management's Discussion and Analysis of Results of Operations
and Financial Condition," included in Annexes F and G.                          

With the goal of continuously improving Grace Specialty Chemicals'    
environmental, health and safety ("EHS") performance, Grace established its     
Commitment to Care(TM) initiative (based on the Responsible Care(R) program of  
the Chemical Manufacturers Association) in 1994 as the program under which all  
Grace Specialty Chemicals' EHS activities are to be implemented. To the extent  
applicable, Commitment to Care extends the basic elements of Responsible Care to
all Grace Specialty Chemicals locations worldwide, embracing specific           
performance objectives in the key areas of product stewardship, employee health 
and safety, community awareness and emergency response, distribution, process   
safety and pollution prevention.                                                

See "-- Legal Proceedings and Regulatory Matters" for information     
concerning environmental proceedings to which Grace Specialty Chemicals is a    
party and "Management's Discussion and Analysis of Results of Operations and    
Financial Condition," included in Annexes F and G, for additional information   
concerning environmental matters.                                               

LEGAL PROCEEDINGS AND REGULATORY MATTERS                                        

    Asbestos Litigation.  Grace Specialty Chemicals is a defendant in property
damage and personal injury lawsuits relating to previously sold                 
asbestos-containing products and anticipates that it will be named as a         
defendant in additional asbestos-related lawsuits in the future. Grace Specialty
Chemicals was a defendant in approximately 43,700 asbestos-related lawsuits at  
September 30, 1997 (17 involving claims for property damage and the remainder   
involving approximately 105,800 claims for personal injury), as compared to     
approximately 41,500 lawsuits at year-end 1996 (31 involving claims for property
damage and the remainder involving approximately 91,500 claims for personal     
injury). In most of these lawsuits, Grace Specialty Chemicals is one of many    
defendants.                                                                     

The plaintiffs in property damage lawsuits generally seek to have the 
defendants absorb the cost of removing, containing or repairing the             
asbestos-containing materials in the affected buildings. Through September 30,  
1997, 139 asbestos property damage cases were dismissed without payment of any  
damages or settlement amounts; judgments were entered in favor of Grace         
Specialty Chemicals in nine cases (excluding cases settled following appeals of 
judgments in favor of Grace Specialty Chemicals); judgments were entered in     
favor of the plaintiffs in seven cases for a total of $60.3 million (none of    
which is on appeal); and 195 property damage cases were settled for a total of  
$476.6 million.                                                                 

Included in the asbestos property damage cases pending against Grace  
Specialty Chemicals and others at September 30, 1997 were the following class   
actions: (i) an action, conditionally certified by the U.S. Court of Appeals for
the Fourth Circuit in 1993 and pending in the U.S. District Court for the       
District of South Carolina, covering all public and private colleges and        
universities in the U.S. whose buildings contain asbestos materials (Central    
Wesleyan College, et al. v. W. R. Grace, et al.); and (ii) a purported class    
action (Anderson                                                                

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Memorial Hospital, et al. v. W. R. Grace & Co., et al.), filed in 1992, in the  
Court of Common Pleas for Hampton County, South Carolina, on behalf of all      
entities that own, in whole or in part, any building containing asbestos        
materials manufactured by Grace Specialty Chemicals or one of the other named   
defendants, other than buildings subject to the class action lawsuit described  
above and any building owned by the federal or any state government. In July    
1994, the claims of most class members in Anderson Memorial Hospital, et al. v. 
W. R. Grace & Co., et al. were dismissed due to a ruling that a South Carolina  
statute prohibits nonresidents from pursuing claims in the South Carolina state 
courts with respect to buildings located outside the state. The plaintiffs have 
requested that the court reconsider its decision.                               

   Through September 30, 1997, approximately 12,600 personal injury lawsuits
involving 29,100 claims were dismissed without payment of any damages or        
settlement amounts (primarily on the basis that Grace Specialty Chemicals       
products were not involved), and approximately 34,100 such suits involving      
approximately 71,300 claims were disposed of for a total of $212.1 million. See 
"-- Insurance Litigation."                                                      

  In 1991, the Judicial Panel on Multi-District Litigation consolidated in
the U.S. District Court for the Eastern District of Pennsylvania, for pre-trial 
purposes, all asbestos personal injury cases pending in the U.S. federal courts,
including approximately 7,000 cases then pending against Grace Specialty        
Chemicals; 3,600 new cases involving 7,200 claims against Grace Specialty       
Chemicals have subsequently been added to the consolidated cases. To date, no   
action has been taken by the court handling the consolidated cases that would   
indicate whether the consolidation will affect Grace Specialty Chemicals' cost  
of disposing of these cases or its defense costs.                               

Grace Specialty Chemicals previously purchased insurance policies with
respect to its asbestos-related lawsuits and claims. Grace Specialty Chemicals  
has settled with and been paid by its primary insurance carriers with respect to
both property damage and personal injury cases and claims. Grace Specialty      
Chemicals also has settled with its excess insurance carriers that wrote        
policies available for property damage cases; those settlements involve amounts 
paid and to be paid to Grace Specialty Chemicals. In addition, Grace Specialty  
Chemicals has settled with many excess insurance carriers that wrote policies   
available for personal injury claims. Grace Specialty Chemicals is currently in 
litigation with certain remaining excess insurance carriers whose policies      
generally represent layers of coverage Grace Specialty Chemicals has not yet    
reached. Such policies are believed by Grace Specialty Chemicals to be available
for asbestos-related personal injury lawsuits. Insurance coverage for           
asbestos-related liabilities has not been commercially available since 1985.    

  Grace Specialty Chemicals' aggregate accrual for asbestos liabilities at
September 30, 1997, was $910.5 million; this amount reflects all                
asbestos-related property damage and personal injury cases and claims then      
pending (except for one property damage case as to which liability is not yet   
estimable because Grace Specialty Chemicals has not yet been able to obtain     
sufficient information through discovery proceedings), as well as personal      
injury claims expected to be filed through 2001. Grace Specialty Chemicals'     
ultimate exposure with respect to its asbestos-related cases and claims will    
depend on the number and nature of claims filed and the extent to which         
insurance will cover damages for which it may be liable, amounts paid in        
settlement and litigation costs. At September 30, 1997, Grace Specialty         
Chemicals had recorded a receivable of $328.4 million, the amount Grace         
Specialty Chemicals estimated to be the probable recovery from its insurance    
carriers with respect to pending and projected asbestos cases and claims. A May 
1994 decision of the U.S. Court of Appeals for the Second Circuit limited the   
amount of insurance coverage available to Grace Specialty Chemicals with respect
to property damage cases. Because Grace Specialty Chemicals' insurance covers   
both property damage and personal injury cases and claims, the May 1994 decision
has had the concomitant effect of reducing the insurance coverage available with
respect to Grace Specialty Chemicals' asbestos personal injury claims. However, 
in Grace Specialty Chemicals' opinion (which is not based on a formal opinion of
counsel), it is probable that recoveries from its insurance carriers, along with
other funds, will be available to satisfy the property damage and personal      
injury cases and claims pending at September 30, 1997, as well as personal      
injury claims expected to be filed in the foreseeable future. Consequently,     
Grace Specialty Chemicals believes that the resolution of its asbestos-related  
litigation will not have a material adverse effect on its consolidated financial
position.                                                                       

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See "-- Insurance Litigation" and Note 2 to the Consolidated Financial
Statements and Note 2 to the Third Quarter Financial Statements, included in    
Annexes F and G, respectively, to this Information Statement, for additional    
information.                                                                    

    Environmental Proceedings.  The following is a description of the material
environmental proceedings in which Grace Specialty Chemicals is involved:       

    Grace Specialty Chemicals (together with certain other companies) has been
designated a "potentially responsible party" ("PRP") by the U.S. Environmental  
Protection Agency ("EPA") with respect to absorbing the costs of investigating  
and remediating pollution at various sites. At year-end 1996, proceedings were  
pending with respect to approximately 30 sites as to which Grace has been       
designated a PRP. U.S. federal law provides that all PRPs may be held jointly   
and severally liable for the costs of investigating and remediating a site.     
Grace Specialty Chemicals is also conducting investigatory and remediation      
activities at sites under the jurisdiction of state and/or local authorities.   

     In November 1995, Grace Specialty Chemicals received a letter from the U.S.
Department of Energy ("DOE") inquiring as to Grace Specialty Chemicals'         
willingness to contribute to the continued cleanup of a former Grace Specialty  
Chemicals property located in Wayne, New Jersey. The letter asserted that Grace 
Specialty Chemicals has a legal duty to pay for the cleanup and that the total  
cost of cleanup may exceed $100 million. The operations conducted by Grace      
Specialty Chemicals at the Wayne site (from 1955 to 1970) included work done on 
radioactive materials under contract with the U.S. government. In 1975, the U.S.
Nuclear Regulatory Commission inspected the site, concluded that it was         
decontaminated in accordance with applicable regulations and released it for    
unrestricted use. In 1984, pursuant to a request from the DOE, Grace Specialty  
Chemicals transferred the Wayne property to the DOE and made a cash payment as a
contribution towards the DOE's cleanup efforts at the site, which was           
acknowledged by the DOE as fulfilling any obligation Grace Specialty Chemicals  
had to contribute to the DOE's cleanup effort while preserving the rights and   
liabilities of the parties under other existing applicable laws. Grace Specialty
Chemicals believes that the resolution of the DOE's claim will not have a       
material adverse effect on its consolidated financial position.                 

  Grace Specialty Chemicals is a party to additional proceedings involving
U.S. federal, state and/or local government agencies and private parties        
regarding Grace Specialty Chemicals' compliance with environmental laws and     
regulations. These proceedings are not expected to result in significant        
sanctions or in any material liability. However, Grace Specialty Chemicals may  
incur material liability in connection with future actions of governmental      
agencies or private parties relating to past or future practices of Grace       
Specialty Chemicals with respect to the generation, storage, handling, discharge
or disposition of hazardous wastes and other materials.                         

   Grace Specialty Chemicals believes that the liabilities for environmental
remediation costs, including costs relating to environmental proceedings, that  
have been recorded in Grace's historical financial statements are adequate. In  
addition, Grace Specialty Chemicals is presently involved in litigation with its
insurance carriers seeking to hold them responsible for certain amounts for     
which Grace Specialty Chemicals may be held liable with respect to such costs.  
The outcome of such litigation, as well as the amounts of any recoveries that   
Grace Specialty Chemicals may receive in connection therewith, is presently     
uncertain. However, Grace Specialty Chemicals believes that the resolution of   
pending environmental proceedings will not have a material adverse effect on the
consolidated financial position or liquidity of New Grace. For further          
information, see "Management's Discussion and Analysis of Results of Operations 
and Financial Condition," included in Annexes F and G.                          

    Insurance Litigation.  Grace Specialty Chemicals is involved in litigation
with certain of its insurance carriers with respect to asbestos-related         
insurance claims and environmental liabilities. The relief sought by Grace      
Specialty Chemicals in these actions would provide insurance that would         
partially offset Grace Specialty Chemicals' estimated exposure with respect to  
amounts previously expended, and that may be expended in the future, by Grace   
Specialty Chemicals to defend claims, satisfy judgments and fund settlements.   
Grace Specialty Chemicals has settled all of its asbestos-related insurance     
coverage actions, with the exception of Maryland Casualty Co. v. W. R. Grace &  
Co., pending in the U.S. District Court for the Southern District of New York.  
The District Court has not yet addressed Grace Specialty Chemicals' claims for  
insurance coverage for its asbestos-related personal injury liabilities.        

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   Prior to 1993, Grace Specialty Chemicals received from insurance carriers
payments totaling $97.7 million, the majority of which represented the aggregate
remaining obligations owed to Grace Specialty Chemicals by those carriers for   
primary-level insurance coverage written for the period from June 30, 1962      
through June 30, 1987. In 1993 and 1994, Grace Specialty Chemicals settled with 
insurance carriers for a total of $300.2 million (portions of which were paid or
will be paid in subsequent years), in reimbursement for amounts expended by     
Grace Specialty Chemicals in connection with asbestos-related litigation. In    
1995, Grace Specialty Chemicals settled with a primary-level insurer for $100   
million, and with other insurers for a total of $200.3 million, including future
payments of approximately $70 million. In 1996, Grace Specialty Chemicals       
settled with additional excess-level insurers for a total of $110.5 million     
(including $19.2 million to be received over the next five years) with respect  
to both product liability and other coverage. As a result of these settlements, 
Grace Specialty Chemicals' asbestos-related insurance claims have been dismissed
as to the primary-level product liability insurance coverage previously sold by 
the relevant insurers to Grace Specialty Chemicals, as well as to many of Grace 
Specialty Chemicals' excess-level liability insurers.                           

  Grace's only two environmental insurance coverage actions are pending in
the U.S. District Court for the Southern District of New York. The first is     
styled Maryland Casualty Co. v. W. R. Grace & Co. Litigation continues in this  
case as to certain primary-level and excess-level carriers that have not settled
with respect to claims for environmental property damage. The second case,      
entitled Uniguard v. W. R. Grace, was filed on December 17, 1997. This          
declaratory judgment action seeks a determination concerning the liability of   
one excess carrier for bodily injury claims as a result of environmental        
contamination.                                                                  

See "Management's Discussion and Analysis of Results of Operations and
Financial Condition," included in Annexes F and G, for additional information.  

Fumed Silica Plant Litigation.  In 1993, Grace Specialty Chemicals and
certain of its subsidiaries initiated legal action in the Belgian courts against
the Flemish government to recover losses resulting from the closing of one      
subsidiary's fumed silica plant in Puurs, Belgium. The action seeks damages in  
excess of four billion Belgian francs (approximately $126.1 million at the      
December 31, 1996 exchange rate), plus interest and lost profits. This claim was
dismissed at the trial court level and is now being appealed. The trial court   
also determined that a subsidiary should repay approximately 239 million Belgian
francs (approximately $7.5 million at the December 31, 1996 exchange rate), plus
interest, to the Flemish government for previously received investment grants;  
this decision is also being appealed.                                           

U.S. Justice Department Lawsuit.  The U.S. Justice Department has     
intervened in a qui tam lawsuit, originally filed in June 1995, pending in the  
U.S. District Court for the Northern District of California (United States ex   
rel. Robert Costa and Ronald Thornburg, et al. v. Baker & Taylor, Inc., et al.).
The complaint in this lawsuit alleges that Baker & Taylor Books, a book         
wholesaler sold by Grace in 1992, overcharged public schools, libraries and     
federal agencies during the last ten years, including the period during which   
Baker & Taylor Books was owned by Grace. Grace and Baker & Taylor, Inc. (the    
entity that currently operates Baker & Taylor Books) have been named as         
defendants. The lawsuit seeks unspecified damages, punitive damages and civil   
penalties, as well as attorneys' fees and expenses and such other relief as the 
Court may deem proper. At this time, Grace is unable to determine the liability,
if any, to which it may be subject as a result of this lawsuit.                 

Stockholder Litigation.  W. R. Grace & Co., a New York corporation    
subsequently renamed Fresenius Medical Care Holdings, Inc. ("Grace New York"),  
and former members of the Grace New York Board of Directors (as well as J. P.   
Bolduc, who resigned as president and chief executive officer and a director of 
Grace New York in March 1995) are defendants in a case entitled Weiser, et al.  
v. Grace, et al. pending in New York State Supreme Court, New York County. The  
consolidated amended complaint in this lawsuit, which purports to be a          
derivative action (i.e., an action brought on behalf of Grace New York),        
alleges, among other things, that the individual defendants breached their      
fiduciary duties to Grace New York (i) by providing J. Peter Grace, Jr. (the    
chairman and a director of Grace New York until his death in April 1995) with   
certain compensation arrangements upon his voluntary retirement as Grace New    
York's chief executive officer in 1992 and (ii) by approving Mr. Bolduc's       
severance arrangements, and that Messrs. Grace and Bolduc breached their        
fiduciary duties by accepting such benefits and payments. The lawsuit seeks     
unspecified                                                                     

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damages, the cancellation of all allegedly improper agreements, the cancellation
of a retirement plan for nonemployee directors (which was terminated by Grace in
1997), the return of all remuneration paid to the directors who are defendants  
while they were in breach of their fiduciary duties to Grace New York,          
attorneys' and experts' fees and costs, and such other relief as the Court deems
proper. A motion to intervene in the case by the California Public Employees'   
Retirement System was granted by the Court in September 1996. Grace has         
appointed a special committee of independent directors to investigate the       
allegations made in the Weiser action and determine whether they should be      
dismissed, pursued or compromised. In January 1998, the special committee       
resolved to seek the dismissal of the Weiser action. Any such dismissal is      
subject to court approval.                                                      

Under the terms of the Distribution Agreement ("NMC Distribution      
Agreement") entered into in connection with the reorganization of Grace New York
in September 1996 (the "NMC Transaction") described in Note 1 to the            
Consolidated Financial Statements, Grace Specialty Chemicals remains financially
responsible for any liabilities incurred by Grace New York and others as a      
result of this lawsuit, including the fees and disbursements of counsel for     
Grace Specialty Chemicals and, subject to certain conditions, counsel for the   
individual defendants (including certain current and former directors of Grace).
The discussions of the NMC Distribution Agreement appearing above and in the    
following paragraphs do not purport to be complete and are qualified in their   
entirety by reference to the NMC Distribution Agreement, which was filed as an  
exhibit to the Joint Proxy Statement-Prospectus of Grace New York dated August  
2, 1996.                                                                        

     Securities and Exchange Commission Investigations.  In 1995, the Securities
and Exchange Commission ("SEC") began a formal investigation with respect to    
Grace New York's prior disclosures regarding benefits and retirement            
arrangements provided to J. Peter Grace, Jr. and certain matters relating to J. 
Peter Grace III, a son of J. Peter Grace, Jr. On September 30, 1997, Grace      
consented to the entry of a cease-and-desist order in settlement of this        
investigation. Under the order, Grace (without admitting or denying the matters 
set forth therein) agreed to cease and desist from further violations of        
Sections 13(a) and 14(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules thereunder. No penalties or fines were assessed  
under the order, and Grace has been advised that the investigation has been     
closed.                                                                         

In April 1996, Grace New York received a formal order of investigation
issued by the SEC directing an investigation into, among other things, whether  
Grace New York violated the U.S. federal securities laws by filing periodic     
reports with the SEC that contained false and misleading financial information. 
Pursuant to this formal order of investigation, Grace New York has provided     
information to the SEC relating to reserves (net of applicable taxes)           
established by Grace New York and its subsidiary, National Medical Care, Inc.   
("NMC"), during the period from January 1, 1990 to 1996 (the "Covered Period"). 
All financial statements filed by Grace New York with the SEC during the Covered
Period (other than unaudited quarterly financial statements), the financial     
statements of NMC included in the NMC Form 10 filed with the SEC in September   
1995, and the Consolidated Financial Statements were covered by unqualified     
opinions issued by Price Waterhouse LLP, independent certified public           
accountants. In connection with the preparation of the September 1995 Form 10,  
NMC reversed the unallocated reserves established 1990, 1991, 1992 and 1993 that
are a subject of this investigation and established reserves in an approximately
equal amount with respect to NMC's investment in Cross Country Healthcare       
Personnel, Inc. and in its German renal products manufacturing facilities for   
fiscal years 1992 and 1994.                                                     

Under the terms of the NMC Distribution Agreement, Grace Specialty    
Chemicals remains financially responsible for any liabilities incurred by Grace 
New York and others as a result of the investigation described above, including 
the fees and disbursements of counsel for Grace Specialty Chemicals and, subject
to certain conditions, counsel for certain former directors and officers of     
Grace.                                                                          

 Claims Relating to NMC.  Grace New York and certain of its officers and
directors are defendants in a lawsuit entitled Murphy, et al. v. W. R. Grace &  
Co., et al., which is pending in the U.S. District Court for the Southern       
District of New York. The first amended class action complaint in this lawsuit, 
which purports to be a class action on behalf of all persons and entities who   
purchased Grace New York's publicly traded securities during the period from    
March 13, 1995 through October 17, 1995 (the "Class Period"), generally alleges 
that                                                                            

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the defendants concealed information, and issued misleading public statements   
and reports, concerning NMC's financial position and business prospects, a      
proposed spin-off of NMC and the matters that are the subject of investigations 
of NMC by the Office of the Inspector General of the U.S. Department of Health  
and Human Services (the "OIG"), in violation of U.S. federal securities laws.   
The lawsuit seeks unspecified damages, attorneys' and experts' fees and costs   
and such other relief as the Court deems proper.                                

  Grace New York and certain of its former officers and directors are also
defendants in a purported derivative action in the U.S. District Court for the  
Southern District of New York (Bennett v. Bolduc, et al.), alleging that such   
individuals breached their fiduciary duties by failing to properly supervise the
activities of NMC in the conduct of its business. The Bennett action seeks      
unspecified damages, attorneys' and experts' fees and costs and such other      
relief as the Court deems proper. A third derivative action relating to NMC     
entitled Bauer v. Bolduc, et al. was filed in October 1995 in the Supreme Court 
of the State of New York for the County of New York. The Bauer action has been  
stayed in favor of the Bennett action.                                          

  Grace and other defendants in the Murphy, Bennett and Bauer actions have
agreed with the plaintiffs to settle those actions. The agreement provides for  
the establishment of a fund of approximately $32 million (less plaintiffs'      
attorneys' fees) to compensate a class of stockholders consisting of purchasers 
of Grace New York stock during the Class Period. As part of the settlements, the
insurance carrier for the directors and officers will cause $10 million to be   
paid to Grace Specialty Chemicals on behalf of the individual defendants named  
in the Murphy, Bennett and Bauer actions. The settlements are contingent upon   
court approval. The net payment to be made by Grace Specialty Chemicals in      
connection with these settlements will be charged against previously established
reserves.                                                                       

Under the terms of the NMC Distribution Agreement, Grace Specialty    
Chemicals remains financially responsible for any liabilities incurred by Grace 
New York and others as a result of the lawsuits described above, including the  
fees and disbursements of counsel for Grace Specialty Chemicals and, subject to 
certain conditions, counsel for the individual defendants (including certain    
former directors and officers of Grace). The NMC Distribution Agreement also    
provides generally for certain cross-indemnities designed to place with Grace   
New York (which has become a subsidiary of Fresenius AG, a German corporation   
not affiliated with Grace) financial responsibility for the liabilities of the  
health care businesses formerly owned by Grace New York (including, without     
limitation, all liabilities relating to compliance or noncompliance with U.S.   
food and drug law, medical and Medicare billing and reimbursement law and other 
health care matters) and to place with Grace Specialty Chemicals financial      
responsibility for the other liabilities of Grace New York and its other        
subsidiaries (including, without limitation, liabilities relating to the        
manufacture or sale of asbestos-containing materials by the Specialty Chemicals 
Businesses). Grace Specialty Chemicals and Grace New York have asserted claims  
against each other for indemnity with respect to claims asserted by third       
parties pursuant to the terms of these provisions.                              

See Note 6 to the Consolidated Financial Statements and "Management's 
Discussion and Analysis of Results of Operations and Financial Condition,"      
included in Annexes F and G, for additional information concerning certain      
litigation and proceedings involving NMC.                                       

PROPERTIES                                                                      

    Grace Specialty Chemicals operates manufacturing and other types of plants
and facilities (including office and other service facilities) throughout the   
world, some of which are shared by two or more of Grace Specialty Chemicals'    
product lines or will be shared by Grace Specialty Chemicals and New Sealed Air 
following the Transactions. Grace Specialty Chemicals considers its major       
operating properties to be in good operating condition and suitable for their   
current use. Although Grace Specialty Chemicals believes that, after taking     
planned expansion into account, the productive capacity of its plants and other 
facilities is generally adequate for current operations and foreseeable growth, 
it conducts ongoing, long-range forecasting of its capital requirements to      
assure that additional capacity will be available when and as needed.           
Accordingly, Grace Specialty Chemicals does not anticipate that its operations  
or income will be materially affected by the absence of available capacity. See 
"Management's Discussion and Analysis of Results of Operations and              

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Financial Condition," included in Annexes F and G, for information regarding    
Grace Specialty Chemicals' capital expenditures.                                

The following table describes Grace Specialty Chemicals' principal    
properties, all of which are owned.                                             

                                                        [Enlarge/Download Table]

                                                 IMPROVED LAND AREA            PRIMARY           
                                                    (APPROXIMATE               PRODUCT           
LOCATION                                            SQUARE FEET)                LINES            
-----------------------------------------------  ------------------  ----------------------------
                                                                                                 
5500 Chemical Road.............................      1,800,000       Grace Davison               
Baltimore, MD                                                                                    
P.O. Box 3247, Hwy. #27........................      1,500,000       Grace Davison               
Lake Charles, LA                                                                                 
In der Hollerhecke.............................      1,200,000       Grace Davison               
67547 Worms, Germany                                                                             
Rue St. Denis,.................................       490,000        Darex Container Products and
Epernon, France                                                      Grace Construction Products 
Ajax Avenue(a).................................       270,000        Grace Construction Products 
Slough, England(a)                                                                               

---------------                                                                 
(a) Leased site.                                                                

   Additional information regarding Grace Specialty Chemicals' properties is
set forth in Notes 1, 8 and 11 to the Consolidated Financial Statements.        

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MANAGEMENT

BOARD OF DIRECTORS                                                              

    The New Grace Board is currently composed of certain executive officers of
Grace. Set forth below is information with respect to the individuals who are   
expected to serve as the directors of New Grace following the Spin-off, all of  
whom are currently directors of Grace and will resign from the Grace Board      
contemporaneously with the Transactions. Under the classified board provisions  
of the New Grace Certificate and the New Grace By-laws, these individuals will  
not be required to stand for re-election to the New Grace Board until the year  
in which their respective terms expire. See "Certain Anti-Takeover              
Provisions -- Classified Board of Directors."                                   

CLASS I DIRECTORS -- TERMS EXPIRING IN 1999 

ALBERT J. COSTELLO                                                              
Director of Grace since 1995                                                    
Age: 62                                                                         

Mr. Costello is the chairman, president and chief executive officer of
Grace, positions he has held since May 1995. Before joining Grace, Mr. Costello 
served as president of American Cyanamid Company from 1991 to March 1993 and as 
its chairman of the board and chief executive officer from April 1993 to        
December 1994; he joined American Cyanamid Company in 1957. Mr. Costello        
received a B.S. in chemistry from Fordham University and an M.S. in chemistry   
from New York University. Mr. Costello is a director of Becton, Dickinson and   
Company and FMC Corporation and a trustee of Fordham University and the American
Enterprise Institute for Public Policy Research.                                

MARYE ANNE FOX                                                                  
Director of Grace since 1996                                                    
Age: 50                                                                         

  Dr. Fox is vice president for research and the Waggoner Regents chair in
chemistry of the University of Texas, positions she has held since 1994 and     
1992, respectively; she has been on the faculty of the University of Texas since
1976. Dr. Fox received a B.S. in chemistry from Notre Dame College, an M.S. in  
organic chemistry from Cleveland State University and a Ph.D. in organic        
chemistry from Dartmouth College; she also holds an honorary doctoral degree    
from Notre Dame College. Dr. Fox has served as vice chair of the National       
Science Board and has received numerous honors and awards from a wide variety of
educational and professional organizations. She currently serves on the Texas   
Governor's Science and Technology Council; she has also served on several       
editorial boards and has authored approximately 300 publications, including     
three books and more than 20 book chapters.                                     

THOMAS A. VANDERSLICE                                                           
Director of Grace since 1996                                                    
Age: 66                                                                         

  Mr. Vanderslice began his career with General Electric Company, where he
spent 23 years in various technical, management and executive positions,        
including executive vice president and sector executive of General Electric's   
power systems business. He subsequently served as president and chief operating 
officer of GTE Corporation, as chairman and chief executive officer of Apollo   
Computer, Inc., and, from 1989 to June 1995, as chairman and chief executive    
officer of M/A-COM, Inc., a designer and manufacturer of radio frequency and    
microwave components, devices and subsystems for commercial and defense         
applications. Mr. Vanderslice received a B.S. in chemistry and philosophy from  
Boston College and a Ph.D. in chemistry and physics from Catholic University; he
holds several patents and has written numerous technical articles. He is a      
director of Texaco Inc., a trustee of Boston College, and chairman of the       
Massachusetts High Technology                                                   

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Council. He is also a member of the National Academy of Engineering, the        
American Chemical Society and the American Institute of Physics.                

CLASS II DIRECTORS -- TERMS EXPIRING IN 2000

JOHN F. AKERS                                                                   
Director of Grace since January 1997                                            
Age: 63                                                                         

  Mr. Akers served as chairman of the board and chief executive officer of
International Business Machines Corporation from 1985 until his retirement in   
1993, completing a 33-year career with IBM. He is a director of Hallmark Cards, 
Inc., Lehman Brothers Holdings, Inc., The New York Times Company, PepsiCo, Inc. 
and Springs Industries, Inc. He also serves on the U.S. advisory board of Zurich
Insurance Company and on the advisory board of Directorship. A graduate of Yale 
University with a B.S. in industrial administration, Mr. Akers formerly served  
on the boards of trustees of the California Institute of Technology and the     
Metropolitan Museum of Art, as chairman of the board of governors of United Way 
of America, and as a member of President Bush's Education Policy Advisory       
Committee.                                                                      

JOHN J. MURPHY                                                                  
Director of Grace since March 1997                                              
Age: 66                                                                         

    Mr. Murphy retired in 1996 as chairman of the board of Dresser Industries,
Inc., a supplier of products and technical services to the energy industry. He  
joined Dresser as an engineer in 1952 and spent his entire career with Dresser, 
serving as its chief executive officer from 1983 to 1995. Mr. Murphy is a       
director of CARBO Ceramics, Inc., Kerr-McGee Corporation and PepsiCo, Inc.; a   
former trustee of Southern Methodist University and St. Bonaventure University; 
a former member of the board of the U.S.-Russia Business Council; and a member  
of The Business Council. He received a bachelor's in mechanical engineering from
Rochester Institute of Technology, a masters of business administration from    
Southern Methodist University and an honorary doctorate of commercial science   
from St. Bonaventure University.                                                

CLASS III DIRECTORS -- TERMS EXPIRING IN 2001 

HAROLD A. ECKMANN                                                               
Director of Grace since 1976                                                    
Age: 75                                                                         

Mr. Eckmann retired in 1985 as chairman and chief executive officer of
Atlantic Mutual Insurance Company and Centennial Insurance Company -- The       
Atlantic Companies. He was educated at the U.S. Merchant Marine Academy and the 
University of California. Mr. Eckmann joined The Atlantic Companies in 1949 and 
became president in 1970 and chairman and chief executive officer in 1976.      

JAMES W. FRICK                                                                  
Director of Grace since 1984                                                    
Age: 73                                                                         

   Dr. Frick is president of James W. Frick Associates, a consulting firm to
private colleges and universities. He is also vice president emeritus of the    
University of Notre Dame, having served the University in various capacities    
from 1951 to 1987, including as a member of its board of trustees. Dr. Frick    
holds three degrees from the University of Notre Dame. He is president emeritus 
of the Community Foundation of St. Joseph County, Indiana, a former director of 
Society Bank of South Bend and Society National Bank, Indiana, and a former     
member of the board of trustees of Converse College. He also served a term as a 
member of the board of the Department of Financial Institutions of the State of 
Indiana.                                                                        

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THOMAS A. HOLMES                                                                
Director of Grace since 1989                                                    
Age: 74                                                                         

    Mr. Holmes served as acting president and chief executive officer of Grace
from March to May 1995. He was chairman, president and chief executive officer  
of Ingersoll-Rand Company until his retirement in 1988, having spent his entire 
business career with Ingersoll-Rand Company. He is a graduate of the University 
of Missouri -- Rolla. Mr. Holmes is a director of Newmont Gold Co. and Newmont  
Mining Corp.                                                                    

     Messrs. Eckmann and Holmes and Dr. Frick have agreed to resign from the New
Grace Board effective May 8, 1998, the date on which their terms as directors of
Grace would expire but for the Transactions. It is anticipated that, following  
completion of the Transactions, the New Grace Board (on the recommendation of   
its Nominating Committee) will elect one or more individuals to serve as Class  
III Directors of New Grace, with a term expiring at the Annual Meeting of       
Stockholders of New Grace to be held in 2001.                                   

COMMITTEES OF THE BOARD OF DIRECTORS                                            

There are currently no committees of the New Grace Board. However, the
following committees of the New Grace Board will be established upon completion 
of the Spin-off:                                                                

Audit Committee.  The Audit Committee of the New Grace Board will be  
responsible for reviewing the financial information New Grace provides to       
stockholders and others, New Grace's systems of internal controls, and its      
auditing, accounting and financial reporting processes generally. The Audit     
Committee's specific responsibilities will include recommending to the New Grace
Board the selection of independent certified public accountants to audit the    
annual financial statements of New Grace and its consolidated subsidiaries;     
reviewing the annual financial statements; and meeting with New Grace's senior  
financial officers, internal auditors and independent certified public          
accountants to review the scope and results of the audit and other matters      
regarding New Grace's accounting, financial reporting and internal control      
systems. The members of the Audit Committee are expected to be Messrs. Akers and
Eckmann, Drs. Fox and Frick and Messrs. Murphy (Chair) and Vanderslice.         

    Compensation Committee.  The Compensation Committee of the New Grace Board
will make recommendations to the New Grace Board with respect to the salary and 
annual and long-term incentive compensation of certain officers and other       
high-level employees, as well as with respect to New Grace's benefit plans,     
programs and arrangements generally. The Compensation Committee will also       
administer New Grace's stock incentive plans and determine the recipients and   
terms of stock incentives granted under those plans. The members of the         
Compensation Committee are expected to be Messrs. Akers (Chair) and Eckmann, Dr.
Fox, and Messrs. Holmes, Murphy and Vanderslice.                                

     Nominating Committee.  The Nominating Committee of the New Grace Board will
recommend to the New Grace Board candidates for nomination as directors of New  
Grace. The members of the Nominating Committee are expected to be Mr. Akers,    
Drs. Fox and Frick and Messrs. Holmes and Murphy (Chair).                       

     Corporate Responsibility Committee.  The Corporate Responsibility Committee
of the New Grace Board will advise management on New Grace's role in the public 
sector and its responsibility with respect to matters of public policy. The     
members of the Corporate Responsibility Committee are expected to be Messrs.    
Akers and Eckmann, Drs. Fox (Chair) and Frick and Mr. Murphy.                   

COMPENSATION OF DIRECTORS                                                       

  Under the New Grace compensation program for nonemployee directors, each
nonemployee director will receive an annual retainer of $50,000, of which       
$35,000 will be in the form of shares of New Grace common stock and the balance 
will be in cash or shares of New Grace common stock, at the election of the     
director; each committee chair will receive an additional annual retainer of    
$2,000, in cash or shares of New Grace common stock, at the election of the     
director; and each nonemployee director will receive $2,000 for each New Grace  
Board meeting and $1,000 for each committee meeting attended (except that       
committee chairs                                                                

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will receive $1,200 per committee meeting), in cash or shares of New Grace      
common stock, at the election of the director.                                  

Nonemployee directors will be reimbursed for expenses they incur in   
attending New Grace Board and committee meetings, and New Grace is expected to  
maintain business travel accident insurance coverage for the nonemployee        
directors. In addition, nonemployee directors will receive a fee of $1,000 per  
day for work performed at New Grace's request.                                  

A director will be able to defer payment of all or part of the fees   
received for attending New Grace Board and committee meetings and/or the cash   
retainers (or cash portions of the retainers) referred to above. The deferred   
cash (plus an interest equivalent) will be payable to the director or his or her
heirs or beneficiaries in a lump sum or in quarterly installments over two to 20
years following a date specified by the director (but in no event earlier than  
the director's termination from service). The interest equivalent on deferred   
cash will be computed at the higher of (i) the prime rate plus two percentage   
points or (ii) 120% of the prime rate, in either case, compounded semiannually. 
This program will provide for the payment of additional survivors' benefits in  
certain circumstances. The New Grace common stock portion of the annual retainer
may be deferred and held, and the balance of the annual retainer or other       
retainers and/or fees a director elects to receive in the form of New Grace     
common stock will be deferred and held, in a trust to be established by New     
Grace. Dividends paid on the New Grace common stock held in such trust will be  
reinvested in New Grace common stock; however, such New Grace common stock will 
not be delivered to a director until his or her termination from service (or a  
subsequent date specified by the director).                                     

EXECUTIVE OFFICERS                                                              

    Set forth below is information with respect to the individuals expected to
serve as executive officers of New Grace following the Spin-off. All of the     
individuals have been actively engaged in Grace's business for the past five    
years, other than Mr. Costello (see page 34) and Mr. Ellberger, who was a       
Corporate Vice President and Director of Corporate Development and Planning of  
American Cyanamid Company from October 1991 until 1995. Mr. Ellberger served as 
Grace's acting chief executive officer from October 11, 1997, when Mr. Costello 
suffered a heart attack, until January 5, 1998.                                 

                                                        [Enlarge/Download Table]

                NAME AND AGE                                      OFFICE                    
---------------------------------------------  ---------------------------------------------
                                                                                            
Robert H. Beber (64).........................  Executive Vice President and General Counsel 
Robert J. Bettacchi (55).....................  Senior Vice President                        
Albert J. Costello (62)......................  Chairman, President and Chief Executive      
                                               Officer                                      
Larry Ellberger (49).........................  Senior Vice President and Chief Financial    
                                               Officer                                      
James R. Hyde (59)...........................  Senior Vice President                        

EXECUTIVE COMPENSATION AND EMPLOYEE BENEFITS PRIOR TO THE SPIN-OFF              

   For information with respect to the compensation of executive officers of
Grace prior to the Spin-off, see the excerpt from the Proxy Statement, dated    
April 7, 1997, for the 1997 Grace Annual Meeting of Stockholders, attached as   
Annex E to this Information Statement ("Grace 1997 Proxy Excerpt"); such        
information is incorporated herein by reference.                                

EXECUTIVE COMPENSATION AND EMPLOYEE BENEFITS FOLLOWING THE SPIN-OFF             

     Upon completion of the Spin-off, New Grace will assume substantially all of
the obligations of Grace under its executive and other compensation plans,      
programs and arrangements. Consequently, the compensation and benefits to be    
provided to employees of New Grace and its subsidiaries will be similar to those
they currently receive as employees of Grace and its subsidiaries. In addition, 
Grace, as sole stockholder of New Grace, has approved New Grace's 1998 Stock    
Incentive Plan and 1998 Stock Plan for Nonemployee Directors, which are set     
forth in Annexes C and D, respectively, to this Information Statement.          

  Grace has had agreements with its executive and other officers regarding
severance arrangements in the event of a change in control of Grace (see        
"Compensation -- Severance Agreements" in the Grace 1997                        

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Proxy Excerpt). Effective January 1, 1998, the agreements were replaced by new  
agreements providing for substantially the same payments and benefits, except   
that (1) the new agreements do not provide for a "gross-up" payment to cover    
excise taxes that may result from severance payments and provide for reduced    
severance for officers who are within 36 months of normal retirement age (65)   
and (2) Mr. Costello's severance benefits continue to be governed by his        
employment agreement. In addition, under the new agreements, a "change in       
control" does not include the acquisition of 20% or more of the Grace common    
stock as a result of a sale of stock by Grace and includes a transaction in     
which Grace's stockholders do not own 50% or more of the voting power of the    
corporation resulting from such transaction (as compared to more than 60% under 
the prior agreements). The Transactions will not constitute a change in control 
under the above agreements. These agreements will be assumed by New Grace upon  
completion of the Transactions (except for the agreement with J. Gary Kaenzig   
Jr., a Grace officer who will become an employee of New Sealed Air, whose       
agreement will terminate prior to completion of the Transactions).              

Grace's Long-Term Incentive Program ("LTIP") provides for the grant of
contingent "Performance Units" that may be earned over three-year "Performance  
Periods" (see "Compensation -- LTIP" in the Grace 1997 Proxy Excerpt).          
Performance Units previously granted for the 1996-1998 and 1997-1999 Performance
Periods under the LTIP will be vested on a pro rata basis upon completion of the
Transactions and will be calculated and paid in cash as promptly as practicable 
thereafter, based on results achieved through completion of the Transactions.   
The value of the unvested portion of such Performance Units will be calculated  
and fixed based on the price of Grace common stock prior to completion of the   
Transactions and will be paid by New Grace following the end of the respective  
Performance Periods (subject to continued service).                             

   For more information on employee benefits following the Transactions, see
"The Distribution and Merger Agreements -- Reorganization of Grace -- Conversion
of Grace Stock Options" and "Relationship between New Sealed Air and New Grace  
after the Merger -- Employee Benefits Agreement and Other Employee Matters" in  
the Joint Proxy Statement/Prospectus.                                           

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION                     

    The members of the Compensation Committee are expected to be Messrs. Akers
and Eckmann, Dr. Fox, and Messrs. Holmes, Murphy and Vanderslice, each of whom  
is an independent director.                                                     

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CERTAIN AGREEMENTS BETWEEN NEW SEALED AIR 
AND NEW GRACE 

After the Transactions, New Grace and New Sealed Air will be separate 
companies. Prior to the Transactions, Grace (which will become New Sealed Air)  
and New Grace will enter into agreements dealing with many operational issues,  
including:                                                                      

 - the separation of the Packaging Business from the Specialty Chemicals
Businesses;                                                       

    - transitional services to be provided by New Grace and New Sealed Air for
    up to two years following the Transactions and the fees to be paid for
those services; and                                               

  - the allocation of certain tax, employee benefits and other liabilities
between New Grace and New Sealed Air.                             

  Under these agreements, New Grace and New Sealed Air will be required to
compensate each other after the Transactions for losses, damages, claims and    
liabilities resulting from the business of the other and from certain tax       
liabilities. Detailed information about these agreements can be found in "The   
Distribution and Merger Agreements" and "Relationship Between New Sealed Air and
New Grace after the Reorganization and Merger" in the Joint Proxy               
Statement/Prospectus.                                                           

CERTAIN RELATIONSHIPS AND TRANSACTIONS

   The individuals who will serve as directors and executive officers of New
Grace after the Spin-off currently serve as directors and executive officers of 
Grace. For information with respect to certain relationships and transactions   
prior to the Spin-off, see the Grace 1997 Proxy Excerpt.                        

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS 

Grace currently owns all of the outstanding shares of New Grace common
stock. The following table sets forth certain information with respect to all   
stockholders anticipated to be the beneficial owners (as discussed below) of    
more than 5% of the New Grace common stock outstanding immediately following the
Spin-off, based upon a review of statements filed with the SEC pursuant to      
Sections 13(d), 13(g) and 16(a) of the Exchange Act with respect to Grace common
stock prior to February 11, 1998.                                               

                                                        [Enlarge/Download Table]

                                                                        AMOUNT                 
                                                                    AND NATURE OF              
NAME AND ADDRESS                                                      BENEFICIAL     PERCENT OF
OF BENEFICIAL OWNER                                                  OWNERSHIP(A)    CLASS (B) 
-----------------------------------------------------------------  ----------------  ----------
                                                                                               
FMR Corp. (c)....................................................  7,379,887 shares     9.87%  
  82 Devonshire Street                                                                         
  Boston, Massachusetts 02109                                                                  
Lincoln Capital Management Company(d)............................  7,332,200 shares     9.80%  
  200 South Wacker Drive                                                                       
  Suite 2100                                                                                   
  Chicago, Illinois 60606                                                                      

---------------                                                                 
(a) Under the rules of the SEC, a person is deemed to be the "beneficial owner" 
  of a security if such person has or shares the power to vote or direct the
    voting of such security or the power to dispose or direct the disposition of
such security. A person is also deemed to be a beneficial owner of any  
securities if that person has the right to acquire beneficial ownership 
within 60 days. Accordingly, more than one person may be deemed to be a 
beneficial owner of the same security. Unless otherwise indicated by    
  footnote, the named person is expected to have sole voting and dispositive
power with respect to the shares to be held.                            

(b) Based on 74,796,863 shares of Grace common stock outstanding as of February 
11, 1998.                                                               

(c) The ownership information set forth herein is based in its entirety on      
  material contained in a Schedule 13G, dated August 8, 1997, filed with the
   SEC by FMR Corp., which certified that the securities were not acquired for
    the purpose of changing or influencing the control of Grace. With respect to
 the shares held, such stockholder stated in such Schedule 13G that it has
sole voting power as to 64,107 shares and sole dispositive power as to  
7,379,887 shares.                                                       

(d) The ownership information set forth herein is based in its entirety on      
  material contained in a Schedule 13G, dated April 28, 1997, filed with the
SEC by Lincoln Capital Management Company, which certified that the     
   securities were not acquired for the purpose of changing or influencing the
  control of Grace. With respect to the shares held, such stockholder stated
 in such Schedule 13G that it has sole voting power as to 3,583,300 shares
and sole dispositive power as to 7,332,200 shares.                      

BENEFICIAL OWNERSHIP OF MANAGEMENT

Grace currently owns all of the outstanding shares of New Grace common
stock. For information with respect to the number of shares of New Grace common 
stock expected to be beneficially owned immediately following the Spin-off by   
(i) the current Grace directors, including the individuals expected to be New   
Grace directors and (ii) certain executive officers of Grace, see the table set 
forth under "Security Ownership of Certain Beneficial Owners -- Security        
Ownership of Grace" in the Joint Proxy Statement/Prospectus.                    

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DESCRIPTION OF NEW GRACE CAPITAL STOCK

  The following description of New Grace capital stock is a summary of the
material terms thereof and is qualified in its entirety by reference to the     
provisions of the New Grace Certificate and the New Grace By-laws, copies of    
which are attached to this Information Statement as Annex A and Annex B,        
respectively.                                                                   

AUTHORIZED CAPITAL STOCK                                                        

    Under the New Grace Certificate, the total number of shares of all classes
of stock that New Grace has authority to issue is 353 million, consisting of 53 
million shares of New Grace preferred stock, and 300 million shares of New Grace
common stock. No shares of New Grace preferred stock are being issued in        
connection with the Spin-off. An aggregate of up to approximately 75,000,000    
shares of New Grace common stock is expected to be distributed in the Spinoff,  
based on the number of shares of Grace common stock outstanding on February 11, 
1998. All shares of New Grace common stock received in the Spin-off will be     
fully paid and nonassessable.                                                   

NEW GRACE COMMON STOCK                                                          

     The holders of New Grace common stock are entitled to one vote per share on
all matters voted on by stockholders, including elections of directors, and,    
except as otherwise required by law or provided in any resolution adopted by the
New Grace Board with respect to any series of New Grace preferred stock, the    
holders of the New Grace common stock exclusively possess all voting power. The 
New Grace Certificate does not provide for cumulative voting in the election of 
directors. Subject to any preferential rights of any outstanding series of New  
Grace preferred stock, the holders of New Grace common stock are entitled to    
such dividends as may be declared from time to time by the New Grace Board from 
funds available therefor, and, upon liquidation, are entitled to receive pro    
rata all assets of New Grace available for distribution to such holders.        

 The transfer agent and registrar for the New Grace common stock will be
ChaseMellon Shareholder Services, L.L.C.                                        

NEW GRACE PREFERRED STOCK                                                       

    The New Grace Board is authorized to provide for the issuance of shares of
New Grace preferred stock in one or more series, to establish the number of     
shares in each series, and to fix the designation, powers, preferences and      
rights of each such series and the qualifications, limitations or restrictions  
thereof. The New Grace Board will authorize and reserve for issuance 3 million  
shares of Junior Participating Preferred Stock, par value $.01 per share, of New
Grace ("New Grace Junior Preferred Stock") for issuance upon exercise of the    
preferred share purchase rights of New Grace (the "New Grace Rights"). See      
"-- New Grace Rights."                                                          

NEW GRACE RIGHTS                                                                

   The New Grace Board has determined that a dividend of one New Grace Right
will be paid in respect of each share of New Grace common stock to the holder of
record thereof at the Time of Spin-off. Pursuant to the Rights Agreement        
relating thereto (the "Rights Agreement"), each New Grace Right entitles the    
registered holder to purchase from New Grace one hundredth of one share of New  
Grace Junior Preferred Stock at a price of $100 per share (the "Purchase        
Price"), subject to adjustment.                                                 

   Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring       
Person") has acquired beneficial ownership of 20% or more of the then           
outstanding shares of New Grace common stock or (ii) 10 business days (or such  
later date as may be determined by action of the New Grace Board prior to such  
time as any person or group becomes an Acquiring Person) following the          
commencement of, or announcement of an intention to make, a tender offer or     
exchange offer the consummation of which would result in the beneficial         
ownership by a person or group of 20% or more of the outstanding shares of New  
Grace common stock (the earlier of such dates being called the "Rights          
Distribution Date"), the New Grace Rights will be evidenced by the certificates 
representing shares                                                             

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of New Grace common stock. The Rights Agreement provides that, until the Rights 
Distribution Date (or the earlier redemption or expiration of the New Grace     
Rights), (i) the New Grace Rights will be transferred with and only with the    
shares of New Grace common stock, (ii) certificates representing shares of New  
Grace common stock will contain a notation incorporating the terms of the New   
Grace Rights by reference, and (iii) the surrender for transfer of any          
certificates representing shares of New Grace common stock will also constitute 
the transfer of the New Grace Rights associated with the shares of New Grace    
common stock represented by such certificate. As soon as practicable following  
the Rights Distribution Date, separate certificates evidencing the New Grace    
Rights ("Rights Certificates") will be mailed to holders of record of the shares
of New Grace common stock as of the close of business on the Rights Distribution
Date and such separate Rights Certificates alone will evidence the New Grace    
Rights.                                                                         

  The Purchase Price payable, and the number of shares of New Grace Junior
Preferred Stock or other securities or property issuable, upon exercise of the  
New Grace Rights are subject to adjustment from time to time to prevent dilution
(i) in the event of a stock dividend on, or a subdivision, combination or       
reclassification of, the shares of New Grace Junior Preferred Stock, (ii) upon  
the grant to holders of the shares of New Grace Junior Preferred Stock of       
certain rights or warrants to subscribe for or purchase shares of New Grace     
Junior Preferred Stock at a price, or securities convertible into shares of New 
Grace Junior Preferred Stock with a conversion price, less than the then-current
market price of the shares of New Grace Junior Preferred Stock or (iii) upon the
distribution to holders of the shares of New Grace Junior Preferred Stock of    
evidences of indebtedness or assets (excluding regular periodic cash dividends  
paid out of earnings or retained earnings or dividends payable in shares of New 
Grace Junior Preferred Stock) or of subscription rights or warrants (other than 
those referred to above). The number of outstanding New Grace Rights and the    
number of hundredths of a share of New Grace Junior Preferred Stock issuable    
upon exercise of each New Grace Right are also subject to adjustment in the     
event of a split of the New Grace common stock or a dividend on the New Grace   
common stock payable in New Grace common stock, or subdivisions, consolidations 
or combinations of the New Grace common stock occurring, in any such case, prior
to the Rights Distribution Date.                                                

Shares of New Grace Junior Preferred Stock that may be purchased upon 
exercise of the New Grace Rights will not be redeemable. Each share of New Grace
Junior Preferred Stock will be entitled to a minimum preferential quarterly     
dividend payment of one dollar per share but will be entitled to an aggregate   
dividend equal to 100 times the dividend declared per share of New Grace common 
stock whenever such dividend is declared. In the event of liquidation, the      
holders of the New Grace Junior Preferred Stock will be entitled to a minimum   
preferential liquidation payment of $100 per share but will be entitled to an   
aggregate payment equal to 100 times the payment made per share of New Grace    
common stock. Each share of New Grace Junior Preferred Stock will have 100      
votes, voting together with the New Grace common stock. Finally, in the event of
any merger, consolidation or other transaction in which New Grace common stock  
is exchanged, each share of New Grace Junior Preferred Stock will be entitled to
receive an amount equal to 100 times the amount received per share of New Grace 
common stock. These rights are protected by customary antidilution provisions.  

     Because of the nature of the dividend, liquidation and voting rights of New
Grace Junior Preferred Stock, the value of the one hundredth interest in a share
of New Grace Junior Preferred Stock that may be purchased upon exercise of each 
New Grace Right should approximate the value of one share of New Grace common   
stock.                                                                          

   In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, proper provision will be made so that each holder  
of a New Grace Right, other than New Grace Rights beneficially owned by the     
Acquiring Person (which will become void after such person becomes an Acquiring 
Person), will, after such person becomes an Acquiring Person, have the right to 
receive upon exercise, in lieu of shares of New Grace Junior Preferred Stock,   
that number of shares of New Grace common stock having a market value of two    
times the exercise price of the New Grace Right (such right being referred to as
a "Flip-in Right"). In the event that, at any time on or after the date that any
person has become an Acquiring Person, New Grace is acquired in a merger or     
other business combination transaction or 50% or more of its consolidated assets
or earning power is sold, proper provision will be made so that each holder of a
New Grace Right will thereafter have the right to receive, upon the exercise    
thereof at the then-current exercise price of                                   

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the New Grace Right, that number of shares of common stock of the acquiring     
company which at the time of such transaction will have a market value of two   
times the exercise price of the New Grace Right.                                

   At any time after any person or group of affiliated or associated persons
becomes an Acquiring Person, and prior to the acquisition by such person or     
group of 50% or more of the outstanding shares of New Grace common stock, the   
New Grace Board may exchange the New Grace Rights for New Grace common stock or 
New Grace Junior Preferred Stock (other than New Grace Rights owned by such     
person or group, which will have become void after such person became an        
Acquiring Person), in whole or in part, at an exchange ratio of one share of New
Grace common stock, or one hundredth of a share of New Grace Junior Preferred   
Stock (or of a share of another series of New Grace Preferred Stock having      
equivalent rights, preferences and privileges), per New Grace Right (subject to 
adjustment).                                                                    

With certain exceptions, no adjustment in the Purchase Price will be  
required until cumulative adjustments require an adjustment of at least 1%. No  
fractional shares of New Grace Junior Preferred Stock will be issued (other than
fractions which are integral multiples of one hundredth of a share of New Grace 
Junior Preferred Stock, which may, at the election of New Grace, be evidenced by
depositary receipts) and, in lieu thereof, an adjustment in cash will be made   
based on the market price of the shares of New Grace Junior Preferred Stock on  
the last trading day prior to the date of exercise.                             

    At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 20% or more of the outstanding    
shares of New Grace common stock, the New Grace Board may redeem the New Grace  
Rights in whole, but not in part, at a price of $.01 per New Grace Right (the   
"Redemption Price"). The redemption of the New Grace Rights may be made         
effective at such time, on such basis and with such conditions as the New Grace 
Board may determine, in its sole discretion. Immediately upon any redemption of 
the New Grace Rights, the right to exercise the New Grace Rights will terminate 
and the only right of the holders of New Grace Rights will be to receive the    
Redemption Price.                                                               

 The terms of the New Grace Rights may be amended by the New Grace Board
without the consent of the holders of the New Grace Rights, including an        
amendment to lower (i) the threshold at which a person becomes an Acquiring     
Person and (ii) the percentage of New Grace common stock proposed to be acquired
in a tender or exchange offer that would cause the Rights Distribution Date to  
occur, to not less than the greater of (a) the sum of .001% and the largest     
percentage of the outstanding New Grace common stock then known to New Grace to 
be beneficially owned by any person or group of affiliated or associated persons
and (b) 10%, except that, from and after such time as any person or group of    
affiliated or associated persons becomes an Acquiring Person, no such amendment 
may adversely affect the interests of the holders of the New Grace Rights.      

    The New Grace Rights will not be exercisable until the Rights Distribution
Date. The New Grace Rights will expire on the close of business on the 10th     
anniversary of the Time of Spin-off (the "Final Expiration Date"), unless the   
Final Expiration Date is extended or unless the New Grace Rights are earlier    
redeemed or exchanged by New Grace.                                             

 Until a New Grace Right is exercised, the holder thereof, as such, will
have no rights as a stockholder of New Grace, including, without limitation, the
right to vote or to receive dividends.                                          

 The foregoing summary of certain terms of the New Grace Rights does not
purport to be complete and is qualified in its entirety by reference to the form
of the Rights Agreement, which has been filed as an exhibit to the New Grace    
Registration Statement defined and described in "Where Stockholders Can Find    
More Information."                                                              

  The distribution of the New Grace Rights should not be taxable under the
Code to New Grace, New Sealed Air or their respective stockholders. However,    
depending upon the circumstances, stockholders of New Grace may recognize       
taxable income under the Code in the event that the New Grace Rights become     
exercisable.                                                                    

PREEMPTIVE RIGHTS                                                               

    No holder of any stock of New Grace of any class authorized at the Time of
Spin-off will then have any preemptive right to subscribe to any securities of  
New Grace of any kind or class.                                                 

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CERTAIN ANTI-TAKEOVER PROVISIONS

The New Grace Certificate and the New Grace By-laws contain certain   
provisions that could delay or make more difficult the acquisition of New Grace 
by means of a tender offer, a proxy contest or otherwise. Such provisions have  
been implemented to enable New Grace, particularly (but not exclusively) in the 
years immediately following the Spin-off, to develop its business in a manner   
which will foster its long-term growth without disruption caused by the threat  
of a takeover not deemed by the New Grace Board to be in the best interests of  
New Grace and its stockholders. The description of certain aspects of the New   
Grace Certificate and the New Grace By-laws set forth below does not purport to 
be complete and is qualified in its entirety by reference to the New Grace      
Certificate and the New Grace By-laws, which are attached as Annex A and Annex  
B, respectively, to this Information Statement.                                 

CLASSIFIED BOARD OF DIRECTORS                                                   

  The New Grace Certificate and the New Grace By-laws provide that the New
Grace Board will be divided into three classes of directors, with the classes to
be as equal in number as possible. The New Grace Board is expected to consist of
the individuals referred to in "MANAGEMENT -- Board of Directors." The New Grace
Certificate and the New Grace By-laws provide that, of the initial directors of 
New Grace, approximately one-third will continue to serve until the 1999 Annual 
Meeting of Stockholders, approximately one-third will continue to serve until   
the 2000 Annual Meeting of Stockholders and approximately one-third will        
continue until the 2001 Annual Meeting of Stockholders. Of the initial          
directors, Mr. Costello, Dr. Fox and Mr. Vanderslice will serve until the 1999  
Annual Meeting of Stockholders, and Messrs. Akers and Murphy will serve until   
the 2000 Annual Meeting of Stockholders. The term of Messrs. Eckmann and Holmes 
and Dr. Frick expires at the 2001 Annual Meeting of Stockholders; however,      
Messrs. Eckmann and Holmes and Dr. Frick have agreed to resign from the New     
Grace Board effective May 8, 1998, the date on which their terms as directors of
Grace would expire but for the Transactions. It is anticipated that, following  
completion of the Transactions, the New Grace Board (on the recommendation of   
its Nominating Committee) will elect one or more individuals to serve as Class  
III Directors of New Grace, with a term expiring at the 2001 Annual Meeting of  
Stockholders. Starting with the 1999 Annual Meeting of Stockholders, one class  
of directors will be elected each year for a three-year term.                   

The classification of directors will have the effect of making it more
difficult for stockholders to change the composition of the New Grace Board. At 
least two annual meetings of stockholders, instead of one, will generally be    
required to effect a change in a majority of the New Grace Board. Such a delay  
may help ensure that New Grace's directors, if confronted by a holder attempting
to force a proxy contest, a tender or exchange offer, or an extraordinary       
corporate transaction, would have sufficient time to review the proposal as well
as any available alternatives to the proposal and to act in what they believe to
be the best interest of the stockholders. However, the classification provisions
will apply to every election of directors and will increase the likelihood that 
incumbent directors will retain their positions, regardless of whether a change 
in the composition of the New Grace Board would be beneficial to New Grace and  
its stockholders and whether or not a majority of New Grace's stockholders      
believe that such a change would be desirable.                                  

    The classification provisions could also have the effect of discouraging a
third party from initiating a proxy contest, making a tender offer or otherwise 
attempting to obtain control of New Grace, even though such an attempt might be 
beneficial to New Grace and its stockholders. In addition, because the          
classification provisions may discourage accumulations of large blocks of New   
Grace common stock by purchasers whose objective is to take control of New Grace
and remove a majority of the New Grace Board, the classification of the New     
Grace Board could tend to reduce the likelihood of fluctuations in the market   
price of the New Grace common stock that might result from accumulations of     
large blocks. Accordingly, stockholders could be deprived of certain            
opportunities to sell their shares of New Grace common stock at a higher market 
price than might otherwise be the case.                                         

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NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES                                 

     The New Grace By-laws provide that, subject to any rights of holders of New
Grace preferred stock to elect directors under specified circumstances, the     
number of directors will be fixed from time to time exclusively pursuant to a   
resolution adopted by directors constituting a majority of the total number of  
directors that New Grace would have if there were no vacancies on the New Grace 
Board (the "Whole Board"). In addition, the New Grace By-laws provide that,     
subject to applicable law and any rights of holders of New Grace preferred      
stock, and unless the New Grace Board otherwise determines, any vacancies will  
be filled only by the affirmative vote of a majority of the remaining directors,
though less than a quorum. Accordingly, absent an amendment to the New Grace    
By-laws, the New Grace Board could prevent any stockholder from enlarging the   
New Grace Board and filling the new directorships with such stockholder's own   
nominees.                                                                       

Under the Delaware Law, unless otherwise provided in a corporation's  
certificate of incorporation, directors serving on a classified board may only  
be removed by the stockholders for cause. The New Grace Certificate does not    
otherwise provide.                                                              

NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS                      

   The New Grace Certificate and the New Grace By-laws provide that, subject
to the rights of any holders of New Grace preferred stock to elect additional   
directors under specified circumstances, stockholder action can be taken only at
an annual or special meeting of stockholders and may not be taken by written    
consent in lieu of a meeting. The New Grace By-laws provide that, subject to the
rights of holders of any series of New Grace preferred stock to elect additional
directors under specified circumstances, special meetings of stockholders can be
called only by the Chairman or the President or by the New Grace Board pursuant 
to a resolution adopted by a majority of the Whole Board. Stockholders are not  
permitted to call, or to require that the Chairman, the President or the New    
Grace Board call, a special meeting of stockholders. Moreover, the business     
permitted to be conducted at any special meeting of stockholders is limited to  
the business brought before the meeting pursuant to the notice of meeting given 
by New Grace.                                                                   

The provisions of the New Grace Certificate and the New Grace By-laws 
prohibiting stockholder action by written consent may have the effect of        
delaying consideration of a stockholder proposal until the next annual meeting. 
These provisions would also prevent the holders of a majority of the voting     
power of the voting stock from unilaterally using the written consent procedure 
to take stockholder action. Moreover, a stockholder could not force stockholder 
consideration of a proposal over the opposition of the Chairman and the New     
Grace Board by calling a special meeting of stockholders prior to the time the  
Chairman or a majority of the Whole Board believes such consideration to be     
appropriate.                                                                    

ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER PROPOSALS 

The New Grace By-laws establish an advance notice procedure for       
stockholders to nominate candidates for election as directors or to bring other 
business before meetings of stockholders of New Grace (the "Stockholder Notice  
Procedure").                                                                    

  A stockholder nominee will be eligible for election as a director of New
Grace only if nominated in accordance with the Stockholder Notice Procedure.    
Under the Stockholder Notice Procedure, notice of stockholder nominations to be 
made at an annual meeting (or of any other business to be brought before such   
meeting) must be received by New Grace not less than 60 days nor more than 90   
days prior to the first anniversary of the previous year's annual meeting (or,  
if the date of the annual meeting is more than 30 days before or more than 60   
days after such anniversary date, not earlier than the 90th day prior to such   
meeting and not later than the later of (i) the 60th day prior to such meeting  
or (ii) the 10th day after public announcement of the date of such meeting is   
first made). Notwithstanding the foregoing, in the event that the number of     
directors to be elected is increased and there is no public announcement naming 
all of the nominees for director or specifying the size of the increased New    
Grace Board made by New Grace at least 70 days prior to the first anniversary of
the preceding year's annual meeting, a stockholder's notice will be timely, but 
only                                                                            

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with respect to nominees for any new positions created by such increase, if it  
is received by New Grace not later than the 10th day after such public          
announcement is first made by New Grace.                                        

     The New Grace By-laws provide that only such business may be conducted at a
special meeting as is specified in the notice of meeting. Nominations for       
election to the New Grace Board may be made at a special meeting at which       
directors are to be elected only by or at the New Grace Board's direction or by 
a stockholder who has given timely notice of nomination. Under the Stockholder  
Notice Procedure, such notice must be received by New Grace not earlier than the
90th day before such meeting and not later than the later of (i) the 60th day   
prior to such meeting or (ii) the 10th day after public announcement of the date
of such meeting is first made. Stockholders will not be able to bring other     
business before special meetings of stockholders.                               

  The Stockholder Notice Procedure provides that at an annual meeting only
such business may be conducted as has been brought before the meeting by, or at 
the direction of, the Chairman, the President or the New Grace Board or by a    
stockholder who has given timely written notice (as set forth above) to the     
Secretary of New Grace of such stockholder's intention to bring such business   
before such meeting.                                                            

     Under the Stockholder Notice Procedure, a stockholder's notice to New Grace
proposing to nominate an individual for election as a director must contain     
certain information, including, without limitation, the identity and address of 
the nominating stockholder, the class and number of shares of stock of New Grace
owned by such stockholder, and all information regarding the proposed nominee   
that would be required to be included in a proxy statement soliciting proxies   
for the proposed nominee. Under the Stockholder Notice Procedure, a             
stockholder's notice relating to the conduct of business other than the         
nomination of directors must contain certain information about such business and
about the proposing stockholder, including, without limitation, a brief         
description of the business the stockholder proposes to bring before the        
meeting, the reasons for conducting such business at such meeting, the name and 
address of such stockholder, the class and number of shares of stock of New     
Grace beneficially owned by such stockholder, and any material interest of such 
stockholder in the business so proposed. If the Chairman or other officer       
presiding at a meeting determines that an individual was not nominated, or other
business was not brought before the meeting, in accordance with the Stockholder 
Notice Procedure, such individual will not be eligible for election as a        
director, or such business will not be conducted at such meeting, as the case   
may be.                                                                         

     By requiring advance notice of nominations by stockholders, the Stockholder
Notice Procedure will afford the New Grace Board an opportunity to consider the 
qualifications of the proposed nominees and, to the extent deemed necessary or  
desirable by the New Grace Board, to inform stockholders about such             
qualifications. By requiring advance notice of other proposed business, the     
Stockholder Notice Procedure will provide a more orderly procedure for          
conducting annual meetings of stockholders and, to the extent deemed necessary  
or desirable by the New Grace Board, will provide the New Grace Board with an   
opportunity to inform stockholders, prior to such meetings, of any business     
proposed to be conducted at such meetings, together with the New Grace Board's  
position regarding action to be taken with respect to such business, so that    
stockholders can better decide whether to attend such a meeting or to grant a   
proxy regarding the disposition of any such business.                           

     Although the New Grace By-laws do not give the New Grace Board any power to
approve or disapprove stockholder nominations for the election of directors or  
proposals for action, they may have the effect of precluding a contest for the  
election of directors or the consideration of stockholder proposals if the      
proper procedures are not followed, and of discouraging or deterring a third    
party from conducting a solicitation of proxies to elect its own slate of       
directors or to approve its own proposal, without regard to whether             
consideration of such nominees or proposals might be harmful or beneficial to   
New Grace and its stockholders.                                                 

NEW GRACE PREFERRED STOCK                                                       

   The New Grace Certificate authorizes the New Grace Board to establish one
or more series of New Grace preferred stock, and to determine, with respect to  
any series of New Grace preferred stock, the terms and rights of such series,   
including (i) the designation of the series; (ii) the number of shares of the   
series,                                                                         

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which number the New Grace Board may thereafter (except where otherwise provided
in the New Grace preferred stock designation) increase or decrease (but not     
below the number of shares thereof then outstanding); (iii) whether dividends,  
if any, will be cumulative or noncumulative and the dividend rate of the series;
(iv) the dates on which dividends, if any, will be payable; (v) the redemption  
rights and price or prices, if any, for shares of the series; (vi) the terms and
amounts of any sinking fund provided for the purchase or redemption of shares of
the series; (vii) the amounts payable on shares of the series in the event of   
any voluntary or involuntary liquidation, dissolution or winding up of the      
affairs of New Grace; (viii) whether the shares of the series will be           
convertible into shares of any other class or series, or any other security, of 
New Grace or any other corporation, and, if so, the specification of such other 
class or series or such other security, the conversion price or prices or rate  
or rates, any adjustments thereof, the date or dates as of which such shares    
shall be convertible and all other terms and conditions upon which such         
conversion may be made; (ix) restrictions on the issuance of shares of the same 
series or of any other class or series; and (x) the voting rights, if any, of   
the holders of such series.                                                     

  The authorized shares of New Grace preferred stock, as well as shares of
New Grace common stock, will be available for issuance without further action by
New Grace's stockholders, unless such action is required by applicable law or   
the rules of any stock exchange or automated quotation system on which New      
Grace's securities may be listed or traded. If the approval of New Grace's      
stockholders is not so required, the New Grace Board does not intend to seek    
stockholder approval.                                                           

    Although the New Grace Board has no intention at the present time of doing
so, it could issue a series of New Grace preferred stock that could, depending  
on the terms of such series, impede the completion of a merger, tender offer or 
other takeover attempt. The New Grace Board will make any determination to issue
such shares based on its judgment as to the best interests of New Grace and its 
stockholders. The New Grace Board, in so acting, could issue New Grace preferred
stock having terms that could discourage an acquisition attempt or other        
transaction that some, or a majority, of New Grace's stockholders might believe 
to be in their best interests or in which stockholders might receive a premium  
for their stock over the then-current market price of such stock.               

RIGHTS TO PURCHASE SECURITIES AND OTHER PROPERTY                                

The New Grace Certificate authorizes the New Grace Board to create and
issue rights entitling the holders thereof to purchase from New Grace shares of 
capital stock or other securities or property. The times at which and terms upon
which such rights are to be issued would be determined by the New Grace Board   
and set forth in the contracts or instruments that evidence such rights. The    
authority of the New Grace Board with respect to such rights includes, but is   
not limited to, determining (i) the purchase price of the capital stock or other
securities or property to be purchased upon exercise of such rights; (ii)       
provisions relating to the times at which and the circumstances under which such
rights may be exercised or sold or otherwise transferred, either together with  
or separately from any other stock or other securities of New Grace; (iii)      
provisions which adjust the number or exercise price of such rights or the      
amount or nature of the stock, other securities or other property receivable    
upon exercise of such rights in the event of a combination, split or            
recapitalization of any stock of New Grace, a change in ownership of New Grace's
stock or other securities or a reorganization, merger, consolidation, sale of   
assets or other occurrence relating to New Grace or any stock of New Grace, and 
provisions restricting the ability of New Grace to enter into any such          
transaction absent an assumption by the other party or parties thereto of the   
obligations of New Grace under such rights; (iv) provisions which deny the      
holder of a specified percentage of the outstanding securities of New Grace the 
right to exercise such rights and/or cause such rights held by such holder to   
become void; (v) provisions which permit New Grace to redeem or exchange such   
rights; and (vi) the appointment of the rights agent with respect to such       
rights. This provision is intended to confirm the New Grace Board's authority to
issue share purchase rights or other rights to purchase stock or securities of  
New Grace or any other corporation. See "-- Preferred Stock Purchase Rights."   

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AMENDMENT OF CERTAIN PROVISIONS OF THE NEW GRACE CERTIFICATE OF INCORPORATION   
AND THE NEW GRACE BY-LAWS                                                       

Under the Delaware Law, stockholders have the right to adopt, amend or
repeal the certificate of incorporation and by-laws of a corporation. In        
addition, if the certificate of incorporation so provides, the by-laws may be   
amended by the board of directors. The New Grace Certificate provides that the  
affirmative vote of the holders of at least 80% of the voting power of the      
outstanding shares of capital stock of New Grace eligible to vote generally in  
the election of directors ("Voting Stock"), voting together as a single class,  
is required to amend provisions of the New Grace Certificate relating to the    
prohibition of stockholder action without a meeting; the number, election and   
term of New Grace's directors; the removal of directors; and the amendment of   
the New Grace By-laws. The New Grace Certificate further provides that the New  
Grace By-laws may be amended by the New Grace Board or by the affirmative vote  
of the holders of at least 80% of the outstanding shares of Voting Stock, voting
together as a single class. These voting requirements will have the effect of   
making it more difficult for stockholders to amend the provisions of the New    
Grace Certificate stated above or the New Grace By-laws, even if a majority of  
New Grace stockholders believe that such amendment would be in their best       
interests.                                                                      

NEW GRACE RIGHTS                                                                

 The Rights Agreement to be adopted by the New Grace Board, as described
above, will permit disinterested stockholders to acquire shares of New Grace    
common stock or common stock of an Acquiring Person at a substantial discount in
the event of certain described changes in control. See "Description of New Grace
Capital Stock -- New Grace Rights."                                             

     The New Grace Rights will have certain anti-takeover effects. The New Grace
Rights will cause substantial dilution to a person or group that attempts to    
acquire New Grace on terms not approved by the New Grace Board, except pursuant 
to an offer conditioned on a substantial number of New Grace Rights being       
acquired. The New Grace Rights should not interfere with any merger or business 
combination approved by the New Grace Board, since the New Grace Rights may be  
redeemed by New Grace at the Redemption Price prior to the time that a person or
group has become an Acquiring Person.                                           

CERTAIN ANTI-TAKEOVER FEATURES                                                  

   The New Grace Certificate, the New Grace By-laws and the New Grace Rights
contain several provisions that may make the acquisition of control of New Grace
difficult or expensive, increase the likelihood that incumbent management will  
retain its positions, and deprive stockholders of opportunities to receive      
premiums over the market value for their shares. In addition, in certain of the 
agreements entered into in connection with the Transactions, each of Grace, New 
Grace and Sealed Air has undertaken to indemnify one another against certain tax
liabilities that could arise were the Spin-off to be taxable, which indemnity   
could diminish the willingness of a third party to acquire New Grace in a       
taxable transaction for some period following the Spin-off. See "Certain        
Agreements between Grace and New Grace."                                        

ANTI-TAKEOVER STATUTE                                                           

Section 203 of the Delaware Law provides that, subject to certain     
exceptions specified therein, a corporation shall not engage in any business    
combination with any "interested stockholder" for a three-year period following 
the date on which such stockholder becomes an interested stockholder unless (i) 
prior to such date, the board of directors of the corporation approves either   
the business combination or the transaction which resulted in the stockholder   
becoming an interested stockholder, (ii) upon consummation of the transaction   
which results in the stockholder becoming an interested stockholder, the        
interested stockholder owns at least 85% of the voting stock (as defined in     
Section 203 of the Delaware Law) of the corporation outstanding at the time the 
transaction commenced (excluding certain shares), or (iii) on or subsequent to  
such date, the business combination is approved by the board of directors of the
corporation and by the affirmative vote of at least 66 2/3% of the outstanding  
voting stock not owned by the interested stockholder. Except as specified in    
Section 203 of the Delaware Law, an "interested stockholder" is defined to      
include (i) any person that is the owner of 15% or more of the outstanding      
voting stock of the corporation, or is an                                       

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affiliate or associate of the corporation and was the owner of 15% or more of   
the outstanding voting stock of the corporation, at any time within three years 
immediately prior to the relevant date and (ii) the affiliates and associates of
any such person.                                                                

    Under certain circumstances, Section 203 of the Delaware Law makes it more
difficult for an interested stockholder to effect various business combinations 
with a corporation for a three-year period, although the stockholders may elect 
to exclude a corporation from the restrictions imposed thereunder; the New Grace
Certificate does not exclude New Grace from such restrictions. It is anticipated
that the provisions of Section 203 of the Delaware Law may encourage companies  
interested in acquiring New Grace to negotiate in advance with the New Grace    
Board, since the stockholder approval requirement would be avoided if a majority
of the directors then in office approve either the business combination or the  
transaction that results in the stockholder becoming an interested stockholder. 
Section 203 of the Delaware Law should encourage persons interested in acquiring
New Grace to negotiate in advance with the New Grace Board, since the higher    
stockholder voting requirements would not be invoked if such person, prior to   
acquiring 15% of New Grace's Voting Stock, obtains the approval of the New Grace
Board for such acquisition or for the proposed business combination transaction 
(unless such person acquires 85% or more of New Grace's voting stock in such    
transaction, excluding certain shares as described above). In the event of a    
proposed acquisition of New Grace, it is believed that the interests of New     
Grace stockholders will best be served by a transaction that results from       
negotiations based upon careful consideration of the proposed terms, such as the
price to be paid to minority stockholders, the form of consideration paid and   
tax effects of the transaction.                                                 

    Section 203 of the Delaware Law will not prevent a hostile takeover of New
Grace. It may, however, make more difficult or discourage a takeover of New     
Grace or the acquisition of control of New Grace by a significant stockholder   
and thus the removal of incumbent management. Any such effect will be enhanced  
by the issuance of the New Grace Rights. Some stockholders may find this        
disadvantageous in that they may not be afforded the opportunity to participate 
in takeovers that are not approved as required by Section 203 of the Delaware   
Law but in which stockholders might receive, for at least some of their shares, 
a substantial premium above the market price at the time of a tender offer or   
other acquisition transaction.                                                  

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LIABILITY AND INDEMNIFICATION 
OF DIRECTORS AND OFFICERS 

LIMITATION OF LIABILITY OF DIRECTORS                                            

   The New Grace Certificate provides that a director will not be personally
liable for monetary damages to New Grace or its stockholders for breach of      
fiduciary duty as a director, except for liability (i) for any breach of the    
director's duty of loyalty to New Grace or its stockholders, (ii) for acts or   
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for paying a dividend or approving a stock repurchase in
violation of Section 174 of the Delaware Law, or (iv) for any transaction from  
which the director derived an improper personal benefit.                        

    While the New Grace Certificate provides directors with protection against
awards for monetary damages for breaches of their duty of care, it does not     
eliminate such duty. Accordingly, the New Grace Certificate will have no effect 
on the availability of equitable remedies such as an injunction or rescission   
based on a director's breach of his or her duty of care. The provisions of the  
New Grace Certificate described above apply to an officer of New Grace only if  
he or she is a director of New Grace and is acting in his or her capacity as    
director, and do not apply to officers of New Grace who are not directors.      

INDEMNIFICATION OF DIRECTORS AND OFFICERS                                       

  The New Grace Certificate provides that each individual who is or was or
had agreed to become a director or officer of New Grace, or each such person who
is or was serving or who had agreed to serve at the request of the New Grace    
Board as an employee or agent of New Grace or as a director, officer, employee  
or agent of another corporation, partnership, joint venture, trust or other     
enterprise, including service with respect to employee benefit plans (also      
including the heirs, executors, administrators or estate of such person), will  
be indemnified by New Grace, in accordance with the New Grace By-laws, to the   
fullest extent permitted by the Delaware Law, as the same exists or may in the  
future be amended (but, in the case of any such amendment, only to the extent   
that such amendment permits New Grace to provide broader indemnification rights 
than said law permitted prior to such amendment). The New Grace Certificate also
specifically authorizes New Grace to enter into agreements with any person      
providing for indemnification greater than or different from that provided by   
the New Grace Certificate.                                                      

   The New Grace By-laws provide that each person who was or is made a party
or is threatened to be made a party to or is involved in any action, suit, or   
proceeding, whether civil, criminal, administrative or investigative (a         
"Proceeding"), by reason of the fact that he or she or a person of whom he or   
she is the legal representative is or was a director, officer or employee of New
Grace or is or was serving at the request of New Grace as a director, officer,  
employee or agent of another corporation or of a partnership, joint venture,    
trust or other enterprise, including service with respect to employee benefit   
plans, whether the basis of such Proceeding is alleged action in an official    
capacity as a director, officer, employee or agent or in any other capacity     
while serving as a director, officer, employee or agent, will be indemnified and
held harmless by New Grace to the fullest extent authorized by the Delaware Law 
as the same exists or may in the future be amended (but, in the case of any such
amendment, only to the extent that such amendment permits New Grace to provide  
broader indemnification rights than said law permitted prior to such amendment),
against all expense, liability and loss (including, without limitation,         
attorneys' fees, judgments, fines, excise taxes or penalties and amounts paid or
to be paid in settlement) reasonably incurred or suffered by such person in     
connection therewith, and such indemnification will continue as to a person who 
has ceased to be a director, officer, employee or agent and will inure to the   
benefit of his or her heirs, executors and administrators; however, except as   
described in the next paragraph with respect to Proceedings seeking to enforce  
rights to indemnification, New Grace will indemnify any such person seeking     
indemnification in connection with a Proceeding (or part thereof) initiated by  
such person only if such Proceeding (or part thereof) was authorized by the New 
Grace Board.                                                                    

Pursuant to the New Grace By-laws, if a claim for indemnification as  
described in the preceding paragraph is not paid in full by New Grace within 30 
days after a written claim has been received by New Grace, the claimant may, at 
any time thereafter, bring suit against New Grace to recover the unpaid amount  
of the claim and, if successful, in whole or in part, the claimant will be      
entitled to also be paid the expense of                                         

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prosecuting such claim. The New Grace By-laws provide that it will be a defense 
to any such action (other than an action brought to enforce a claim for expenses
incurred in defending any Proceeding in advance of its final disposition where  
the required undertaking, if any, has been tendered to New Grace, as discussed  
below) that the claimant has not met the standards of conduct which make it     
permissible under the Delaware Law for New Grace to indemnify the claimant for  
the amount claimed, but the burden of proving such defense will be on New Grace.
Neither the failure of New Grace (including the New Grace Board, independent    
legal counsel or stockholders) to have made a determination prior to the        
commencement of such action that indemnification of the claimant is proper in   
the circumstances because he or she has met the applicable standard of conduct  
set forth in the Delaware Law, nor an actual determination by New Grace         
(including the New Grace Board, independent legal counsel or stockholders) that 
the claimant has not met such applicable standard of conduct, will be a defense 
to the action or create a presumption that the claimant has not met the         
applicable standard of conduct.                                                 

 The New Grace By-laws provide that the right conferred in the New Grace
By-laws to indemnification and the payment of expenses incurred in defending a  
Proceeding in advance of its final disposition will not be exclusive of any     
other right which any person may have or may in the future acquire under any    
statute, provision of the New Grace Certificate or the New Grace By-laws,       
agreement, vote of stockholders or disinterested directors or otherwise. The New
Grace By-laws permit New Grace to maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of New Grace or another     
corporation, partnership, joint venture, trust or other enterprise against any  
expense, liability or loss, whether or not New Grace would have the power to    
indemnify such person against such expense, liability or loss under the Delaware
Law. New Grace intends to obtain directors and officers liability insurance     
providing coverage to its directors and officers. In addition, the New Grace    
By-laws authorize New Grace, to the extent authorized from time to time by the  
New Grace Board, to grant rights to indemnification, and rights to be paid by   
New Grace the expenses incurred in defending any Proceeding in advance of its   
final disposition, to any agent of New Grace to the fullest extent of the       
provisions of the New Grace By-laws with respect to the indemnification and     
advancement of expenses of directors, officers and employees of New Grace.      

   The New Grace By-laws provide that the right to indemnification conferred
therein will be a contract right and will include the right to be paid by New   
Grace the expenses incurred in defending any such Proceeding in advance of its  
final disposition, except that if the Delaware Law requires, the payment of such
expenses incurred by a director or officer in his or her capacity as a director 
or officer (and not in any other capacity in which service was or is rendered by
such person while a director or officer, including, without limitation, service 
to an employee benefit plan) in advance of the final disposition of a Proceeding
will be made only upon delivery to New Grace of an undertaking by or on behalf  
of such director or officer to repay all amounts so advanced if it is ultimately
determined that such director or officer is not entitled to be indemnified under
the New Grace By-laws or otherwise.                                             

  Grace is currently advancing the defense costs being incurred by certain
current and former directors (including the estate of a deceased director) in   
certain of the litigations discussed in the Grace 1997 Proxy Excerpt and in the 
Joint Proxy Statement/Prospectus. As contemplated by Delaware law, such         
individuals (and the estate) are entering into agreements in which they         
undertake to reimburse Grace for such advances in the event it is determined    
that they were not entitled thereto.                                            

CERTAIN OTHER INFORMATION                                                       

There has not been in the past and there is not presently pending any 
litigation or proceeding involving a director, officer, employee or agent of New
Grace, acting in such capacity, in which indemnification would be required or   
permitted by the New Grace By-laws. In addition, the New Grace Board is not     
aware of any threatened litigation or proceeding which may result in a claim for
indemnification under the New Grace By-laws. However, certain litigation and    
proceedings involving such persons in their respective capacities with Grace or 
Grace New York are pending. Under the Distribution Agreement, Grace Specialty   
Chemicals has agreed to indemnify Grace and a Packaging Business subsidiary with
respect to such pending litigations and proceedings. For information with       
respect to the above, see "Business of New Grace and Grace Specialty            
Chemicals -- Legal Proceedings and Regulatory Matters."                         

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WHERE STOCKHOLDERS CAN FIND MORE INFORMATION

Grace files (and New Grace will file) annual, quarterly and current   
reports, proxy statements and other information with the SEC. You may read and  
copy any reports, statements or other information that Grace or New Grace files 
at the SEC's public reference rooms in Washington, D.C., New York, New York and 
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Grace's and New Grace's SEC filings are also     
available to the public from commercial document retrieval services and at the  
world wide web site maintained by the SEC at "http://www.sec.gov".              

  New Grace has filed with the SEC a Registration Statement on Form 10 (as
amended, the "New Grace Registration Statement") under the Exchange Act,        
relating to the shares of New Grace common stock to be issued in the Spin-off.  
This Information Statement, which forms a part of the New Grace Registration    
Statement, does not contain all of the information in the New Grace Registration
Statement and the related exhibits and schedules. Statements in this Information
Statement as to the contents of any contract, agreement or other document are   
summaries only and are not necessarily complete. For complete information as to 
these matters, refer to the applicable exhibit or schedule to the New Grace     
Registration Statement. The New Grace Registration Statement and the related    
exhibits filed by New Grace may be inspected at the public reference facilities 
of the SEC listed above.                                                        

    The principal office of New Grace is located at One Town Center Road, Boca
Raton, FL 33486 (telephone: (561) 362-2000).                                    

     Questions concerning Grace, New Grace, the Spin-off or the Merger should be
directed to One Town Center Road, Boca Raton, FL 33486 (telephone: (800)        
354-8917).                                                                      

STOCKHOLDER PROPOSALS 

Article II of the New Grace By-laws, included as Annex B to this      
Information Statement, sets forth advance notice requirements applicable to     
stockholders desiring to nominate candidates for election as directors or to    
present a proposal or bring other business before an annual meeting of          
stockholders of New Grace. See "Certain Anti-Takeover Provisions -- Advance     
Notice Provisions for Stockholder Nominations and Stockholder Proposals." In    
each case, the notice must be given to the Secretary of New Grace, whose address
is One Town Center Road, Boca Raton, FL 33486. New Grace will not hold an Annual
Meeting of Stockholders in 1998. The New Grace 1999 Annual Meeting of           
Stockholders is expected to be held in May 1999. Notice of any such nomination  
or proposal must be received by December 8, 1998 to be considered at that       
meeting. In addition, to be included in New Grace's proxy statement and form of 
proxy for that meeting, any such nomination or proposal must also comply in all 
respects with the rules and regulations of the SEC and must be received by the  
Secretary of New Grace within the time period specified therein.                

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INDEX OF DEFINED TERMS

                                                                [Download Table]

                                     PAGE NO.
                                     --------
                                             
Acquiring Person....................      42 
beneficial owner....................      41 
Class Period........................      32 
Consolidated Financial Statements...       7 
Covered Period......................      32 
Darex Container Products............      26 
Delaware Law........................      13 
Distribution Agent..................      14 
Distribution Agreement..............      14 
DOE.................................      30 
EHS.................................      28 
EPA.................................      30 
Exchange Act........................      32 
Final Expiration Date...............      44 
Flip-in Right.......................      43 
Grace...............................       C 
Grace 1997 Proxy Excerpt............      38 
Grace Board.........................      15 
Grace Construction Products.........      25 
Grace Davison.......................      24 
Grace New York......................      31 
Grace Specialty Chemicals...........       5 
IRS.................................      13 
LTIP................................      39 
Merger..............................       C 
Merger Agreement....................      14 
New Grace...........................       C 
New Grace Board.....................      12 
New Grace By-laws...................      12 
New Grace Certificate...............      12 


                                     PAGE NO.
                                     --------
                                             
New Grace Junior Preferred Stock....      42 
New Grace Registration Statement....      53 
New Grace Rights....................      42 
New Sealed Air......................       C 
NMC.................................      32 
NMC Distribution Agreement..........      32 
NMC Transaction.....................      32 
NYSE................................      11 
OIG.................................      33 
Packaging Business..................       5 
Proceeding..........................      51 
PRP.................................      30 
Purchase Price......................      42 
Recapitalization....................       4 
Redemption Price....................      43 
Rights Agreement....................      42 
Rights Certificates.................      43 
Rights Distribution Date............      42 
Sealed Air..........................       C 
SEC.................................      32 
Securities Act......................      15 
Spin-off............................       C 
Stockholder Notice Procedure........      46 
Specialty Chemicals Businesses......       6 
Third Quarter Financial                      
  Statements........................       7 
Time of Spin-off....................      12 
Transactions........................       6 
Transaction Agreements..............      14 
Voting Stock........................      49 
Whole Board.........................      46 

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                                                                         ANNEX A

FORM OF 
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
W. R. GRACE & CO. 

INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
* * * * * * * 

 1.  The name of the corporation (the "Corporation") is "Grace Specialty
Chemicals, Inc."                                                                

    2.  The original Certificate of Incorporation was filed with the Secretary
of State of the State of Delaware on August 6, 1997, under the name Grace       
Specialty Chemicals, Inc.                                                       

  3.  This Amended and Restated Certificate of Incorporation has been duly
proposed by resolutions adopted and declared advisable by the Board of Directors
of the Corporation, duly adopted by written consent of the sole stockholder of  
the Corporation in lieu of a meeting and vote and duly executed and acknowledged
by the officers of the Corporation in accordance with the provisions of Sections
103, 228, 242 and 245 of the General Corporation Law of the State of Delaware   
and, upon filing with the Secretary of State in accordance with Section 103,    
shall supercede the original Certificate of Incorporation and shall, as it may  
thereafter be amended in accordance with its terms and applicable law, be the   
Certificate of Incorporation of the Corporation.                                

4.  The text of the Certificate of Incorporation of the Corporation is
hereby amended and restated to read in its entirety as follows:                 

ARTICLE I 

The name of the corporation (the "Corporation") is:                   

W. R. Grace & Co. 

ARTICLE II

     The address of the Corporation's registered office in the State of Delaware
is The Prentice-Hall Corporation System, Inc., 1013 Centre Road, Wilmington,    
Delaware, County of New Castle. The name of the Corporation's registered agent  
at such address is The Prentice-Hall Corporation System, Inc.                   

ARTICLE III 

The purpose of the Corporation shall be to engage in any lawful act or
activity for which corporations may be organized and incorporated under the     
General Corporation Law of the State of Delaware (the "GCL").                   

ARTICLE IV

  (a) The total number of shares of stock which the Corporation shall have
authority to issue is Three Hundred and Fifty-Three Million (353,000,000),      
consisting of Fifty-Three Million (53,000,000) shares of Preferred Stock, par   
value $.01 per share (the "Preferred Stock"), and Three Hundred Million         
(300,000,000) shares of Common Stock, par value $.01 per share (the "Common     
Stock").                                                                        

(b) The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized to provide for the issuance 
of shares of Preferred Stock in series and, by filing a certificate pursuant to 
the applicable law of the State of Delaware ("Preferred Stock Designation"), to 
establish from time to time the number of shares to be included in each such    
series, and to fix the designation, powers,                                     

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preferences and rights of the shares of each such series and the qualifications,
limitations and restrictions thereof. The authority of the Board of Directors   
with respect to each series shall include, but not be limited to, determination 
of the following:                                                               

     (1) The designation of the series, which may be by distinguishing
number, letter or title.                                              

     (2) The number of shares of the series, which number the Board of
    Directors may thereafter (except where otherwise provided in the Preferred
     Stock Designation) increase or decrease (but not below the number of shares
thereof then outstanding).                                            

       (3) Whether dividends, if any, shall be cumulative or noncumulative
and the dividend rate of the series.                                  

(4) The dates on which dividends, if any, shall be payable. 

        (5) The redemption rights and price or prices, if any, for shares of
the series.                                                           

          (6) The terms and amount of any sinking fund provided for the purchase
or redemption of shares of the series.                                

          (7) The amounts payable on, and the preferences, if any, of, shares of
the series in the event of any voluntary or involuntary liquidation,  
dissolution or winding up of the affairs of the Corporation.          

         (8) Whether the shares of the series shall be convertible into shares
    of any other class or series, or any other security, of the Corporation or
     any other corporation, and, if so, the specification of such other class or
  series of such other security, the conversion price or prices or rate or
rates, any adjustments thereof, the date or dates at which such shares
 shall be convertible and all other terms and conditions upon which such
conversion may be made.                                               

       (9) Restrictions on the issuance of shares of the same series or of
any other class or series.                                            

   (10) The voting rights, if any, of the holders of shares of the
series.                                                               

     (c) The Common Stock shall be subject to the express terms of the Preferred
Stock and any series thereof. Each share of Common Stock shall be equal to each 
other share of Common Stock. The holders of shares of Common Stock shall be     
entitled to one vote for each such share upon all questions presented to the    
stockholders.                                                                   

Except as may be provided in this Amended and Restated Certificate of 
Incorporation or in a Preferred Stock Designation, or as may be required by law,
the Common Stock shall have the exclusive right to vote for the election of     
directors and for all other purposes, and holders of Preferred Stock shall not  
be entitled to receive notice of any meeting of stockholders at which they are  
not entitled to vote.                                                           

     (d) The Corporation shall be entitled to treat the person in whose name any
share of its stock is registered as the owner thereof for all purposes and shall
not be bound to recognize any equitable or other claim to, or interest in, such 
share on the part of any other person, whether or not the Corporation shall have
notice thereof, except as expressly provided by applicable law.                 

(e) There shall be designated a series of the Corporation's Preferred 
Stock, as follows:                                                              

   (1) Designation and Amount.  The shares of such series shall be
    designated as "Series A Junior Participating Preferred Stock" (the "Series
A Preferred Stock") and the number of shares constituting the Series A
    Preferred Stock shall be 3,000,000. Such number of shares may be increased
 or decreased by resolution of the Board of Directors; provided, that no
     decrease shall reduce the number of shares of Series A Preferred Stock to a
   number less than the number of shares then outstanding plus the number of
shares reserved for issuance upon the exercise of outstanding options,
 rights or warrants or upon the conversion of any outstanding securities
issued by the Corporation convertible into Series A Preferred Stock.  

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(2) Dividends and Distributions.                            

        (a) Subject to the rights of the holders of any shares of any series
     of Preferred Stock (or any similar stock) ranking prior and superior to the
   Series A Preferred Stock with respect to dividends, the holders of shares
    of Series A Preferred Stock, in preference to the holders of Common Stock,
   and of any other junior stock, shall be entitled to receive, when, as and
  if declared by the Board of Directors out of funds legally available for
     the purpose, quarterly dividends payable in cash on the first day of March,
     June, September and December in each year (each such date being referred to
 herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or
 fraction of a share of Series A Preferred Stock, in an amount per share
     (rounded to the nearest cent) equal to the greater of (a) $1 or (b) subject
to the provision for adjustment hereinafter set forth, 100 times the  
aggregate per share amount of all cash dividends, and 100 times the   
   aggregate per share amount (payable in kind) of all non-cash dividends or
other distributions, other than a dividend payable in shares of Common
Stock or a subdivision of the outstanding shares of Common Stock (by  
reclassification or otherwise), declared on the Common Stock since the
   immediately preceding Quarterly Dividend Payment Date or, with respect to
    the first Quarterly Dividend Payment Date, since the first issuance of any
  share of a fraction of a share of Series A Preferred Stock. In the event
     the Corporation shall at any time declare or pay any dividend on the Common
Stock payable in shares of Common Stock, or effect a subdivision or   
    combination or consolidation of the outstanding shares of Common Stock (by
  reclassification or otherwise than by payment of a dividend in shares of
  Common Stock) into a greater or lesser number of shares of Common Stock,
  then in each such case the amount to which holders of shares of Series A
    Preferred Stock were entitled immediately prior to such event under clause
    (b) of the preceding sentence shall be adjusted by multiplying such amount
 by a fraction, the numerator of which is the number of shares of Common
     Stock outstanding immediately after such event and the denominator of which
   is the number of shares of Common Stock that were outstanding immediately
prior to such event.                                                  

       (b) The Corporation shall declare a dividend or distribution on the
    Series A Preferred Stock as provided in subparagraph (a) of this paragraph
    (2) immediately after it declares a dividend or distribution on the Common
   Stock (other than a dividend payable in shares of Common Stock); provided
    that, in the event no dividend or distribution shall have been declared on
   the Common Stock during the period between any Quarterly Dividend Payment
     Date and the next subsequent Quarterly Dividend Payment Date, a dividend of
    $1 per share on the Series A Preferred Stock shall nevertheless be payable
on such subsequent Quarterly Dividend Payment Date.                   

        (c) Dividends shall begin to accrue and be cumulative on outstanding
     shares of Series A Preferred Stock from the Quarterly Dividend Payment Date
   next preceding the date of issue of such shares, unless the date of issue
     of such shares is prior to the record date for the first Quarterly Dividend
    Payment Date, in which case dividends on such shares shall begin to accrue
 from the date of issue of such shares, or unless the date of issue is a
    Quarterly Dividend Payment Date or is a date after the record date for the
    determination of holders of shares of Series A Preferred Stock entitled to
 receive a quarterly dividend and before such Quarterly Dividend Payment
     Date, in either of which events such dividends shall begin to accrue and be
  cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
     dividends shall not bear interest. Dividends paid on the shares of Series A
   Preferred Stock in an amount less than the total amount of such dividends
    at the time accrued and payable on such shares shall be allocated pro rata
  on a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination of 
   holders of shares of Series A Preferred Stock entitled to receive payment
    of a dividend or distribution declared thereon, which record date shall be
not more than 60 days prior to the date fixed for the payment thereof.

         (3) Voting Rights.  The holders of shares of Series A Preferred Stock
shall have the following voting rights:                               

      (a) Subject to the provision for adjustment hereinafter set forth,
    each share of Series A Preferred Stock shall entitle the holder thereof to
100 votes on all matters submitted to a vote of the stockholders of   

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    the Corporation. In the event the Corporation shall at any time declare or
    pay any dividend on the Common Stock payable in shares of Common Stock, or
 effect a subdivision or combination or consolidation of the outstanding
     shares of Common Stock (by reclassification or otherwise than by payment of
  a dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the number of votes per
    share to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such 
 number by a fraction, the numerator of which is the number of shares of
   Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.                                      

        (b) Except as otherwise provided herein, in any other certificate of
    designations creating a series of Preferred Stock or any similar stock, or
   by law, the holders of shares of Series A Preferred Stock and the holders
  of shares of Common Stock and any other capital stock of the Corporation
having general voting rights shall vote together as one class on all  
matters submitted to a vote of stockholders of the Corporation.       

    (c) Except as set forth herein, or as otherwise provided by law,
     holders of Series A Preferred Stock shall have no special voting rights and
     their consent shall not be required (except to the extent they are entitled
  to vote with holders of Common Stock as set forth herein) for taking any
corporate action.                                                     

(4) Certain Restrictions.                                   

        (a) Whenever quarterly dividends or other dividends or distributions
     payable on the Series A Preferred Stock as provided in paragraph (2) are in
arrears, thereafter and until all accrued and unpaid dividends and    
 distributions, whether or not declared, on shares of Series A Preferred
    Stock outstanding shall have been paid in full, the Corporation shall not:

           (i) declare or pay dividends, or make any other distributions, on
  any shares of stock ranking junior (either as to dividends or upon
        liquidation, dissolution or winding up) to the Series A Preferred Stock;

            (ii) declare or pay dividends, or make any other distributions, on
       any shares of stock ranking on a parity (either as to dividends or upon
   liquidation, dissolution or winding up) with the Series A Preferred
     Stock, except dividends paid ratably on the Series A Preferred Stock,
      and all such parity stock on which dividends are payable or in arrears
   in proportion to the total amounts to which the holders of all such
shares are then entitled;                                       

         (iii) redeem or purchase or otherwise acquire for consideration
  shares of any stock ranking junior (either as to dividends or upon
        liquidation, dissolution or winding up) to the Series A Preferred Stock,
 provided that the Corporation may at any time redeem, purchase or
        otherwise acquire shares of any such junior stock in exchange for shares
      of any stock of the Corporation ranking junior (either as to dividends
or upon dissolution, liquidation or winding up) to the Series A 
Preferred Stock; or                                             

            (iv) redeem or purchase or otherwise acquire for consideration any
       shares of Series A Preferred Stock, or any shares of stock ranking on a
     parity with the Series A Preferred Stock, except in accordance with a
      purchase offer made in writing or by publication (as determined by the
        Board of Directors) to all holders of such shares upon such terms as the
Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the 
        respective series and classes, shall determine in good faith will result
       in fair and equitable treatment among the respective series of classes.

          (b) The Corporation shall not permit any subsidiary of the Corporation
   to purchase or otherwise acquire for consideration any shares of stock of
 the Corporation unless the Corporation could, under subparagraph (a) of
    this paragraph (4), purchase or otherwise acquire such shares at such time
and in such manner.                                                   

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  (5) Reacquired Shares.  Any shares of Series A Preferred Stock
     purchased or otherwise acquired by the Corporation in any manner whatsoever
    shall be retired and cancelled promptly after the acquisition thereof. All
  such shares shall upon their cancellation become authorized but unissued
  shares of Preferred Stock and may be reissued as part of a new series of
    Preferred Stock subject to the conditions and restrictions on issuance set
     forth herein, or in any other certificate of designations creating a series
  of Preferred Stock or any similar stock or as otherwise required by law.

      (6) Liquidation, Dissolution or Winding Up.  Upon any liquidation,
     dissolution or winding up of the Corporation, no distribution shall be made
(1) to the holders of shares of stock ranking junior (either as to    
   dividends or upon liquidation, dissolution or winding up) to the Series A
  Preferred Stock unless, prior thereto, the holders of shares of Series A
     Preferred Stock shall have received $100 per share, plus an amount equal to
    all accrued and unpaid dividends and distributions thereon, whether or not
    declared, to the date of such payment, provided that the holders of shares
    of Series A Preferred Stock shall also be entitled to receive an aggregate
   amount per share, subject to the provision for adjustment hereinafter set
    forth, equal to 100 times the aggregate amount to be distributed per share
  to holders of shares of Common Stock, or (2) to the holders of shares of
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Stock, except  
 distributions made ratably on the Series A Preferred Stock and all such
     parity stock in proportion to the total amounts to which the holders of all
    such shares are entitled upon such liquidation, dissolution or winding up.
    In the event the Corporation shall at any time declare or pay any dividend
on the Common Stock payable in shares of Common Stock, or effect a    
  subdivision or combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise than by payment of a   
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the aggregate amount to
which holders of shares of Series A Preferred Stock were entitled     
immediately prior to such event under the proviso in clause (1) of the
preceding sentence shall be adjusted by multiplying such amount by a  
  fraction, the numerator of which is the number of shares of Common Stock
  outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately
prior to such event.                                                  

        (7) Consolidation, Merger, etc.  In case the Corporation shall enter
   into any consolidation, merger, combination or other transaction in which
     the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each
share of Series A Preferred Stock shall at the same time be similarly 
     exchanged or changed into an amount per share, subject to the provision for
   adjustment hereinafter set forth, equal to 100 times the aggregate amount
    of stock, securities, cash and/or any other property (payable in kind), as
the case may be, into which or for which each share of Common Stock is
changed or exchanged. In the event the Corporation shall at any time  
     declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the 
    outstanding shares of Common Stock (by re-classification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or 
    lesser number of shares of Common Stock, then in each such case the amount
    set forth in the preceding sentence with respect to the exchange or change
     of shares of Series A Preferred Stock shall be adjusted by multiplying such
 amount by a fraction, the numerator of which is the number of shares of
   Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.                                      

        (8) No Redemption.  The shares of Series A Preferred Stock shall not
be redeemable.                                                        

       (9) Rank.  The Series A Preferred Stock shall rank, with respect to
the payment of dividends and the distribution of assets, junior to all
series of any other class of the Corporation's Preferred Stock.       

(10) Amendment.  This Amended and Restated Certificate of   
   Incorporation of the Corporation shall not be amended in any manner which
    would materially alter or change the powers, preferences or special rights
    of the Series A Preferred Stock so as to affect them adversely without the
   affirmative vote of the holders of at least two-thirds of the outstanding
shares of Series A Preferred Stock, voting together as a single class.

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ARTICLE V 

     The Board of Directors is hereby authorized to create and issue, whether or
not in connection with the issuance and sale of any of its stock or other       
securities or property, rights entitling the holders thereof to purchase from   
the Corporation shares of stock or other securities of the Corporation or any   
other corporation. The times at which and the terms upon which such rights are  
to be issued will be determined by the Board of Directors and set forth in the  
contracts or instruments that evidence such rights. The authority of the Board  
of Directors with respect to such rights shall include, but not be limited to,  
determination of the following:                                                 

          (1) The initial purchase price per share or other unit of the stock or
    other securities or property to be purchased upon exercise of such rights.

       (2) Provisions relating to the times at which and the circumstances
    under which such rights may be exercised or sold or otherwise transferred,
either together with or separately from, any other stock or other     
securities of the Corporation.                                        

    (3) Provisions which adjust the number or exercise price of such
 rights or amount or nature of the stock or other securities or property
receivable upon exercise of such rights in the event of a combination,
split or recapitalization of any stock of the Corporation, a change in
ownership of the Corporation's stock or other securities or a         
   reorganization, merger, consolidation, sale of assets or other occurrence
     relating to the Corporation or any stock of the Corporation, and provisions
restricting the ability of the Corporation to enter into any such     
   transaction absent an assumption by the other party or parties thereto of
the obligations of the Corporation under such rights.                 

         (4) Provisions which deny the holder of a specified percentage of the
outstanding stock or other securities of the Corporation the right to 
    exercise such rights and/or cause the rights held by such holder to become
void.                                                                 

          (5) Provisions which permit the Corporation to redeem or exchange such
rights.                                                               

      (6) The appointment of a rights agent with respect to such rights.

ARTICLE VI

   In furtherance of, and not in limitation of, the powers conferred by law,
the Board of Directors is expressly authorized and empowered:                   

 (1) to adopt, amend or repeal the By-laws of the Corporation;
     provided, however, that the By-laws adopted by the Board of Directors under
the powers hereby conferred may be amended or repealed by the Board of
    Directors or by the stockholders having voting power with respect thereto,
provided further that in the case of amendments by stockholders, the  
    affirmative vote of the holders of at least 80 percent of the voting power
     of the then outstanding Voting Stock (as defined below), voting together as
   a single class, shall be required to alter, amend or repeal any provision
of the By-laws; and                                                   

         (2) from time to time to determine whether and to what extent, and at
what times and places, and under what conditions and regulations, the 
 accounts and books of the Corporation, or any of them, shall be open to
  inspection of stockholders; and, except as so determined or as expressly
  provided in this Amended and Restated Certificate of Incorporation or in
 any Preferred Stock Designation, no stockholder shall have any right to
  inspect any account, book or document of the Corporation other than such
rights as may be conferred by applicable law.                         

The Corporation may in its By-laws confer powers upon the Board of    
Directors in addition to the foregoing and in addition to the powers and        
authorities expressly conferred upon the Board of Directors by applicable law.  
Notwithstanding anything contained in this Amended and Restated Certificate of  
Incorporation to the contrary, the affirmative vote of the holders of at least  
80 percent of the voting power of the then outstanding Voting Stock, voting     
together as a single class, shall be required to amend, repeal or adopt any     
provision inconsistent with paragraph (1) of this Article VI. For the purposes  
of this Amended and Restated                                                    

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Certificate of Incorporation, "Voting Stock" shall mean the outstanding shares  
of capital stock of the Corporation entitled to vote generally in the election  
of directors.                                                                   

ARTICLE VII 

  Subject to the rights of the holders of any series of Preferred Stock or
any other series or class of stock as set forth in this Amended and Restated    
Certificate of Incorporation to elect additional directors under specific       
circumstances, any action required or permitted to be taken by the stockholders 
of the Corporation must be effected at a duly called annual or special meeting  
of stockholders of the Corporation and may not be effected by any consent in    
writing in lieu of a meeting of such stockholders. Notwithstanding anything     
contained in this Amended and Restated Certificate of Incorporation to the      
contrary, the affirmative vote of at least 80 percent of the voting power of the
then outstanding Voting Stock, voting together as a single class, shall be      
required to amend, repeal or adopt any provision inconsistent with this Article 
VII.                                                                            

ARTICLE VIII

  Subject to the rights of the holders of any series of Preferred Stock or
any other series or class of stock as set forth in this Amended and Restated    
Certificate of Incorporation to elect additional directors under specified      
circumstances, the number of directors of the Corporation shall be fixed, and   
may be increased or decreased from time to time, in such manner as may be       
prescribed by the By-laws of the Corporation.                                   

   Unless and except to the extent that the By-laws of the Corporation shall
so require, the election of directors of the Corporation need not be by written 
ballot.                                                                         

  The directors, other than those who may be elected by the holders of any
series of Preferred Stock or any other series or class of stock as set forth in 
this Amended and Restated Certificate of Incorporation, shall be divided into   
three classes, as nearly equal in number as possible. One class of directors    
shall be initially elected for a term expiring at the annual meeting of         
stockholders to be held in 1999, another class shall be initially elected for a 
term expiring at the annual meeting of stockholders to be held in 2000, and     
another class shall be initially elected for a term expiring at the annual      
meeting of stockholders to be held in 2001. Members of each class shall hold    
office until their successors are elected and qualified. At each succeeding     
annual meeting of the stockholders of the Corporation, the successors of the    
class of directors whose term expires at that meeting shall be elected by a     
plurality vote of all votes cast at such meeting to hold office for a term      
expiring at the annual meeting of stockholders held in the third year following 
the year of their election.                                                     

  Subject to the rights of the holders of any series of Preferred Stock or
any other series or class of stock as set forth in this Amended and Restated    
Certificate of Incorporation to elect additional directors under specified      
circumstances, any director may be removed from office at any time by the       
stockholders, but only for cause.                                               

     Notwithstanding anything contained in this Amended and Restated Certificate
of Incorporation to the contrary, the affirmative vote of the holders of at     
least 80 percent of the voting power of the then outstanding Voting Stock,      
voting together as a single class, shall be required to amend, repeal or adopt  
any provision inconsistent with this Article VIII.                              

ARTICLE IX

    Each person who is or was or has agreed to become a director or officer of
the Corporation, or each such person who is or was serving or who has agreed to 
serve at the request of the Board of Directors or an officer of the Corporation 
as an employee or agent of the Corporation or as a director, officer, employee  
or agent of another corporation, partnership, joint venture, trust or other     
enterprise, including service with respect to employee benefit plans (including 
the heirs, executors, administrators or estate of such person), shall be        
indemnified by the Corporation, in accordance with the By-laws of the           
Corporation, to the fullest extent permitted from time to time by the GCL as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide       
broader                                                                         

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indemnification rights than said law permitted prior to such amendment) or any  
other applicable laws as presently or hereafter in effect. Without limiting the 
generality or the effect of the foregoing, the Corporation may enter into one or
more agreements with any person which provide for indemnification greater than  
or different from that provided in this Article IX. Any amendment or repeal of  
this Article IX shall not adversely affect any right or protection existing     
hereunder in respect of any act or omission occurring prior to such amendment or
repeal.                                                                         

ARTICLE X 

A director of the Corporation shall not be personally liable to the   
Corporation or its stockholders for monetary damages for breach of fiduciary    
duty as a director, except for liability (1) for any breach of the director's   
duty of loyalty to the Corporation or its stockholders, (2) for acts or         
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (3) under Section 174 of the GCL, or (4) for any transaction  
from which the director derived an improper personal benefit. Any amendment or  
repeal of this Article X shall not adversely affect any right or protection of a
director of the Corporation existing hereunder in respect of any act or omission
occurring prior to such amendment or repeal.                                    

ARTICLE XI

Except as may be expressly provided in this Amended and Restated      
Certificate of Incorporation, the Corporation reserves the right at any time and
from time to time to amend, alter, change or repeal any provision contained in  
this Amended and Restated Certificate of Incorporation or a Preferred Stock     
Designation, and any other provisions authorized by the laws of the State of    
Delaware at the time in force may be added or inserted, in the manner now or    
hereafter prescribed herein or by applicable law, and all rights, preferences   
and privileges of whatsoever nature conferred upon stockholders, directors or   
any other persons whomsoever by and pursuant to this Amended and Restated       
Certificate of Incorporation in its present form or as hereafter amended are    
granted subject to the right reserved in this Article XI; provided, however,    
that any amendment or repeal of Article IX or Article X of this Amended and     
Restated Certificate of Incorporation shall not adversely affect any right or   
protection existing hereunder in respect of any act or omission occurring prior 
to such amendment or repeal; and provided further that no Preferred Stock       
Designation shall be amended after the issuance of any shares of the series of  
Preferred Stock created thereby, except in accordance with the terms of such    
Preferred Stock Designation and the requirements of applicable law.             

     IN WITNESS WHEREOF, Grace Specialty Chemicals, Inc. has caused this Amended
and Restated Certificate of Incorporation to be signed by its President and     
attested by its Secretary and has caused its corporate seal to be hereunto      
affixed, this   day of           , 1998.                                        

                                   GRACE SPECIALTY CHEMICALS, INC.

       By:

                                          --------------------------------------
                                           President

Attest:                                                                         
--------------------------------------                                          
Secretary                                     

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                                                                         ANNEX B

FORM OF 
AMENDED AND RESTATED
BY-LAWS 
OF
W. R. GRACE & CO. 
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE

ARTICLE I 

OFFICES AND RECORDS 

    Section 1.1.  Delaware Office.  The principal office of the Corporation in
the State of Delaware shall be located in Wilmington, Delaware, and the name and
address of its registered agent is The Prentice-Hall Corporation System, Inc.,  
1013 Centre Road, Wilmington, Delaware.                                         

    Section 1.2.  Other Offices.  The Corporation may have such other offices,
either within or without the State of Delaware, as the Board of Directors may   
designate or as the business of the Corporation may from time to time require.  

    Section 1.3.  Books and Records.  The books and records of the Corporation
may be kept outside the State of Delaware at such place or places as may from   
time to time be designated by the Board of Directors.                           

ARTICLE II

STOCKHOLDERS

  Section 2.1.  Annual Meeting.  The annual meeting of the stockholders of
the Corporation shall be held annually (a) on the tenth day of May, or (b) if   
such day be a Saturday, Sunday or a holiday at the place where the meeting is to
be held, on the last business day preceding or on the first business day after  
such tenth day of May, as may be fixed by the Board of Directors, or (c) on such
other date as may be fixed by the Board of Directors.                           

     Section 2.2.  Special Meeting.  Subject to the rights of the holders of any
series of stock having a preference over the Common Stock of the Corporation as 
to dividends or upon liquidation ("Preferred Stock") with respect to such series
of Preferred Stock, special meetings of the stockholders may be called only by  
the Chairman, by the President or by the Board of Directors pursuant to a       
resolution adopted by a majority of the total number of directors which the     
Corporation would have if there were no vacancies (the "Whole Board").          

   Section 2.3.  Place of Meeting.  The Chairman, the President or the Board
of Directors, as the case may be, may designate the place of meeting for any    
annual meeting or for any special meeting of the stockholders called by the     
Chairman, the President or the Board of Directors. If no designation is so made,
the place of meeting shall be the principal office of the Corporation.          

  Section 2.4.  Notice of Meeting.  Written or printed notice, stating the
place, date and time of the meeting and the purpose or purposes for which the   
meeting is called, shall be delivered by the Corporation not less than ten (10) 
days nor more than sixty (60) days before the date of the meeting, either       
personally or by mail, to each stockholder of record entitled to vote at such   
meeting. If mailed, such notice shall be deemed to be delivered when deposited  
in the U.S. mail with postage thereon prepaid, addressed to the stockholder at  
his address as it appears on the stock transfer books of the Corporation. Such  
further notice shall be given as may be required by law. Only such business     
shall be conducted at a special meeting of stockholders as shall have been      
brought before the meeting pursuant to the Corporation's notice of meeting.     
Meetings may be held without notice if all stockholders entitled to vote are    
present, or if notice is waived by those not present in accordance with Section 
6.4 of these By-laws. Any previously scheduled meeting of the stockholders may  
be                                                                              

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postponed, and (unless the Certificate of Incorporation otherwise provides) any 
special meeting of the stockholders may be cancelled, by resolution of the Board
of Directors upon public notice given prior to the date previously scheduled for
such meeting of stockholders.                                                   

    Section 2.5.  Quorum and Adjournment.  Except as otherwise provided by law
or by the Certificate of Incorporation, the holders of a majority of the        
outstanding shares of the Corporation entitled to vote generally in the election
of directors (the "Voting Stock"), represented in person or by proxy, shall     
constitute a quorum at a meeting of stockholders, except that when specified    
business is to be voted on by a class or series of stock voting as a class, the 
holders of a majority of the voting power of the shares of such class or series 
shall constitute a quorum of such class or series for the transaction of such   
business. The chairman of the meeting or a majority of the shares so represented
may adjourn the meeting from time to time, whether or not there is a quorum. No 
notice of the time and place of adjourned meetings need be given except as      
required by law. The stockholders present at a duly called meeting at which a   
quorum is present may continue to transact business until adjournment,          
notwithstanding the withdrawal of enough stockholders to leave less than a      
quorum.                                                                         

    Section 2.6.  Proxies.  At all meetings of stockholders, a stockholder may
vote by proxy executed in writing (or in any other manner permitted by law) by  
the stockholder, or by his duly authorized attorney-in-fact.                    

  Section 2.7.  Notice of Stockholder Business and Nominations. (A) Annual
Meetings of Stockholders. (1) Nominations of persons for election to the Board  
of Directors of the Corporation and the proposal of business to be considered by
the stockholders may be made at an annual meeting of stockholders (a) pursuant  
to the Corporation's notice of meeting, (b) by or at the direction of the Board 
of Directors or (c) by any stockholder of the Corporation who was a stockholder 
of record at the time of giving of the notice provided for in this Section 2.7, 
who is entitled to vote at the meeting and who complies with the notice         
procedures set forth in this Section 2.7.                                       

(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of   
this Section 2.7, the stockholder must have given timely notice thereof in      
writing to the Secretary of the Corporation, and such other business must       
otherwise be a proper matter for stockholder action. To be timely, a            
stockholder's notice shall be delivered to the Secretary at the principal       
executive offices of the Corporation not later than the close of business on the
60th day nor earlier than the close of business on the 90th day prior to the    
first anniversary of the preceding year's annual meeting; provided, however,    
that in the event that the date of the annual meeting is more than 30 days      
before or more than 60 days after such anniversary date, notice by the          
stockholder to be timely must be so delivered not earlier than the close of     
business on the 90th day prior to such annual meeting and not later than the    
close of business on the later of the 60th day prior to such annual meeting or  
the 10th day following the day on which public announcement of the date of such 
meeting is first made by the Corporation. In no event shall the public          
announcement of an adjournment of an annual meeting commence a new time period  
for the giving of a stockholder's notice as described above. Such stockholder's 
notice shall set forth (a) as to each person whom the stockholder proposes to   
nominate for election or re-election as a director all information relating to  
such person that is required to be disclosed in solicitations of proxies for    
election of directors in an election contest, or is otherwise required, in each 
case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as   
amended (the "Exchange Act"), and Rule 14a-11 thereunder (including such        
person's written consent to being named in the proxy statement as a nominee and 
to serving as a director if elected); (b) as to any other business that the     
stockholder proposes to bring before the meeting, a brief description of the    
business desired to be brought before the meeting, the reasons for conducting   
such business at the meeting and any material interest in such business of such 
stockholder and the beneficial owner, if any, on whose behalf the proposal is   
made; and (c) as to the stockholder giving the notice and the beneficial owner, 
if any, on whose behalf the nomination or proposal is made (i) the name and     
address of such stockholder, as they appear on the Corporation's books, and of  
such beneficial owner and (ii) the class and number of shares of the Corporation
which are owned beneficially and of record by such stockholder and such         
beneficial owner.                                                               

    (3) Notwithstanding anything in the second sentence of paragraph (A)(2) of
this Section 2.7 to the contrary, in the event that the number of directors to  
be elected to the Board of Directors of the Corporation is                      

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increased and there is no public announcement by the Corporation naming all of  
the nominees for election as director or specifying the size of the increased   
Board of Directors at least 70 days prior to the first anniversary of the       
preceding year's annual meeting, a stockholder's notice required by this Section
2.7 shall also be considered timely, but only with respect to nominees for any  
new positions created by such increase, if it shall be delivered to the         
Secretary at the principal executive offices of the Corporation not later than  
the close of business on the 10th day following the day on which such public    
announcement is first made by the Corporation.                                  

(B) Special Meetings of Stockholders.  Only such business shall be    
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting. Nominations of     
persons for election to the Board of Directors may be made at a special meeting 
of stockholders at which directors are to be elected pursuant to the            
Corporation's notice of meeting (a) by or at the direction of the Board of      
Directors or (b) provided that the Board of Directors has determined that       
directors shall be elected at such meeting, by any stockholder of the           
Corporation who is a stockholder of record at the time of giving of notice      
provided for in this Section 2.7, who shall be entitled to vote at the meeting  
and who complies with the notice procedures set forth in this Section 2.7. In   
the event the Corporation calls a special meeting of stockholders for the       
purpose of electing one or more directors to the Board of Directors, any such   
stockholder may nominate a person or persons (as the case may be), for election 
to such position(s) as specified in the Corporation's notice of meeting, if the 
stockholder's notice required by paragraph (A)(2) of this Section 2.7 shall be  
delivered to the Secretary at the principal executive offices of the Corporation
not earlier than the close of business on the 90th day prior to such special    
meeting and not later than the close of business on the later of the 60th day   
prior to such special meeting or the 10th day following the day on which public 
announcement is first made of the date of the special meeting and of the        
nominees proposed by the Board of Directors to be elected at such meeting. In no
event shall the public announcement of an adjournment of a special meeting      
commence a new time period for the giving of a stockholder's notice as described
above.                                                                          

  (C) General.  (1) Only such persons who are nominated in accordance with
the procedures set forth in this Section 2.7 shall be eligible to serve as      
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures 
set forth in this Section 2.7. Except as otherwise provided by law, the         
Certificate of Incorporation or these By-laws, the chairman of the meeting shall
have the power and duty to determine whether a nomination or any business       
proposed to be brought before the meeting was made or proposed, as the case may 
be, in accordance with the procedures set forth in this Section 2.7 and, if any 
proposed nomination or business is not in compliance with this Section 2.7, to  
declare that such defective proposal or nomination shall be disregarded.        

(2) For purposes of this Section 2.7, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or a comparable national news service or in a document publicly filed by  
the Corporation with the Securities and Exchange Commission pursuant to Section 
13, 14 or 15(d) of the Exchange Act.                                            

(3) Notwithstanding the foregoing provisions of this Section 2.7, a   
stockholder shall also comply with all applicable requirements of the Exchange  
Act and the rules and regulations thereunder with respect to the matters set    
forth in this by-law. Nothing in this Section 2.7 shall be deemed to affect any 
rights (i) of stockholders to request inclusion of proposals in the             
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or  
(ii) of the holders of any series of Preferred Stock to elect directors under   
specified circumstances.                                                        

     Section 2.8.  Procedure for Election of Directors; Required Vote.  Election
of directors at all meetings of the stockholders at which directors are to be   
elected shall be by ballot, and, subject to the rights of the holders of any    
series of Preferred Stock to elect directors under specified circumstances, a   
plurality of the votes cast thereat shall elect directors. Except as otherwise  
provided by law, the Certificate of Incorporation, or these By-laws, in all     
matters other than the election of directors, the affirmative vote of a majority
of the shares present in person or represented by proxy at the meeting and      
entitled to vote on the matter shall be the act of the stockholders.            

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    Section 2.9.  Inspectors of Elections; Opening and Closing the Polls.  The
Board of Directors by resolution shall appoint one or more inspectors, which    
inspector or inspectors may include individuals who serve the Corporation in    
other capacities, including, without limitation, as officers, employees, agents 
or representatives, to act at meetings of stockholders and make written reports 
thereof. One or more persons may be designated as alternate inspectors to       
replace any inspector who fails to act. If no inspector or alternate has been   
appointed to act or is able to act at a meeting of stockholders, the chairman of
the meeting shall appoint one or more inspectors to act at the meeting. Each    
inspector, before discharging his or her duties, shall take and sign an oath    
faithfully to execute the duties of inspector with strict impartiality and      
according to the best of his or her ability. The inspectors shall have the      
duties prescribed by law.                                                       

    The chairman of the meeting shall fix and announce at the meeting the date
and time of the opening and the closing of the polls for each matter upon which 
the stockholders will vote at a meeting.                                        

ARTICLE III 

BOARD OF DIRECTORS

    Section 3.1.  General Powers.  The business and affairs of the Corporation
shall be managed under the direction of the Board of Directors. In addition to  
the powers and authorities by these By-laws expressly conferred upon them, the  
Board of Directors may exercise all such powers of the Corporation and do all   
such lawful acts and things as are not by statute or by the Certificate of      
Incorporation or by these By-laws required to be exercised or done by the       
stockholders.                                                                   

    Section 3.2.  Number, Tenure and Qualifications.  Subject to the rights of
the holders of any series of Preferred Stock to elect directors under specified 
circumstances, the number of directors shall be fixed from time to time         
exclusively pursuant to a resolution adopted by a majority of the Whole Board.  
The directors, other than those who may be elected by the holders of any series 
of Preferred Stock under specified circumstances, shall be divided, with respect
to the time for which they severally hold office, into three classes, as nearly 
equal in number as is reasonably possible, designated Class I, Class II and     
Class III, with the initial term of office of the Class I directors to expire at
the 1999 annual meeting of stockholders, the initial term of office of the Class
II directors to expire at the 2000 annual meeting of stockholders and the       
initial term of office of the Class III directors to expire at the 2001 annual  
meeting of stockholders, with each director to hold office until his or her     
successor shall have been duly elected and qualified. No person shall be        
nominated for election as a director if such person will have attained the age  
of 70 prior to the expiration of his or her term of office, except for any      
person whose election as a director of the Corporation is effective upon the    
distribution of shares of the Corporation's common stock by a Delaware          
corporation formerly named "W. R. Grace & Co." and whose initial term of office 
is scheduled to expire at the 2001 annual meeting of stockholders. At each      
annual meeting of stockholders, commencing with the 1999 annual meeting,        
directors elected to succeed those directors whose terms then expire shall be   
elected for a term of office to expire at the third succeeding annual meeting of
stockholders after their election, with each director to hold office until his  
or her successor shall have been duly elected and qualified.                    

Section 3.3.  Regular Meetings.  A regular meeting of the Board of    
Directors shall be held without other notice than this Section 3.3 immediately  
after, and at the same place as, the Annual Meeting of Stockholders. The Board  
of Directors may fix the time and place for the holding of additional regular   
meetings without notice.                                                        

     Section 3.4.  Special Meetings.  Special meetings of the Board of Directors
shall be called at the request of the Chairman, the President or a majority of  
the directors then in office. The person or persons authorized to call special  
meetings of the Board of Directors may fix the place and time of such meetings. 

    Section 3.5.  Notice.  Notice of any special meeting or notice of a change
in the time or place of any regular meeting of the Board of Directors shall be  
given to each director at his or her business or residence in writing by hand   
delivery, first-class or overnight mail or courier service, telegram or         
facsimile transmission, or orally by telephone. If mailed by first-class mail,  
such notice shall be deemed adequately delivered when deposited in the U.S.     
mails so addressed, with postage thereon prepaid, at least five (5) days before 
such                                                                            

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meeting. If by telegram, overnight mail or courier service, such notice shall be
deemed adequately delivered when the telegram is delivered to the telegraph     
company or the notice is delivered to the overnight mail or courier service     
company at least twenty-four (24) hours before such meeting. If by facsimile    
transmission, such notice shall be deemed adequately delivered when the notice  
is transmitted at least twelve (12) hours before such meeting. If by telephone, 
the notice shall be communicated to the director or his or her representative or
answering machine. If by telephone or by hand delivery, the notice shall be     
given at least twenty-four (24) hours prior to the time set for the meeting.    
Neither the business to be transacted at, nor the purpose of, any regular or    
special meeting of the Board of Directors need be specified in the notice of    
such meeting, except for amendments to these By-laws, as provided under Section 
8.1. A meeting may be held at any time without notice if all the directors are  
present or if those not present waive notice of the meeting in accordance with  
Section 6.4 of these Bylaws.                                                    

     Section 3.6.  Action by Consent of Board of Directors.  Any action required
or permitted to be taken at any meeting of the Board of Directors or of any     
committee thereof may be taken without a meeting if all members of the Board of 
Directors or committee, as the case may be, consent thereto in writing, and the 
writing or writings are filed with the minutes of proceedings of the Board of   
Directors or committee.                                                         

Section 3.7.  Conference Telephone Meetings.  Members of the Board of 
Directors, or any committee thereof, may participate in a meeting of the Board  
of Directors or such committee by means of conference telephone or similar      
communications equipment by means of which all persons participating in the     
meeting can hear each other, and such participation in a meeting shall          
constitute presence in person at such meeting.                                  

    Section 3.8.  Quorum.  Subject to Section 3.9, a number of directors equal
to at least a majority of the Whole Board shall constitute a quorum for the     
transaction of business. If at any meeting of the Board of Directors there shall
be less than a quorum present, a majority of the directors present may adjourn  
the meeting from time to time without further notice. The act of the majority of
the directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors. The directors present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal 
of enough directors to leave less than a quorum.                                

   Section 3.9.  Vacancies.  Subject to applicable law and the rights of the
holders of any series of Preferred Stock with respect to such series of         
Preferred Stock, and unless the Board of Directors otherwise determines,        
vacancies resulting from death, resignation, retirement, disqualification,      
removal from office or other cause, and newly created directorships resulting   
from any increase in the authorized number of directors, may be filled only by  
the affirmative vote of a majority of the remaining directors, though less than 
a quorum of the Board of Directors, and directors so chosen shall hold office   
for a term expiring at the annual meeting of stockholders at which the term of  
office of the class to which they have been elected expires and until such      
director's successor shall have been duly elected and qualified. No decrease in 
the number of authorized directors constituting the Whole Board shall shorten   
the term of any incumbent director.                                             

 Section 3.10.  Committees.  The Board of Directors may establish one or
more committees. Each Committee shall consist of two or more directors of the   
Corporation designated by the Board of Directors. The Board of Directors may    
designate one or more directors as alternate members of any committee, who may  
replace any absent or disqualified member at any meeting of the committee. Any  
such committee may to the extent permitted by law exercise such powers and shall
have such responsibilities as shall be specified in the designating resolution. 
In the absence or disqualification of any member of such committee or           
committees, the member or members thereof present at any meeting and not        
disqualified from voting, whether or not constituting a quorum, may unanimously 
appoint another member of the Board of Directors to act at the meeting in the   
place of any such absent or disqualified member. Each committee shall keep      
written minutes of its proceedings and shall report such proceedings to the     
Board of Directors when requested.                                              

   A majority of any committee may determine its action and fix the time and
place of its meetings, unless the Board of Directors shall otherwise provide.   
Notice of such meetings shall be given to each member of the committee in the   
manner provided for in Section 3.5 of these By-laws. The Board of Directors     
shall have the power at any time to fill vacancies in, to change the membership 
of, or to dissolve any such committee. Nothing herein shall be deemed to prevent
the Board of Directors from appointing one or more committees                   

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consisting in whole or in part of persons who are not directors of the          
Corporation; provided, however, that no such committee shall have or may        
exercise any authority of the Board of Directors.                               

The term of office of a committee member shall be as provided in the  
resolution of the Board designating him or her but shall not exceed his or her  
term as a director. If prior to the end of his term, a committee member should  
cease to be a director, he or she shall cease to be a committee member. Any     
member of a committee may resign at any time by giving written notice to the    
Board of Directors, the Chairman, the President or the Secretary. Such          
resignation shall take effect as provided in Section 6.6 of these By-laws in the
case of resignations by directors. Any member of a committee may be removed from
such committee, either with or without cause, at any time, by resolution adopted
by a majority of the whole Board. Any vacancy in a committee shall be filled by 
the Board of Directors in the manner prescribed by these By-laws for the        
original designation of the members of such committee.                          

  Section 3.11.  Committee on Officers' Compensation.  Pursuant to Section
3.10 of these By-laws, the Board of Directors shall designate a committee to    
evaluate the performance of, and to recommend the appropriate level of          
compensation for, officers of the Corporation. Such committee shall have access 
to an advisor not otherwise serving the Corporation. Each member of such        
committee shall be an "independent director," as that term is defined in the    
following sentence. For purposes of this Section 3.11, an "independent director"
shall mean a person who (a) has not been employed by the Corporation within the 
past five years; (b) is not, and is not affiliated with, a firm that is an      
advisor or consultant to the Corporation; (c) is not affiliated with any        
customer or supplier of the Corporation whose purchases from and/or sales to the
Corporation exceed 3% of the sales and revenues of such customer or supplier for
its most recently completed fiscal year; (d) has no personal services contract  
with the Corporation; (e) is not affiliated with a tax-exempt entity, not       
otherwise affiliated with the Corporation, that receives contributions from the 
Corporation that exceed 3% of such entity's gross contributions for its most    
recently completed fiscal year; and (f) is not a member of the "immediate       
family" (as defined in Item 404(a) of Securities and Exchange Commission        
Regulation S-K) of any person described in clauses (a) through (e).             

     Section 3.12.  Removal.  Subject to the rights of the holders of any series
of Preferred Stock with respect to such series of Preferred Stock, any director,
or the entire Board of Directors, may be removed from office at any time by the 
stockholders, but only for cause.                                               

  Section 3.13.  Records.  The Board of Directors shall cause to be kept a
record containing the minutes of the proceedings of the meetings of the Board of
Directors and of the stockholders, appropriate stock books and registers and    
such books of records and accounts as may be necessary for the proper conduct of
the business of the Corporation.                                                

ARTICLE IV

OFFICERS

  Section 4.1.  Elected Officers.  The elected officers of the Corporation
shall be a Chairman, a President, a Secretary, a Treasurer, and such other      
officers (including, without limitation, a Chief Financial Officer) as the Board
of Directors may deem proper from time to time. The Chairman shall be chosen    
from among the directors. Each officer elected by the Board of Directors shall  
have such powers and duties as generally pertain to his or her respective       
office, subject to the specific provisions of this ARTICLE IV. Such officers    
shall also have such powers and duties as may be conferred from time to time by 
the Board of Directors. The Board of Directors may from time to time elect, or  
the Chairman or President may appoint, such assistant officers (including one or
more Assistant Vice Presidents, Assistant Secretaries, Assistant Treasurers and 
Assistant Controllers) as may be necessary or desirable for the conduct of the  
business of the Corporation. Such assistant officers shall have such duties and 
shall hold their offices for such terms as shall be provided in these By-laws or
as may be prescribed by the Board of Directors or by the Chairman or President, 
as the case may be.                                                             

 Section 4.2.  Election and Term of Office.  The elected officers of the
Corporation shall be elected annually by the Board of Directors at the regular  
meeting of the Board of Directors held after the annual meeting of the          
stockholders or at any other time as the Board of Directors may deem proper.    
Each officer shall                                                              

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hold office until his successor shall have been duly elected and shall have     
qualified or until his death or until he shall resign, but any officer may be   
removed from office at any time by the affirmative vote of a majority of the    
Whole Board or, except in the case of an officer elected by the Board of        
Directors, by the Chairman or President. Such removal shall be without prejudice
to the contractual rights, if any, of the person so removed.                    

    Section 4.3.  Chairman.  The Chairman shall preside at all meetings of the
stockholders and of the Board of Directors and shall be the Chief Executive     
Officer of the Company. The Chairman shall be responsible for the general       
management of the affairs of the Corporation and shall perform all duties       
incidental to his office which may be required by law and all such other duties 
as are properly required of him by the Board of Directors. He shall make reports
to the Board of Directors and the stockholders, and shall see that all orders   
and resolutions of the Board of Directors and of any committee thereof are      
carried into effect. The Chairman may also serve as President, if so elected by 
the Board of Directors.                                                         

  Section 4.4.  President.  The President shall act in a general executive
capacity and shall assist the Chairman in the administration and operation of   
the Corporation's business and the general supervision of its policies and      
affairs. In the absence of or the inability to act of the Chairman, the         
President shall perform all duties of the Chairman and preside at all meetings  
of stockholders and of the Board of Directors.                                  

    Section 4.5.  Vice Presidents.  Each Vice President shall have such powers
and shall perform such duties as shall be assigned to him by the Board of       
Directors.                                                                      

 Section 4.6.  Chief Financial Officer.  The Chief Financial Officer (if
any) shall be a Vice President and act in an executive financial capacity. He   
shall assist the Chairman and the President in the general supervision of the   
Corporation's financial policies and affairs.                                   

    Section 4.7.  Treasurer.  The Treasurer shall exercise general supervision
over the receipt, custody and disbursement of corporate funds. The Treasurer    
shall cause the funds of the Corporation to be deposited in such banks as may be
authorized by the Board of Directors, or in such banks as may be designated as  
depositaries in the manner provided by resolution of the Board of Directors. He 
shall have such further powers and duties and shall be subject to such          
directions as may be granted or imposed upon him from time to time by the Board 
of Directors, the Chairman or the President.                                    

   Section 4.8.  Secretary.  The Secretary shall keep or cause to be kept in
one or more books provided for that purpose, the minutes of all meetings of the 
Board of Directors, the committees of the Board of Directors and the            
stockholders; he shall see that all notices are duly given in accordance with   
the provisions of these By-laws and as required by law; he shall be custodian of
the records and the seal of the Corporation and affix and attest the seal to all
stock certificates of the Corporation (unless the seal of the Corporation on    
such certificates shall be a facsimile, as hereinafter provided) and affix and  
attest the seal to all other documents to be executed on behalf of the          
Corporation under its seal; and he shall see that the books, reports,           
statements, certificates and other documents and records required by law to be  
kept and filed are properly kept and filed; and in general, he shall perform all
the duties incident to the office of Secretary and such other duties as from    
time to time may be assigned to him by the Board of Directors, the Chairman or  
the President.                                                                  

Section 4.9.  Controller.  The Controller shall have general control, 
charge and supervision of the accounts of the Corporation. He shall see that    
proper accounts are maintained and that all accounts are properly credited from 
time to time. He shall prepare or cause to be prepared the financial statements 
of the Corporation.                                                             

    Section 4.10.  Removal.  Any officer elected by the Board of Directors may
be removed by the affirmative vote of a majority of the Whole Board whenever, in
their judgment, the best interests of the Corporation would be served thereby.  
Any assistant officer appointed by the Chairman or the President may be removed 
by him whenever, in his judgment, the best interests of the Corporation would be
served thereby. No elected officer shall have any contractual rights against the
Corporation for compensation by virtue of such election beyond the date of the  
election of his successor, his death, his resignation or his removal, whichever 
event shall first occur, except as otherwise provided in an employment contract 
or under an employee deferred compensation plan.                                

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    Section 4.11.  Vacancies.  A newly created elected office and a vacancy in
any elected office because of death, resignation, or removal may be filled by   
the Board of Directors for the unexpired portion of the term at any meeting of  
the Board of Directors.                                                         

ARTICLE V 

STOCK CERTIFICATES AND TRANSFERS

Section 5.1.  Stock Certificates and Transfers.  The interest of each 
stockholder of the Corporation shall be evidenced by certificates for shares of 
stock in such form as the appropriate officers of the Corporation may from time 
to time prescribe. The shares of the stock of the Corporation shall be          
transferred on the books of the Corporation by the holder thereof in person or  
by his attorney, upon surrender for cancellation of certificates for at least   
the same number of shares, with an assignment and power of transfer endorsed    
thereon or attached thereto, duly executed, with such proof of the authenticity 
of the signature as the Corporation or its agents may reasonably require.       

    The certificates of stock shall be signed, countersigned and registered in
such manner as the Board of Directors may by resolution prescribe, which        
resolution may permit all or any of the signatures on such certificates to be in
facsimile. In case any officer, transfer agent or registrar who has signed or   
whose facsimile signature has been placed upon a certificate has ceased to be   
such officer, transfer agent or registrar before such certificate is issued, it 
may be issued by the Corporation with the same effect as if he were such        
officer, transfer agent or registrar at the date of issue.                      

   Section 5.2.  Lost, Stolen or Destroyed Certificates.  No certificate for
shares of stock in the Corporation shall be issued in place of any certificate  
alleged to have been lost, destroyed or stolen, except on production of such    
evidence of such loss, destruction or theft and on delivery to the Corporation  
of a bond of indemnity in such amount, upon such terms and secured by such      
surety, as the Board of Directors or any financial officer may in its or his    
discretion require.                                                             

ARTICLE VI

MISCELLANEOUS PROVISIONS

    Section 6.1.  Fiscal Year.  The fiscal year of the Corporation shall begin
on the first day of January and end on the thirty-first day of December of each 
year.                                                                           

Section 6.2.  Dividends.  The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law and the Certificate of 
Incorporation.                                                                  

  Section 6.3.  Seal.  The corporate seal shall have enscribed thereon the
words "Corporate Seal," the year of incorporation and around the margin thereof 
the words "W. R. Grace & Co."                                                   

Section 6.4.  Waiver of Notice.  Whenever any notice is required to be
given to any stockholder or director of the Corporation under the provisions of 
the General Corporation Law of the State of Delaware (the "GCL") or these       
By-laws, a waiver thereof in writing, signed by the person or persons entitled  
to such notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. The attendance of any stockholder at a 
meeting in person or by proxy, without protesting at the beginning of the       
meeting the lack of notice of such meeting, shall constitute a waiver of notice 
of such stockholder. Neither the business to be transacted at, nor the purpose  
of, any annual or special meeting of the stockholders or the Board of Directors 
or committee thereof need be specified in any waiver of notice of such meeting. 

   Section 6.5.  Audits.  The accounts, books and records of the Corporation
shall be audited upon the conclusion of each fiscal year by an independent      
certified public accountant selected by the Board of Directors, and it shall be 
the duty of the Board of Directors to cause such audit to be done annually.     

Section 6.6.  Resignations.  Any director or any officer or assistant 
officer, whether elected or appointed, may resign at any time by giving written 
notice of such resignation to the Chairman, the President, or the Secretary, and
such resignation shall be deemed to be effective as of the close of business on 
the date said notice is received by the Chairman, the President, or the         
Secretary, or at such later time as is specified therein.                       

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No formal action shall be required of the Board of Directors or the stockholders
to make any such resignation effective.                                         

     Section 6.7.  Indemnification and Insurance.  (A) Each person who was or is
made a party or is threatened to be made a party to or is involved in any       
action, suit, or proceeding, whether civil, criminal, administrative or         
investigative (hereinafter, a "proceeding"), by reason of the fact that he or   
she or a person of whom he or she is the legal representative is or was a       
director or officer of the Corporation or is or was serving at the request of   
the Corporation as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans maintained or sponsored by the           
Corporation, whether the basis of such proceeding is alleged action in an       
official capacity as a director, officer, employee or agent or in any other     
capacity while serving as a director, officer, employee or agent, shall be      
indemnified and held harmless by the Corporation to the fullest extent          
authorized by the GCL as the same exists or may hereafter be amended (but, in   
the case of any such amendment, only to the extent that such amendment permits  
the Corporation to provide broader indemnification rights than said law         
permitted the Corporation to provide prior to such amendment), against all      
expense, liability and loss (including attorneys' fees, judgments, fines, ERISA 
excise taxes or penalties and amounts paid or to be paid in settlement)         
reasonably incurred or suffered by such person in connection therewith, and such
indemnification shall continue as to a person who has ceased to be a director,  
officer, employee or agent and shall inure to the benefit of his or her heirs,  
executors and administrators; provided, however, that except as provided in     
paragraph (C) of this Section 6.7, the Corporation shall indemnify any such     
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was          
authorized by the Board of Directors. The right to indemnification conferred in 
this Section 6.7 shall be a contract right and shall include the right to be    
paid by the Corporation the expenses incurred in defending any such proceeding  
in advance of its final disposition, such advances to be paid by the Corporation
within 20 days after the receipt by the Corporation of a statement or statements
from the claimant requesting such advance or advances from time to time;        
provided, however, that if the GCL requires, the payment of such expenses       
incurred by a director or officer in his or her capacity as a director or       
officer (and not in any other capacity in which service was or is rendered by   
such person while a director or officer, including, without limitation, service 
to an employee benefit plan) in advance of the final disposition of a           
proceeding, shall be made only upon delivery to the Corporation of an           
undertaking by or on behalf of such director or officer, to repay all amounts so
advanced if it shall ultimately be determined that such director or officer is  
not entitled to be indemnified under this Section 6.7 or otherwise.             

(B) To obtain indemnification under this Section 6.7, a claimant shall
submit to the Corporation a written request, including therein or therewith such
documentation and information as is reasonably available to the claimant and is 
reasonably necessary to determine whether and to what extent the claimant is    
entitled to indemnification. Upon written request by a claimant for             
indemnification pursuant to the first sentence of this paragraph (B), a         
determination, if required by applicable law, with respect to the claimant's    
entitlement thereto shall be made as follows: (1) if requested by the claimant, 
by Independent Counsel (as hereinafter defined), or (2) if no request is made by
the claimant for a determination by Independent Counsel, (i) by the Board of    
Directors by a majority vote of a quorum consisting of Disinterested Directors  
(as hereinafter defined), or (ii) if a quorum of the Board of Directors         
consisting of Disinterested Directors is not obtainable or, even if obtainable, 
such quorum of Disinterested Directors so directs, by Independent Counsel in a  
written opinion to the Board of Directors, a copy of which shall be delivered to
the claimant, or (iii) if a quorum of Disinterested Directors so directs, by the
stockholders of the Corporation. In the event the determination of entitlement  
to indemnification is to be made by Independent Counsel at the request of the   
claimant, the Independent Counsel shall be selected by the Board of Directors   
unless there shall have occurred within two years prior to the date of the      
commencement of the action, suit or proceeding for which indemnification is     
claimed a "Change of Control" (as defined below), in which case the Independent 
Counsel shall be selected by the claimant unless the claimant shall request that
such selection be made by the Board of Directors. If it is so determined that   
the claimant is entitled to indemnification, payment to the claimant shall be   
made within 10 days after such determination.                                   

    (C) If a claim under paragraph (A) of this Section 6.7 is not paid in full
by the Corporation within 30 days after a written claim pursuant to paragraph   
(B) of this Section 6.7 has been received by the                                

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Corporation, the claimant may at any time thereafter bring suit against the     
Corporation to recover the unpaid amount of the claim and, if successful in     
whole or in part, the claimant shall be entitled to be paid also the expense of 
prosecuting such claim. It shall be a defense to any such action (other than an 
action brought to enforce a claim for expenses incurred in defending any        
proceeding in advance of its final disposition where the required undertaking,  
if any is required, has been tendered to the Corporation) that the claimant has 
not met the standard of conduct which makes it permissible under the GCL for the
Corporation to indemnify the claimant for the amount claimed, but the burden of 
proving such defense shall be on the Corporation. Neither the failure of the    
Corporation (including its Board of Directors, Independent Counsel or           
stockholders) to have made a determination prior to the commencement of such    
action that indemnification of the claimant is proper in the circumstances      
because he or she has met the applicable standard of conduct set forth in the   
GCL, nor an actual determination by the Corporation (including its Board of     
Directors, Independent Counsel or stockholders) that the claimant has not met   
such applicable standard of conduct, shall be a defense to the action or create 
a presumption that the claimant has not met the applicable standard of conduct. 

  (D) If a determination shall have been made pursuant to paragraph (B) of
this Section 6.7 that the claimant is entitled to indemnification, the          
Corporation shall be bound by such determination in any judicial proceeding     
commenced pursuant to paragraph (C) of this Section 6.7.                        

(E) The Corporation shall be precluded from asserting in any judicial 
proceeding commenced pursuant to paragraph (C) of this Section 6.7 that the     
procedures and presumptions of this Section 6.7 are not valid, binding and      
enforceable and shall stipulate in such proceeding that the Corporation is bound
by all the provisions of this Section 6.7.                                      

  (F) The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this    
Section 6.7 shall not be exclusive of any other right which any person may have 
or hereafter acquire under any statute, provision of the Certificate of         
Incorporation, these By-laws, agreement, vote of stockholders or Disinterested  
Directors or otherwise. No repeal or modification of this Section 6.7 shall in  
any way diminish or adversely affect the rights of any director, officer,       
employee or agent of the Corporation hereunder in respect of any occurrence or  
matter arising prior to any such repeal or modification.                        

(G) The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or       
another corporation, partnership, joint venture, trust or other enterprise      
against any expense, liability or loss, whether or not the Corporation would    
have the power to indemnify such person against such expense, liability or loss 
under the GCL. To the extent that the Corporation maintains any policy or       
policies providing such insurance, each such director or officer, and each such 
agent or employee to which rights to indemnification have been granted as       
provided in paragraph (H) of this Section 6.7, shall be covered by such policy  
or policies in accordance with its or their terms to the maximum extent of the  
coverage thereunder for any such director, officer, employee or agent.          

    (H) The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification, and rights to be paid by   
the Corporation the expenses incurred in defending any proceeding in advance of 
its final disposition, to any employee or agent of the Corporation to the       
fullest extent of the provisions of this Section 6.7 with respect to the        
indemnification and advancement of expenses of directors and officers of the    
Corporation.                                                                    

    (I) If any provision or provisions of this Section 6.7 shall be held to be
invalid, illegal or unenforceable for any reason whatsoever: (1) the validity,  
legality and enforceability of the remaining provisions of this Section 6.7     
(including, without limitation, each portion of any paragraph of this By-law    
containing any such provision held to be invalid, illegal or unenforceable, that
is not itself held to be invalid, illegal or unenforceable) shall not in any way
be affected or impaired thereby; and (2) to the fullest extent possible, the    
provisions of this Section 6.7 (including, without limitation, each such portion
of any paragraph of this By-law containing any such provision held to be        
invalid, illegal or unenforceable) shall be construed so as to give effect to   
the intent manifested by the provision held invalid, illegal or unenforceable.  

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(J) For purposes of this Section 6.7:                                 

        (1) "Disinterested Director" means a director of the Corporation who
is not and was not a party to the matter in respect of which          
indemnification is sought by the claimant.                            

          (2) "Independent Counsel" means a law firm, a member of a law firm, or
    an independent practitioner, that is experienced in matters of corporation
 law and shall include any person who, under the applicable standards of
     professional conduct then prevailing, would not have a conflict of interest
in representing either the Corporation or the claimant in an action to
determine the claimant's rights under this Section 6.7.               

  (3) "Change of Control" has the meaning given such term in the
Corporation's 1998 Stock Incentive Plan, as the same may be amended or
superseded from time to time.                                         

    (K) Any notice, request or other communication required or permitted to be
given to the Corporation under this Section 6.7 shall be in writing and either  
delivered in person or sent by telecopy, telex, telegram, overnight mail or     
courier service, or certified or registered mail, postage prepaid, return       
receipt requested, to the Secretary of the Corporation and shall be effective   
only upon receipt by the Secretary.                                             

ARTICLE VII 

CONTRACTS, PROXIES, ETC.

Section 7.1.  Contracts.  Except as otherwise required by law, the    
Certificate of Incorporation or these By-laws, any contracts or other           
instruments may be executed and delivered in the name and on the behalf of the  
Corporation by such officer or officers of the Corporation as the Board of      
Directors may from time to time direct. Such authority may be general or        
confined to specific instances as the Board of Directors may determine. The     
Chairman, the President or any Vice President may execute bonds, contracts,     
deeds, leases and other instruments to be made or executed for or on behalf of  
the Corporation. Subject to any restrictions imposed by the Board of Directors  
or the Chairman, the President or any Vice President of the Corporation may     
delegate contractual powers to others under his jurisdiction, it being          
understood, however, that any such delegation of power shall not relieve such   
officer of responsibility with respect to the exercise of such delegated power. 

    Section 7.2.  Proxies.  Unless otherwise provided by resolution adopted by
the Board of Directors, the Chairman, the President or any Vice President may   
from time to time appoint an attorney or attorneys or agent or agents of the    
Corporation, in the name and on behalf of the Corporation, to cast the votes    
which the Corporation may be entitled to cast as the holder of stock or other   
securities in any other corporation, any of whose stock or other securities may 
be held by the Corporation, at meetings of the holders of the stock or other    
securities of such other corporation, or to consent in writing, in the name of  
the Corporation as such holder, to any action by such other corporation, and may
instruct the person or persons so appointed as to the manner of casting such    
votes or giving such consent, and may execute or cause to be executed in the    
name and on behalf of the Corporation and under its corporate seal or otherwise,
all such written proxies or other instruments as he may deem necessary or proper
in the premises.                                                                

ARTICLE VIII

AMENDMENTS

Section 8.1.  Amendments.  These By-laws may be altered, amended, or  
repealed at any meeting of the Board of Directors or of the stockholders,       
provided notice of the proposed change was given in the notice of the meeting   
and, in the case of a meeting of the Board of Directors, in a notice given not  
less than two days prior to the meeting; provided, however, that, in the case of
amendments by stockholders, notwithstanding any other provisions of these       
By-laws or any provision of law which might otherwise permit a lesser vote or no
vote, but in addition to any affirmative vote of the holders of any particular  
class or series of the capital stock of the Corporation required by law, the    
Certificate of Incorporation or these By-laws, the affirmative vote of the      
holders of at least 80 percent of the voting power of all the then outstanding  
shares of the Voting Stock, voting together as a single class, shall be required
to alter, amend or repeal any provision of these By-laws.                       

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                                                                         ANNEX C

W. R. GRACE & CO. 
(FORMERLY NAMED GRACE SPECIALTY CHEMICALS, INC.)

1998 STOCK INCENTIVE PLAN 

   1.  Purposes.  The purposes of this Plan are (a) to enable Key Persons to
have incentives related to Common Stock, (b) to encourage Key Persons to        
increase their interest in the growth and prosperity of the Company and to      
stimulate and sustain constructive and imaginative thinking by Key Persons, (c) 
to further the identity of interests of Key Persons with the interests of the   
Company's stockholders, and (d) to induce the service or continued service of   
Key Persons and to enable the Company to compete with other organizations       
offering similar or other incentives in obtaining and retaining the services of 
the most highly qualified individuals.                                          

  2.  Definitions.  When used in this Plan, the following terms shall have
the meanings set forth in this section 2.                                       

Board of Directors:  The Board of Directors of the Company.           

     cessation of service (or words of similar import):  When a person ceases to
be an employee of the Company or a Subsidiary. For purposes of this definition, 
if an entity that was a Subsidiary ceases to be a Subsidiary, persons who       
immediately thereafter remain employees of that entity (and are not employees of
the Company or an entity that is a Subsidiary) shall be deemed to have ceased   
service.                                                                        

 Change in Control:  Shall be deemed to have occurred if (a) the Company
determines that any "person" (as such term is used in Sections 13(d) and 14(d)  
of the Exchange Act), other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or a corporation owned, directly  
or indirectly, by the stockholders of the Company in substantially the same     
proportions as their ownership of stock of the Company, has become the          
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly  
or indirectly, of 20% or more of the outstanding Common Stock of the Company    
(provided, however, that a Change in Control shall not be deemed to have        
occurred if such person has become the beneficial owner of 20% or more of the   
outstanding Common Stock as the result of a sale of Common Stock by the Company 
that has been approved by the Board of Directors); (b) individuals who are      
"Continuing Directors" (as defined below) cease to constitute a majority of any 
class of the Board of Directors; (c) there occurs a reorganization, merger,     
consolidation or other corporate transaction involving the Company (a "Corporate
Transaction"), in each case, with respect to which the stockholders of the      
Company immediately prior to such Corporate Transaction do not, immediately     
after the Corporate Transaction, own 50% or more of the combined voting power of
the corporation resulting from such Corporate Transaction; or (d) the           
stockholders of the Company approve a complete liquidation or dissolution of the
Company. "Continuing Director" means any member of the Board of Directors who   
was such a member on the date on which this Plan was approved by the Board of   
Directors and any successor to such a Continuing Director who is approved as a  
nominee or elected to succeed a Continuing Director by a majority of Continuing 
Directors who are then members of the Board of Directors.                       

Change in Control Price:  The higher of (a) the highest reported sales
price, regular way, as reported in The Wall Street Journal or another newspaper 
of general circulation, of a share of Common Stock in any transaction reported  
on the New York Stock Exchange Composite Tape or other national exchange on     
which such shares are listed or on NASDAQ during the 60-day period prior to and 
including the date of a Change in Control or (b) if the Change in Control is the
result of a tender or exchange offer or a Corporate Transaction, the highest    
price per share of Common Stock paid in such tender or exchange offer or        
Corporate Transaction; provided, however, that in the case of Incentive Stock   
Options, the Change in Control Price shall be in all cases the Fair Market Value
of the Common Stock on the date such Incentive Stock Option is exercised. To the
extent that the consideration paid in any Corporate Transaction or other        
transaction described above consists in whole or in part of securities or other 
noncash consideration, the value of such securities or other noncash            
consideration shall be determined in the sole discretion of the Board of        
Directors.                                                                      

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Code:  The Internal Revenue Code of 1986, as amended.                 

 Committee:  The Compensation Committee of the Board of Directors of the
Company or any other committee designated by the Board of Directors to          
administer stock incentive and stock option plans of the Company and the        
Subsidiaries generally or this Plan specifically.                               

   Common Stock:  The common stock of the Company, par value $.01 per share,
or such other class of shares or other securities or property as may be         
applicable pursuant to the provisions of section 8.                             

  Company:  W. R. Grace & Co., a Delaware corporation formerly named Grace
Specialty Chemicals, Inc.                                                       

     Continuing Director:  The meaning set forth in the definition of "Change in
Control" above.                                                                 

    Corporate Transaction:  The meaning set forth in the definition of "Change
in Control" above.                                                              

Exchange Act:  The Securities Exchange Act of 1934, as amended.       

Exercise Period:  The meaning set forth in section 14(b) of this Plan.

     Fair Market Value:  (a) The mean between the high and low sales prices of a
share of Common Stock in New York Stock Exchange composite transactions on the  
applicable date, as reported in The Wall Street Journal or another newspaper of 
general circulation, or, if no sales of shares of Common Stock were reported for
such date, for the next preceding date for which such sales were so reported, or
(b) the fair market value of a share of Common Stock determined in accordance   
with any other reasonable method approved by the Committee.                     

     Incentive Stock Option:  A stock option that states that it is an incentive
stock option and that is intended to meet the requirements of Section 422 of the
Code and the regulations thereunder applicable to incentive stock options, as in
effect from time to time.                                                       

issuance (or words of similar import):  The issuance of authorized but
unissued Common Stock or the transfer of issued Common Stock held by the Company
or a Subsidiary.                                                                

     Key Person:  An employee of the Company or a Subsidiary who, in the opinion
of the Committee, has contributed or can contribute significantly to the growth 
and successful operations of the Company or one or more Subsidiaries. The grant 
of a Stock Incentive to an employee shall be deemed a determination by the      
Committee that such person is a Key Person.                                     

Nonstatutory Stock Option:  An Option that is not an Incentive Stock  
Option.                                                                         

 Option:  An option granted under this Plan to purchase shares of Common
Stock.                                                                          

Option Agreement:  An agreement setting forth the terms of an Option. 

  Plan:  The 1998 Stock Incentive Plan of the Company herein set forth, as
the same may from time to time be amended.                                      

     service:  Service to the Company or a Subsidiary as an employee. "To serve"
has a correlative meaning.                                                      

Spread:  The meaning set forth in section 14(b) of this Plan.         

Stock Award:  An issuance of shares of Common Stock or an undertaking 
(other than an Option) to issue such shares in the future.                      

   Stock Incentive:  A stock incentive granted under this Plan in one of the
forms provided for in section 3.                                                

     Subsidiary:  A corporation (or other form of business association) of which
shares (or other ownership interests) having 50% or more of the voting power    
regularly entitled to vote for directors (or equivalent management rights) are  
owned, directly or indirectly, by the Company, or any other entity designated as
such by the Board of Directors; provided, however, that in the case of an       
Incentive Stock Option, the term "Subsidiary" shall mean a Subsidiary (as       
defined by the preceding clause) that is also a "subsidiary                     

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corporation" as defined in Section 424(f) of the Code and the regulations       
thereunder, as in effect from time to time.                                     

3.  Grants of Stock Incentives.  (a) Subject to the provisions of this
Plan, the Committee may at any time and from time to time grant Stock Incentives
under this Plan to, and only to, Key Persons.                                   

(b) The Committee may grant a Stock Incentive to be effective at a    
specified future date or upon the future occurrence of a specified event. For   
the purposes of this Plan, any such Stock Incentive shall be deemed granted on  
the date it becomes effective. An agreement or other commitment to grant a Stock
Incentive that is to be effective in the future shall not be deemed the grant of
a Stock Incentive until the date on which such Stock Incentive becomes          
effective.                                                                      

(c) A Stock Incentive may be granted in the form of:                  

(i) a Stock Award, or                                           

(ii) an Option, or                                              

(iii) a combination of a Stock Award and an Option.         

     4.  Stock Subject to this Plan.  (a) Subject to the provisions of paragraph
(c) of this section 4 and the provisions of section 8, the maximum number of    
shares of Common Stock that may be issued pursuant to Stock Incentives granted  
under this Plan shall not exceed Six Million (6,000,000).                       

 (b) Authorized but unissued shares of Common Stock and issued shares of
Common Stock held by the Company or a Subsidiary, whether acquired specifically 
for use under this Plan or otherwise, may be used for purposes of this Plan.    

     (c) If any shares of Common Stock subject to a Stock Incentive shall not be
issued and shall cease to be issuable because of the termination, in whole or in
part, of such Stock Incentive or for any other reason, or if any such shares    
shall, after issuance, be reacquired by the Company or a Subsidiary from the    
recipient of such Stock Incentive, or from the estate of such recipient, for any
reason, such shares shall no longer be charged against the limitation provided  
for in paragraph (a) of this section 4 and may again be made subject to Stock   
Incentives.                                                                     

(d) Of the total number of shares specified in paragraph (a) of this  
section 4 (subject to adjustment as specified therein), during the term of this 
Plan as defined in section 9, (i) no more than 15% may be subject to Options    
granted to any one Key Person and (ii) no more than 15% may be subject to Stock 
Incentives granted to any one Key Person.                                       

5.  Stock Awards.  Except as otherwise provided in section 12, Stock  
Incentives in the form of Stock Awards shall be subject to the following        
provisions:                                                                     

          (a) For purposes of this Plan, all shares of Common Stock subject to a
    Stock Award shall be valued at not less than 100% of the Fair Market Value
of such shares on the date such Stock Award is granted, regardless of 
 whether or when such shares are issued pursuant to such Stock Award and
whether or not such shares are subject to restrictions affecting their
value.                                                                

          (b) Shares of Common Stock subject to a Stock Award may be issued to a
Key Person at the time the Stock Award is granted, or at any time     
     subsequent thereto, or in installments from time to time. In the event that
     any such issuance shall not be made at the time the Stock Award is granted,
   the Stock Award may provide for the payment to such Key Person, either in
     cash or shares of Common Stock, of amounts not exceeding the dividends that
would have been payable to such Key Person in respect of the number of
shares of Common Stock subject to such Stock Award (as adjusted under 
  section 8) if such shares had been issued to such Key Person at the time
     such Stock Award was granted. Any Stock Award may provide that the value of
     any shares of Common Stock subject to such Stock Award may be paid in cash,
     on each date on which shares would otherwise have been issued, in an amount
equal to the Fair Market Value on such date of the shares that would  
otherwise have been issued.                                           

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         (c) The material terms of each Stock Award shall be determined by the
Committee. Each Stock Award shall be evidenced by a written instrument
   consistent with this Plan. It is intended that a Stock Award would be (i)
  made contingent upon the attainment of one or more specified performance
objectives and/or (ii) subject to restrictions on the sale or other   
   disposition of the Stock Award or the shares subject thereto for a period
of three or more years; provided, however, that (x) a Stock Award may 
include restrictions and limitations in addition to those provided for
    herein and (y) of the total number of shares specified in paragraph (a) of
 section 4 (subject to adjustment as specified therein), up to 3% may be
  subject to Stock Awards not subject to clause (i) or clause (ii) of this
sentence.                                                             

       (d) A Stock Award shall be granted for such lawful consideration as
may be provided for therein.                                          

    6.  Options.  Except as otherwise provided in section 12, Stock Incentives
in the form of Options shall be subject to the following provisions:            

      (a) The purchase price per share of Common Stock shall be not less
   than 100% of the Fair Market Value of a share of Common Stock on the date
    the Option is granted. The purchase price and any withholding tax that may
     be due on the exercise of an Option may be paid in cash, or, if so provided
  in the Option Agreement, (i) in shares of Common Stock (including shares
     issued pursuant to the Option being exercised and shares issued pursuant to
    a Stock Award granted subject to restrictions as provided for in paragraph
(c) of section 5), or (ii) in a combination of cash and such shares;  
   provided, however, that no shares of Common Stock delivered in payment of
  the purchase price may be "immature shares," as determined in accordance
  with generally accepted accounting principles in effect at the time. Any
    shares of Common Stock delivered to the Company in payment of the purchase
    price or withholding tax shall be valued at their Fair Market Value on the
     date of exercise. No certificate for shares of Common Stock shall be issued
     upon the exercise of an Option until the purchase price for such shares has
been paid in full.                                                    

       (b) If so provided in the Option Agreement, the Company shall, upon
  the request of the holder of the Option and at any time and from time to
  time, cancel all or a portion of the Option then subject to exercise and
   either (i) pay the holder an amount of money equal to the excess, if any,
   of the Fair Market Value, at such time or times, of the shares subject to
the portion of the Option so canceled over the purchase price for such
shares, or (ii) issue shares of Common Stock to the holder with a Fair
 Market Value, at such time or times, equal to such excess, or (iii) pay
such excess by a combination of money and shares.                     

       (c) Each Option may be exercisable in full at the time of grant, or
may become exercisable in one or more installments and at such time or
 times or upon the occurrence of such events, as may be specified in the
     Option Agreement, as determined by the Committee. Unless otherwise provided
in the Option Agreement, an Option, to the extent it is or becomes    
 exercisable, may be exercised at any time in whole or in part until the
expiration or termination of such Option.                             

      (d) Each Option shall be exercisable during the life of the holder
 only by him and, after his death, only by his estate or by a person who
  acquires the right to exercise the Option by will or the laws of descent
and distribution. An Option, to the extent that it shall not have been
   exercised or canceled, shall terminate as follows after the holder ceases
  to serve: (i) if the holder shall voluntarily cease to serve without the
  consent of the Committee or shall have his service terminated for cause,
   the Option shall terminate immediately upon cessation of service; (ii) if
the holder shall cease to serve by reason of death, incapacity or     
retirement under a retirement plan of the Company or a Subsidiary, the
 Option shall terminate three years after the date on which he ceased to
serve; and (iii) except as provided in the next sentence, in all other
   cases the Option shall terminate three months after the date on which the
   holder ceased to serve unless the Committee shall approve a longer period
   (which approval may be given before or after cessation of service) not to
    exceed three years. If the holder shall die or become incapacitated during
     the three-month period (or such longer period as the Committee may approve)
     referred to in the preceding clause (iii), the Option shall terminate three
  years after the date on which he ceased to serve. A leave of absence for
   military or governmental service or other purposes shall not, if approved
    by the Committee (which approval may be given before or after the leave of
absence commences), be deemed a                                       

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cessation of service within the meaning of this paragraph (d).        
     Notwithstanding the foregoing provisions of this paragraph (d) or any other
    provision of this Plan, no Option shall be exercisable after expiration of
  a period of ten years and one month from the date the Option is granted.
  Where a Nonstatutory Option is granted for a term of less than ten years
  and one month, the Committee may, at any time prior to the expiration of
  the Option, extend its term for a period ending not later than ten years
     and one month from the date the Option was granted. Such an extension shall
not be deemed the grant of a new Option under this Plan.              

         (e) No Option nor any right thereunder may be assigned or transferred
   except by will or the laws of descent and distribution and except, in the
   case of a Nonstatutory Option, pursuant to a qualified domestic relations
 order (as defined in the Code), unless otherwise provided in the Option
Agreement.                                                            

      (f) An Option may, but need not, be an Incentive Stock Option. All
   shares of Common Stock that may be made subject to Stock Incentives under
this Plan may be made subject to Incentive Stock Options; provided,   
  however, that (i) no Incentive Stock Option may be granted more than ten
    years after the effective date of this Plan, as provided in section 9; and
(ii) the aggregate Fair Market Value (determined as of the time an    
Incentive Stock Option is granted) of the shares subject to each      
  installment becoming exercisable for the first time in any calendar year
  under Incentive Stock Options granted on or after January 1, 1987 (under
    all plans, including this Plan, of his employer corporation and its parent
     and subsidiary corporations) to the Key Person to whom such Incentive Stock
Option is granted shall not exceed $100,000.                          

    (g) The material terms of each Option shall be determined by the
Committee. Each Option shall be evidenced by a written instrument     
consistent with this Plan, and shall specify whether the Option is an 
Incentive Stock Option or a Nonstatutory Option. An Option may include
restrictions and limitations in addition to those provided for in this
Plan.                                                                 

        (h) Options shall be granted for such lawful consideration as may be
provided for in the Option Agreement.                                 

   7.  Combination of Stock Awards and Options.  Stock Incentives authorized
by paragraph (c)(iii) of section 3 in the form of combinations of Stock Awards  
and Options shall be subject to the following provisions: (a) A Stock Incentive 
may be a combination of any form of Stock Award and any form of Option;         
provided, however, that the terms and conditions of such Stock Incentive        
pertaining to a Stock Award are consistent with section 5 and the terms and     
conditions of such Stock Incentive pertaining to an Option are consistent with  
section 6.                                                                      

   (b) Such combination Stock Incentive shall be subject to such other terms
and conditions as may be specified therein, including without limitation a      
provision terminating in whole or in part a portion thereof upon the exercise in
whole or in part of another portion thereof.                                    

(c) The material terms of each combination Stock Incentive shall be   
determined by the Committee. Each combination Stock Incentive shall be evidenced
by a written instrument consistent with this Plan.                              

 8.  Adjustment Provisions.  (a) In the event that any reclassification,
split-up or consolidation of the Common Stock shall be effected, or the         
outstanding shares of Common Stock are, in connection with a merger or          
consolidation of the Company or a sale by the Company of all or a part of its   
assets, exchanged for a different number or class of shares of stock or other   
securities or property of the Company or for shares of the stock or other       
securities or property of any other corporation or person, or a record date for 
determination of holders of Common Stock entitled to receive a dividend payable 
in Common Stock shall occur, (i) the number, kind and class of shares or other  
securities or property that may be issued pursuant to Stock Incentives          
thereafter granted, (ii) the number, kind and class of shares or other          
securities or property that have not been issued under outstanding Stock        
Incentives, (iii) the purchase price to be paid per share or other unit under   
outstanding Stock Incentives, and (iv) the price to be paid per share or other  
unit by the Company or a Subsidiary for shares or other securities or property  
issued pursuant to Stock Incentives that are subject to a right of the Company  
or a Subsidiary to reacquire such shares or other securities or property, shall 
in each case be equitably adjusted as determined by the Committee.              

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    (b) In the event that there shall occur any spin-off or other distribution
of assets of the Company to its shareholders (including without limitation an   
extraordinary dividend), (i) the number, kind and class of shares or other      
securities or property that may be issued pursuant to Stock Incentives          
thereafter granted, (ii) the number, kind and class of shares or other          
securities or property that have not been issued under outstanding Stock        
Incentives, (iii) the purchase price to be paid per share or other unit under   
outstanding Stock Incentives, and (iv) the price to be paid per share or other  
unit by the Company or a Subsidiary for shares or other securities or property  
issued pursuant to Stock Incentives that are subject to a right of the Company  
or a Subsidiary to reacquire such shares or other securities or property, shall 
in each case be equitably adjusted as determined by the Committee.              

    9.  Term.  This Plan shall be deemed adopted and shall become effective on
the date on which the Common Stock is distributed to the holders of the common  
stock of W. R. Grace & Co., a Delaware corporation subsequently renamed "Sealed 
Air Corporation." No Stock Incentives shall be granted under this Plan after the
tenth anniversary of such date.                                                 

     10.  Administration.  (a) This Plan shall be administered by the Committee,
which shall have full authority to act in the matter of selection of Key Persons
and in granting Stock Incentives to them and such other authority as is granted 
to the Committee by this Plan. Notwithstanding any other provision of this Plan,
the Board of Directors may exercise any and all powers of the Committee with    
respect to this Plan, except to the extent that the possession or exercise of   
any power by the Board of Directors would cause any Stock Incentive to become   
subject to, or to lose an exemption from, Section 162(m) of the Code or Section 
16(b) of the Exchange Act.                                                      

(b) The Committee may establish such rules and regulations, not       
inconsistent with the provisions of this Plan, as it deems necessary to         
determine eligibility to be granted Stock Incentives under this Plan and for the
proper administration of this Plan, and may amend or revoke any rule or         
regulation so established. The Committee may make such determinations and       
interpretations under or in connection with this Plan as it deems necessary or  
advisable. All such rules, regulations, determinations and interpretations shall
be binding and conclusive upon the Company, its Subsidiaries, its shareholders  
and its directors, officers and employees, and upon their respective legal      
representatives, beneficiaries, successors and assigns, and upon all other      
persons claiming under or through any of them.                                  

   (c) Members of the Board of Directors and members of the Committee acting
under this Plan shall be fully protected in relying in good faith upon the      
advice of counsel and shall incur no liability in the performance of their      
duties, except as otherwise provided by applicable law.                         

 11.  General Provisions.  (a) Nothing in this Plan or in any instrument
executed pursuant hereto shall confer upon any person any right to continue in  
the service of the Company or a Subsidiary, or shall affect the right of the    
Company or of a Subsidiary to terminate the service of any person with or       
without cause.                                                                  

     (b) No shares of Common Stock shall be issued pursuant to a Stock Incentive
unless and until all legal requirements applicable to the issuance of such      
shares have, in the opinion of counsel to the Company, been complied with. In   
connection with any such issuance, the person acquiring the shares shall, if    
requested by the Company, give assurances, satisfactory to counsel to the       
Company, in respect of such matters as the Company or a Subsidiary may deem     
desirable to assure compliance with all applicable legal requirements.          

    (c) No person (individually or as a member of a group), and no beneficiary
or other person claiming under or through him, shall have any right, title or   
interest in or to any shares of Common Stock allocated or reserved for the      
purposes of this Plan or subject to any Stock Incentive except as to such shares
of Common Stock, if any, as shall have been issued to him.                      

(d) In the case of a grant of a Stock Incentive to a Key Person who is
employed by a Subsidiary, such grant may provide for the issuance of the shares 
covered by the Stock Incentive to the Subsidiary, for such consideration as may 
be provided, upon the condition or understanding that the Subsidiary will       
transfer the shares to the Key Person in accordance with the terms of the Stock 
Incentive.                                                                      

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     (e) In the event the laws of a country in which the Company or a Subsidiary
has employees prescribe certain requirements for Stock Incentives to qualify for
advantageous tax treatment under the laws of that country (including, without   
limitation, laws establishing options analogous to Incentive Stock Options), the
Committee, may, for the benefit of such employees, amend, in whole or in part,  
this Plan and may include in such amendment additional provisions for the       
purposes of qualifying the amended plan and Stock Incentives granted thereunder 
under such laws; provided, however, that (i) the terms and conditions of a Stock
Incentive granted under such amended plan may not be more favorable to the      
recipient than would be permitted if such Stock Incentive had been granted under
this Plan as herein set forth, (ii) all shares allocated to or utilized for the 
purposes of such amended plan shall be subject to the limitations of section 4, 
and (iii) the provisions of the amended plan may restrict but may not extend or 
amplify the provisions of sections 9 and 13.                                    

     (f) The Company or a Subsidiary may make such provisions as either may deem
appropriate for the withholding of any taxes that the Company or a Subsidiary   
determines is required to be withheld in connection with any Stock Incentive.   

(g) Nothing in this Plan is intended to be a substitute for, or shall 
preclude or limit the establishment or continuation of, any other plan, practice
or arrangement for the payment of compensation or benefits to directors,        
officers or employees generally, or to any class or group of such persons, that 
the Company or any Subsidiary now has or may hereafter put into effect,         
including, without limitation, any incentive compensation, retirement, pension, 
group insurance, stock purchase, stock bonus or stock option plan.              

12.  Acquisitions.  If the Company or any Subsidiary should merge or  
consolidate with, or purchase stock or assets or otherwise acquire the whole or 
part of the business of, another entity, the Company, upon the approval of the  
Committee, (a) may assume, in whole or in part and with or without modifications
or conditions, any stock incentives granted by the acquired entity to its       
directors, officers, employees or consultants in their capacities as such, or   
(b) may grant new Stock Incentives in substitution therefor. Any such assumed or
substitute Stock Incentives may contain terms and conditions inconsistent with  
the provisions of this Plan (including the limitations set forth in paragraph   
(d) of section 4), including additional benefits for the recipient; provided,   
however, that if such assumed or substitute Stock Incentives are Incentive Stock
Options, such terms and conditions are permitted under the plan of the acquired 
entity. For the purposes of any applicable plan provision involving time or a   
date, a substitute Stock Incentive shall be deemed granted as of the date of    
grant of the original stock incentive.                                          

13.  Amendments and Termination.  (a) This Plan may be amended or     
terminated by the Board of Directors upon the recommendation of the Committee;  
provided, however, that, without the approval of the stockholders of the        
Company, no amendment shall be made which (i) causes this Plan to cease to      
comply with applicable law, (ii) permits any person who is not a Key Person to  
be granted a Stock Incentive (except as otherwise provided in section 12), (iii)
amends the provisions of paragraph (d) of section 4, paragraph (a) of section 5 
or paragraph (a) or paragraph (f) of section 6 to permit shares to be valued at,
or to have a purchase price of, respectively, less than the percentage of Fair  
Market Value specified therein, (iv) amends section 9 to extend the date set    
forth therein, or (v) amends this section 13.                                   

 (b) No amendment or termination of this Plan shall adversely affect any
Stock Incentive theretofore granted, and no amendment of any Stock Incentive    
granted pursuant to this Plan shall adversely affect such Stock Incentive,      
without the consent of the holder thereof.                                      

     14.  Change in Control Provisions.  (a) Notwithstanding any other provision
of this Plan to the contrary, in the event of a Change in Control:              

      (i) Any Options outstanding as of the date on which such Change in
     Control occurs, and which are not then exercisable and vested, shall become
    fully exercisable and vested to the full extent of the original grant; and

      (ii) All restrictions and deferral limitations applicable to Stock
Incentives shall lapse, and Stock Incentives shall become free of all 
     restrictions and become fully vested and transferable to the full extent of
the original grant.                                                   

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 (b) Notwithstanding any other provision of this Plan, during the 60-day
period from and after a Change in Control (the "Exercise Period"), unless the   
Committee shall determine otherwise at the time of grant, the holder of an      
Option shall have the right, in lieu of the payment of the purchase price for   
the shares of Common Stock being purchased under the Option, by giving notice to
the Company, to elect (within the Exercise Period) to surrender all or part of  
the Option to the Company and to receive cash, within 30 days after such notice,
in an amount equal to the amount by which the Change in Control Price per share 
of Common Stock on the date of such election shall exceed the purchase price per
share of Common Stock under the Option (the "Spread") multiplied by the number  
of shares of Common Stock subject to the Option as to which the right subject to
this section 14(b) shall have been exercised.                                   

    (c) Notwithstanding any other provision of this Plan, if any right granted
pursuant to this Plan to receive cash in respect of a Stock Incentive would make
a Change in Control transaction ineligible for pooling-of-interests accounting  
that, but for the nature of such grant, would otherwise be eligible for such    
accounting treatment, the Committee shall have the ability to substitute for    
such cash Common Stock with a Fair Market Value equal to the amount of such     
cash.                                                                           

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                                                                         ANNEX D

W. R. GRACE & CO. 
(FORMERLY NAMED GRACE SPECIALTY CHEMICALS, INC.)

1998 STOCK PLAN FOR NONEMPLOYEE DIRECTORS 

   1.  Purposes.  The purposes of this Plan are (a) to enable the Company to
attract and retain the most highly qualified individuals to serve as Nonemployee
Directors, (b) to link the compensation of Nonemployee Directors to the         
performance of the Common Stock, and (c) to unite the interests of Nonemployee  
Directors with those of the Company's shareholders.                             

  2.  Definitions.  When used in this Plan, the following terms shall have
the meanings set forth in this section 2.                                       

Board of Directors:  The Board of Directors of the Company.           

   Common Stock:  The common stock of the Company, par value $.01 per share,
or such other class of shares or other securities or property as may be         
applicable pursuant to the provisions of section 7.                             

  Company:  W. R. Grace & Co., a Delaware corporation formerly named Grace
Specialty Chemicals, Inc.                                                       

     Fair Market Value:  (a) The mean between the high and low sales prices of a
share of Common Stock in New York Stock Exchange composite transactions for the 
applicable date, as reported in The Wall Street Journal or another newspaper of 
general circulation, or, if no sales of shares of Common Stock were reported for
such date, for the next preceding date for which such sales were so reported, or
(b) the fair market value of a share of Common Stock determined in accordance   
with any other reasonable method.                                               

  Fee:  A fee for attendance by a Nonemployee Director at a meeting of the
Board of Directors or a committee thereof.                                      

    issuance (or words of similar import):  (a) The issuance of authorized but
unissued Common Stock, (b) the transfer of issued Common Stock held by the      
Company or a Subsidiary, or (c) the delivery of Common Stock purchased for use  
under this Plan by an agent independent of the Company.                         

Nonemployee Director:  An individual who is (or was) a director of the
Company and who is (or was) not employed by the Company or a Subsidiary while   
serving as a director of the Company.                                           

   Plan:  The 1998 Stock Plan for Nonemployee Directors herein set forth, as
the same may from time to time be amended.                                      

    Retainer:  An annual retainer for service as a Nonemployee Director or for
service as the chair of a committee of the Board of Directors.                  

   service:  Service as a Nonemployee Director. "To serve" has a correlative
meaning.                                                                        

 Service Period:  A calendar year, or any other period designated by the
Board of Directors, in respect of which a Nonemployee Director is to receive a  
Retainer and/or Fees.                                                           

     Subsidiary:  A corporation (or other form of business association) of which
shares (or other ownership interests) having 50% or more of the voting power    
regularly entitled to vote for directors (or equivalent management rights) are  
owned, directly or indirectly, by the Company.                                  

    3.  Eligibility and Participation.  All Nonemployee Directors are eligible
to participate in the Plan. Each Nonemployee Director will participate as       
described in section 5.                                                         

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4.  Stock Subject to this Plan.                                       

   (a) Subject to the provisions of paragraphs (b) and (c) of this section 4
and the provisions of section 7, the maximum number of shares of Common Stock   
that may be issued under this Plan shall be One Hundred Fifty Thousand (150,000)
shares of Common Stock.                                                         

 (b) Authorized but unissued shares of Common Stock and issued shares of
Common Stock held by the Company or a Subsidiary, whether acquired specifically 
for use under this Plan or otherwise, may be used for purposes of this Plan. In 
addition, shares of outstanding Common Stock purchased by an agent independent  
of the Company may be used under this Plan, in which case such shares shall be  
deemed issued under this Plan for purposes of paragraph (a) of this section 4.  

     (c) If any shares of Common Stock issued pursuant to this Plan shall, after
issuance, be reacquired by the Company or a Subsidiary from the recipient of    
such Common Stock, or from the estate of such recipient, for any reason, such   
shares shall no longer be charged against the limitation provided for in        
paragraph (a) of this section 4 and may be issued pursuant to this Plan.        

     5.  Use of Common Stock Issued under this Plan.  Shares of Common Stock may
be issued under this Plan in respect of Fees and Retainers on such terms as may 
be fixed by the Board of Directors from time to time. All shares of Common Stock
issued pursuant to this Plan shall be valued at not less than 100% of the Fair  
Market Value of such shares on the effective date of issuance of such shares,   
regardless of when such shares are actually issued.                             

6.  Payment and Deferral of Retainers and Fees.                       

(a) Except as otherwise expressly set forth in this section 6, (i) a  
portion of any Retainer or Fee shall be payable in shares of Common Stock, with 
the balance being payable in cash, all in accordance with determinations made by
the Board of Directors from time to time, and (ii) all payments shall be made as
promptly as practicable following the conclusion of each Service Period.        

     (b) Subject to and in conformity with such procedures as may be approved by
the Board of Directors from time to time, a Nonemployee Director may elect to   
receive in shares of Common Stock all or any portion of any Retainer or Fee that
would otherwise be payable in cash.                                             

(c) Not later than the day immediately preceding the first day of any 
Service Period, a Nonemployee Director may elect to defer all or any portion of 
the Common Stock or the cash payable in respect of any Retainer or Fee, as the  
case may be, for the next following Service Period. Such election shall be made 
in writing and, once made, shall be irrevocable.                                

   (d)(i) Any portion of a Retainer or Fee payable in cash and as to which a
deferral election is made shall be payable to the Nonemployee Director or his or
her heirs or beneficiaries in a lump sum or in installments (as specified by the
Nonemployee Director in accordance with arrangements approved by the Board of   
Directors) following a date specified by the Nonemployee Director, which date   
shall in no event be earlier than such Nonemployee Director's termination from  
service. An interest equivalent on any amount so deferred shall be computed at  
such rate or rates as may be fixed by the Board of Directors from time to time. 

 (ii) Any portion of a Retainer or Fee payable in Common Stock and as to
which a deferral election is made shall be payable to the Nonemployee Director  
or his or her heirs or beneficiaries in a lump sum or in installments (as       
specified by the Nonemployee Director in accordance with arrangements approved  
by the Board of Directors) following a date specified by the Nonemployee        
Director, which date shall in no event be earlier than such Nonemployee         
Director's termination from service. The Common Stock shall be held in a trust  
established by the Company. Dividends paid on such Common Stock will be         
reinvested in Common Stock. The Nonemployee Director shall have the right to    
vote the Common Stock held in such trust, if, as and to the extent specified in 
the trust.                                                                      

(e) The terms of this Plan are intended to insure that the electing   
Nonemployee Director is not subject to income tax on any cash or Common Stock   
(including any cash or Common Stock that has been deferred) until such amounts  
are paid to the Nonemployee Director.                                           

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7.  Adjustment Provisions.                                            

  (a) In the event that any reclassification, split-up or consolidation of
the Common Stock shall be effected, or the outstanding shares of Common Stock   
are, in connection with a merger or consolidation of the Company or a sale by   
the Company of all or a part of its assets, exchanged for a different number or 
class of shares of stock or other securities or property of the Company or for  
shares of the stock or other securities or property of any other corporation or 
person, or a record date for determination of holders of Common Stock entitled  
to receive a dividend payable in Common Stock shall occur, the number, class and
kind of shares that have not been issued pursuant to this Plan shall be         
equitably adjusted.                                                             

   (b) In the event that any spin-off or other distribution of assets of the
Company to its shareholders (including without limitation an extraordinary      
dividend) shall occur, the number, class and kind of shares that have not been  
issued pursuant to this Plan shall be equitably adjusted.                       

    8.  Term.  This Plan shall be deemed adopted and shall become effective on
the date on which the Common Stock is distributed to the holders of common stock
of W. R. Grace & Co., a Delaware corporation subsequently renamed "Sealed Air   
Corporation." No Common Stock shall be issued under this Plan after the tenth   
anniversary of such date.                                                       

9.  General Provisions.                                               

(a) Nothing in this Plan or in any instrument executed pursuant hereto
shall confer upon any person any right to continue to serve as a Nonemployee    
Director or to receive Retainers or Fees.                                       

    (b) No shares of Common Stock shall be issued pursuant to this Plan unless
and until all legal requirements applicable to the issuance of such shares have,
in the opinion of counsel to the Company, been complied with. In connection with
any such issuance, the person or entity acquiring the shares shall, if requested
by the Company, give assurances, satisfactory to counsel to the Company, in     
respect of such matters as the Company or a Subsidiary may deem desirable to    
assure compliance with all applicable legal requirements.                       

   (c) No person, individually or as a member of a group, and no beneficiary
or other person claiming under or through him or her, shall have any right,     
title or interest in or to any shares of Common Stock allocated or reserved for 
the purposes of this Plan except as to such shares of Common Stock, if any, as  
shall have been issued to him or her. No rights to receive shares of Common     
Stock under this Plan shall be subject in any manner to alienation, sale,       
transfer, assignment, pledge, encumbrance or charge, except by will or the laws 
of descent and distribution. The only rights that may exist under this Plan     
shall be limited to those of an unsecured creditor of the Company.              

(d) Nothing in this Plan is intended to be a substitute for, or shall 
preclude or limit the establishment or continuation of, any other plan, practice
or arrangement for the payment of compensation or benefits to Nonemployee       
Directors that the Company now has or may hereafter put into effect.            

10.  Amendments and Termination.                                      

  (a) This Plan may be terminated, suspended or amended at any time by the
Board of Directors upon the recommendation of its Compensation Committee;       
provided, however, that no amendment shall become effective without the approval
of the shareholders of the Company to the extent shareholder approval is        
required by applicable law.                                                     

  (b) No termination, suspension or amendment of this Plan shall adversely
affect any shares theretofore issued pursuant to this Plan.                     

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 ANNEX E

  The following is an excerpt from Grace's 1997 Proxy Statement. The following
excerpt does not purport to be complete and is qualified in its entirety by     
reference to such Proxy Statement, which has been filed with the Securities and 
Exchange Commission. As used in the following excerpt, the "Company" means Grace
(including its predecessors) and/or one or more of its subsidiaries.            

COMPENSATION                                                                    

   Summary Compensation Table. The following Summary Compensation Table contains
information concerning the compensation of (1) Mr. Costello, the Company's chief
executive officer since May 1, 1995; (2) the other four most highly compensated 
executive officers of the Company who were serving as such at year-end 1996; and
(3) Constantine L. Hampers and Donald H. Kohnken, who resigned as executive     
officers on June 14, 1996 and September 30, 1996, respectively, and whose       
compensation would have been reportable under clause (2) but for the fact that  
they were not executive officers of the Company at year-end 1996. Certain       
information has been omitted from the Summary Compensation Table because it is  
not applicable or because it is not required under the rules of the Securities  
and Exchange Commission ("SEC").                                                

                                                                [Download Table]

                               ANNUAL COMPENSATION                   
                      ------------------------------------           

                                                           OTHER     
NAME AND PRINCIPAL                                         ANNUAL    
  POSITION                YEAR     SALARY     BONUS     COMPENSATION 
  --------                ----     ------     -----     ------------ 
                                                                     
A. J. Costello            1996    $900,000   $582,075     $ 12,872   
 Chairman, President      1995(e)  600,000    900,000      106,599   
 and Chief Executive                                                 
 Officer                                                             
R. H. Beber               1996     297,475    165,000       12,788   
 Executive Vice           1995     282,713    200,000        5,456   
 President and            1994     266,000    220,000          246   
 General Counsel                                                     
L. Ellberger              1996     283,083    150,000       57,219   
 Senior Vice              1995(e)  173,162    125,000       28,977   
 President                                                           
 and Chief Financial                                                 
 Officer                                                             
J. R. Hyde                1996     272,600    130,000        5,194   
 Senior Vice              1995     248,650    230,000        2,235   
 President                1994     206,667    240,000          731   
F. Lempereur              1996     294,300    100,000       22,592   
 Senior Vice              1995     290,725    100,000        3,323   
 President                1994     281,167     95,000           93   
C. L. Hampers             1996     875,270    422,755      316,157(f)
 Executive Vice           1995     821,068    720,000      210,915   
 President                1994     786,250                  85,425   
D. H. Kohnken             1996     295,425    148,000       66,496   
 Executive Vice           1995     371,725    394,000        9,576   
 President                1994     357,000    410,000           86   

(RESTUBBED TABLE CONTINUED FROM ABOVE)

                                                                [Download Table]

                                LONG-TERM COMPENSATION                        
                                ----------------------                        

                                  AWARDS               PAYOUTS                
                                  ------               -------                
                                      NO. OF SHARES                   ALL     
                        RESTRICTED     UNDERLYING                    OTHER    
NAME AND PRINCIPAL         STOCK         OPTIONS        LTIP      COMPENSATION
  POSITION               AWARD(a)      GRANTED(b)    PAYOUTS(c)       (d)     
  --------               --------      ----------    ----------       ---     
                                                                              
A. J. Costello                            77,625     $  799,116     $ 27,250  
 Chairman, President                     465,750                              
 and Chief Executive                                                          
 Officer                                                                      
R. H. Beber                               16,767        927,518       33,380  
 Executive Vice                           37,260         99,589       49,695  
 President and                            37,260                      28,099  
 General Counsel                                                              
L. Ellberger                              12,576        178,369       38,102  
 Senior Vice              $92,438        111,780                       2,094  
 President                                                                    
 and Chief Financial                                                          
 Officer                                                                      
J. R. Hyde                                16,767        670,596       25,374  
 Senior Vice                              37,260         27,534       29,724  
 President                                37,260                      20,538  
F. Lempereur                              12,576        630,492       26,689  
 Senior Vice                              37,260         42,666       27,758  
 President                                37,260                      23,284  
C. L. Hampers                                         2,425,992       91,790  
 Executive Vice                          108,675                     105,564  
 President                               108,675                      89,278  
D. H. Kohnken                                         1,783,688      523,842  
 Executive Vice                           93,150        153,716       55,657  
 President                                77,625                      36,200  

(Footnotes appear on following page)

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------------                                                                  
(a)    Other than the award to Mr. Ellberger, no restricted stock awards were   
   made during the 1994-1996 period. The dollar value of Mr. Ellberger's
 1,500 restricted shares shown in the table has not been adjusted to
  give effect to the September 1996 separation of the Company's health
care business. At December 31, 1996, the dollar value of these    
restricted shares was $77,625, excluding the value of additional  
 securities received by Mr. Ellberger in respect of these restricted
shares in the September 1996 transaction (see note (d) below). The
restrictions on these shares are to terminate on May 14, 1998 (see
  "Employment Agreements") or earlier, in the event of Mr. Ellberger's
    death or disability or the termination of his employment without cause
     (including following a change of control), subject to the forfeiture of
the shares in certain circumstances. Mr. Ellberger receives all   
    dividends paid on, and has the right to vote, these restricted shares.

(b)    The share amounts shown in this column reflect adjustments made in       
      September 1996 in connection with the separation of the Company's health
care business.                                                    

(c)    The amounts in this column for 1996 represent awards earned under the    
Company's Long-Term Incentive Program ("LTIP") for the 1993-1995  
   Performance Period. The amounts in this column for 1995 represent the
 third and final installment of awards earned under the LTIP for the
       1990-1992 Performance Period; Dr. Hampers did not participate in the LTIP
   for the 1990-1992 Performance Period. No payments were made under the
LTIP in 1994.                                                     

(d)    The amounts in this column for 1996 consist of the following: (1) the    
     actuarially determined value of Company-paid premiums on "split-dollar"
    life insurance, as follows: Mr. Beber -- $18,456; Mr. Hyde -- $10,296;
  Mr. Lempereur -- $14,410; Dr. Hampers -- $52,849; and Mr. Kohnken --
$9,626; (2) life insurance premiums of $9,250 for Mr. Costello and
$3,447 for Mr. Ellberger (who do not currently participate in the 
split-dollar life insurance program); (3) payments made to persons
   whose personal and/or Company contributions to the Company's Salaried
     Employees Savings and Investment Plan ("Savings Plan") would be subject
   to limitations under federal income tax law, as follows: Mr. Costello
  -- $13,500; Mr. Beber -- $10,424; Mr. Ellberger -- $521; Mr. Hyde --
$10,578; Mr. Lempereur -- $7,779; Dr. Hampers -- $38,941; and Mr. 
  Kohnken -- $16,183; (4) Company contributions to the Savings Plan of
     $4,500 for each of Messrs. Costello, Beber, Hyde, Lempereur and Kohnken
  and of $3,824 for Mr. Ellberger; (5) a severance payment of $493,533
     made to Mr. Kohnken; and (6) $30,310 of additional securities issued to
   Mr. Ellberger by entities other than the Company in September 1996 in
respect of the restricted shares awarded to him in 1995.          

(e)    Messrs. Costello and Ellberger joined the Company in May 1995.           

(f)    This amount includes the value of personal benefits received by Dr.      
     Hampers during 1996, including $57,750 attributable to his personal use
     of corporate aircraft and $26,769 attributable to his personal use of a
chauffeur paid by the Company.                                    

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Stock Options. The following table contains information concerning stock  
options granted in 1996, including the potential realizable value of each grant 
assuming that the market value of the Common Stock appreciates from the date of 
grant to the expiration of the option at annualized rates of (a) 5% and (b) 10%,
in each case compounded annually over the term of the option. For example, the  
option granted to Mr. Costello in 1996 would produce the pretax gain of         
$6,365,009 shown in the table only if the market price of the Common Stock rises
to $133.45 per share by the time the option is exercised; based on the number   
and market price of the shares outstanding at year-end 1996, such an increase in
the price of the Common Stock would produce a corresponding aggregate pretax    
gain of nearly $6.5 billion for the Company's shareholders. The assumed rates of
appreciation shown in the table have been specified by the SEC for illustrative 
purposes only and are not intended to predict future prices of the Company's    
Common Stock, which will depend upon various factors, including market          
conditions and the Company's future performance and prospects.                  

Options become exercisable at the time or times determined by the         
Compensation Committee; the options shown below become exercisable in three     
approximately equal annual installments beginning one year after the date of    
grant or upon the earlier occurrence of a "change in control" of the Company    
(see "Employment Agreements" and "Severance Agreements"). All of the options    
shown below have purchase prices equal to the fair market value of the Common   
Stock at the date of grant.                                                     

                                                                [Download Table]

                                  1996 GRANTS*                              

----------------------------------------------------------------------------
                           NO. OF      % OF TOTAL                           
                           SHARES       OPTIONS                             
                         UNDERLYING    GRANTED TO   PURCHASE                
                           OPTIONS     EMPLOYEES      PRICE     EXPIRATION  
NAME                       GRANTED      IN 1996     ($/SHARE)      DATE     
                           -------      -------     ---------      ----     
                                                                            
A. J. Costello .........    77,625         7.7%       51.4493      3/5/06   
R. H. Beber ............    16,767         1.7        51.4493      3/5/06   
L. Ellberger ...........    12,576         1.2        51.4493      3/5/06   
J. R. Hyde .............    16,767         1.7        51.4493      3/5/06   
F. Lempereur ...........    12,576         1.2        51.4493      3/5/06   
C. L. Hampers ..........        -0-         --             --          --   
D. H. Kohnken ..........        -0-         --             --          --   
All Shareholders .......        --          --             --          --   
Named Executive                                                             
 Officers' Percentage                                                       
 of                                                                         
 Realizable Value                                                           
 Gained by All                                                              
 Shareholders...........        --          --            --          --    

(RESTUBBED TABLE CONTINUED FROM ABOVE)  

 POTENTIAL REALIZABLE VALUE AT
 ASSUMED ANNUAL RATES OF STOCK
 PRICE APPRECIATION FOR OPTION
TERM

                                                                [Download Table]

          NAME                      5%             10%      
----------------------------------------------------------- 
                                                            
A. J. COSTELLO             $    2,511,650        $6,365,009 
R. H. BEBER                       542,516         1,374,842 
L. ELLBERGER                      406,912         1,031,193 
J. R. HYDE                        542,516         1,374,842 
F. LEMPEREUR                      406,912         1,031,193 
C. L. HAMPERS                        --                  -- 
D. H. KOHNKEN                        --                  -- 
ALL SHAREHOLDERS            2,554,571,529     6,473,787,377 
NAMED EXECUTIVE                                             
 OFFICERS' PERCENTAGE                                       
 OF                                                         
 REALIZABLE VALUE                                           
 GAINED BY ALL                                              
 SHAREHOLDERS                         0.2%              0.2%

------------                                                                    
* The number of shares covered by each option and the purchase price of each    
option reflect adjustments made in connection with the September 1996       
separation of the Company's health care business.                           

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   The following table contains information concerning stock options exercised
in 1996, including the "value realized" upon exercise (the difference between   
the total purchase price of the options exercised and the market value, at the  
date of exercise, of the shares acquired), and the value of unexercised         
"in-the-money" options held at December 31, 1996 (the difference between the    
aggregate purchase price of all such options held and the market value of the   
shares covered by such options at December 31, 1996).                           

                                                        [Enlarge/Download Table]

                          OPTION EXERCISES IN 1996 AND OPTION VALUES AT 12/31/96*             
                  -----------------------------------------------------------------------     
                                                       NUMBER OF              VALUE OF        
                                                    SHARES UNDERLYING        UNEXERCISED      
                                                      UNEXERCISED           IN-THE-MONEY      
                                                      OPTIONS AT            OPTIONS AT        
                   NO. OF SHARES                        12/31/96              12/31/96        
                      ACQUIRED         VALUE          EXERCISABLE/          EXERCISABLE/      
 NAME               ON EXERCISE      REALIZED ($)     UNEXERCISABLE         UNEXERCISABLE     
 ----               -----------      ------------     -------------         -------------     
                                                                                              
A. J. Costello ...       -0-                  -0-     155,250/388,125     $2,796,690/5,616,720
R. H. Beber ......       -0-                  -0-     252,749/16,767           7,091,485/5,042
L. Ellberger .....       -0-                  -0-      62,100/62,256           741,176/596,723
J. R. Hyde .......    3,105          $    97,437      178,538/16,767           4,817,959/5,042
F. Lempereur .....       -0-                  -0-     169,223/12,576           4,338,281/3,782
C. L. Hampers ....  450,226           10,199,375                 0/0                       0/0
D. H. Kohnken ....   45,375            1,869,507           458,411/0              11,872,282/0

------------                                                                    
* The number of shares covered by each option and the purchase price of each    
option reflect adjustments made in connection with the September 1996       
separation of the Company's health care business.                           

 LTIP. Under the LTIP as in effect during 1996, executive officers and other
senior managers could be granted contingent "Performance Units" under which     
awards could be earned based on (1) value contribution performance (based on    
cash flow attributable to net operating profit after taxes of the product line  
or the Company, less a charge based on average annual gross assets), and/or (2) 
shareholder value performance (measured by appreciation in the price of the     
Common Stock and dividends paid) as compared to that of the companies in the    
Standard & Poor's Industrials Index, during a three-year "Performance Period." A
new three-year Performance Period commences each year, and contingent           
Performance Units are granted for each such Performance Period (however, the    
terms of such contingent Performance Units granted subsequent to 1996 differ    
from those granted in 1996 and prior years, as discussed under "Approval of     
Long-Term Incentive Program"). Performance Units granted in 1996 to employees of
product lines were weighted 67% on the value contribution performance of their  
respective product lines or other units, and 33% on shareholder value           
performance, during the Performance Period; Performance Units granted to        
corporate employees were weighted 50% on the basis of the Company's value       
contribution performance and 50% on the basis of shareholder value performance  
during the Performance Period. The number of Performance Units earned under the 
LTIP may be decreased by up to 20%, at the discretion of the Compensation       
Committee, based upon individual performance.                                   

   Amounts, if any, earned under Performance Units are paid following the end of
each Performance Period. In keeping with the Company's compensation philosophy  
of uniting executive interests with those of the shareholders (see "Report of   
the Compensation Committee on Executive Compensation--Stock Ownership           
Guidelines"), up to 100% of any such payments may be made in shares of Common   
Stock issued under the Company's 1996 Stock Incentive Plan (see "Approval of    
1996 Stock Incentive Plan"); however, the Compensation Committee has authority  
to reduce the portion of earned Performance Units payable in Common Stock or to 
pay such Units entirely in cash. A participant may elect to defer receipt of the
cash and/or Common Stock otherwise payable in respect of earned Performance     
Units. Cash amounts may be deferred under the Company's deferred compensation   
program, earning interest equivalents computed at the prime rate, compounded    
semiannually. Deferred Common Stock is held in a trust established by the       
Company; dividends paid on the deferred Common Stock held in the trust are      
reinvested in Common Stock, and participants have the right to vote the Common  
Stock held in the trust. Deferred amounts are generally payable to the          
participant following termination of employment.                                

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  The following table shows the Performance Units granted during 1996 to the
executive officers named in the Summary Compensation Table. All of such         
Performance Units relate to the 1996-1998 Performance Period. Half of the       
Performance Units granted to Messrs. Hyde and Lempereur are weighted 50%/50%, as
discussed above, and the other half are weighted 67%/33%, as discussed above;   
the Performance Units granted to the other recipients are all weighted 50%/50%. 

                                                                [Download Table]

                  1996 AWARDS OF CONTINGENT PERFORMANCE UNITS UNDER 
                                       LTIP(a)                      
                 ---------------------------------------------------
                                                            MAXIMUM 
                 NUMBER OF     THRESHOLD       TARGET      NUMBER OF
NAME               UNITS         (b)(c)        (c)(d)      UNITS (e)
----               -----         ------        ------      ---------

                                                                    
A. J.                                                               
 Costello......    18,630     $0 or $242,190   $1,210,950     46,575
R. H. Beber....     3,726      0 or   48,425      242,190      9,315
L. Ellberger ..     2,795      0 or   36,335      181,675      6,988
J. R. Hyde.....     3,726      0 or   24,245      242,190      9,315
F. Lempereur ..     2,795      0 or   11,635      181,675      6,988
C. L. Hampers .      -0-                  --           --         --
D. H. Kohnken .     6,210      0 or   20,215      403,650     15,525

------------                                                                    
(a)    The numbers of Performance Units reflect adjustments made in connection  
       with the September 1996 separation of the Company's health care business.

(b)    Refers to the minimum amount payable under the LTIP with respect to the  
      1996-1998 Performance Period. For Messrs. Costello, Beber, Ellberger and
   Kohnken, no payment will be made unless the minimum targeted level of
    value contribution or shareholder value performance is achieved by the
       Company. For Messrs. Hyde and Lempereur, the "threshold" payments will be
     made if the minimum targeted level of value contribution performance is
achieved by their respective product lines.                       

(c)    The threshold and target payments shown in the table have been calculated
    on the basis of a market price of $65 per share of Common Stock at the
end of the 1996-1998 Performance Period. The threshold amounts for
     Messrs. Lempereur and Kohnken have been adjusted on a pro rata basis to
reflect their resignations.                                       

(d)    Refers to the amount payable with respect to the 1996-1998 Performance   
      Period if the targeted levels of both value contribution and shareholder
value performance are achieved.                                   

(e)    Refers to the maximum number of Performance Units that can be earned with
respect to the 1996-1998 Performance Period under the LTIP.       

  Employees to whom Performance Units are granted also receive grants of stock
options based on the number of Performance Units granted. Information concerning
options granted in 1996 to the executive officers named in the Summary          
Compensation Table appears under "Stock Options."                               

 Pension Arrangements. Salaried employees of designated units of the Company
who are 21 or older and who have one or more years of service are eligible to   
participate in the Company's Retirement Plan for Salaried Employees. Under this 
basic retirement plan, pension benefits are based upon (1) the employee's       
average annual compensation for the 60 consecutive months in which his or her   
compensation is highest during the last 180 months of continuous participation  
and (2) the number of years of the employee's credited service. For purposes of 
this basic retirement plan, compensation generally includes nondeferred base    
salary and nondeferred annual incentive compensation (bonus) awards; however,   
for 1996, federal income tax law limited to $150,000 the annual compensation on 
which benefits under this plan may be based.                                    

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   The Company also has a Supplemental Executive Retirement Plan under which a
covered employee will receive the full pension to which he or she would be      
entitled in the absence of the above and other limitations imposed under federal
income tax law. In addition, this supplemental plan recognizes deferred base    
salary, deferred annual incentive compensation awards and, in some cases,       
periods of employment with the Company during which an employee was ineligible  
to participate in the basic retirement plan. An employee will generally be      
eligible to participate in the supplemental plan if he or she has an annual base
salary of at least $75,000 and is earning credited service under the basic      
retirement plan.                                                                

The following table shows the annual pensions payable under the basic and 
supplemental plans for different levels of compensation and years of credited   
service. The amounts shown have been computed on the assumption that the        
employee retired at age 65 on January 1, 1997, with benefits payable on a       
straight life annuity basis. Such amounts are subject to (but do not reflect) an
offset of 1.25% of the employee's primary Social Security benefit at retirement 
age for each year of credited service under the basic and supplemental plans.   

                                                        [Enlarge/Download Table]


   HIGHEST                                YEARS OF CREDITED SERVICE                                  
 AVERAGE ANNUAL  ----------------------------------------------------------------------------------- 
 COMPENSATION    10 YEARS      15 YEARS      20 YEARS       25 YEARS        30 YEARS        35 YEARS 
 ------------    --------      --------      --------       --------        --------        -------- 
                                                                                                     
$ 100,000 ...   $ 15,000       $ 22,500       $ 30,000       $ 37,500       $ 45,000       $   52,500
  200,000 ...     30,000         45,000         60,000         75,000         90,000          105,000
  300,000 ...     45,000         67,500         90,000        112,500        135,000          157,000
  400,000 ...     60,000         90,000        120,000        150,000        180,000          210,000
  500,000 ...     75,000        112,500        150,000        187,500        225,000          262,500
  600,000 ...     90,000        135,000        180,000        225,000        270,000          315,000
  700,000 ...    105,000        157,500        210,000        262,500        315,000          367,500
  800,000 ...    120,000        180,000        240,000        300,000        360,000          420,000
  900,000 ...    135,000        202,500        270,000        337,500        405,000          472,500
1,000,000 ...    150,000        225,000        300,000        375,000        450,000          525,000
1,100,000 ...    165,000        247,500        330,000        412,500        495,000          577,500
1,200,000 ...    180,000        270,000        360,000        450,000        540,000          630,000
1,300,000 ...    195,000        292,500        390,000        487,500        585,000          682,500
1,400,000 ...    210,000        315,000        420,000        525,000        630,000          735,000
1,500,000 ...    225,000        337,500        450,000        562,500        675,000          787,500
1,600,000 ...    240,000        360,000        480,000        590,000        720,000          840,000
1,700,000 ...    255,000        382,500        510,000        617,500        765,000          892,500
1,800,000 ...    270,000        405,000        540,000        645,000        810,000          945,000
1,900,000 ...    285,000        427,500        570,000        672,500        855,000          997,500
2,000,000 ...    300,000        450,000        600,000        700,000        900,000        1,050,000
2,100,000 ...    315,000        472,500        630,000        727,500        945,000        1,102,500
2,200,000 ...    330,000        495,000        660,000        755,000        990,000        1,155,000

Messrs. Costello, Beber, Ellberger, Hyde, Lempereur and Kohnken had 1, 8, 
1, 33, 5 and 27 years of credited service, respectively, under the basic and    
supplemental retirement plans at year-end 1996 (September 30, 1996 in the       
case of Mr. Kohnken). For purposes of those plans, the 1996 compensation of     
such executive officers was as follows: Mr. Costello -- $1,800,000; Mr. Beber   
-- $497,475; Mr. Ellberger -- $408,083; Mr. Hyde -- $502,600; Mr. Lempereur     
-- $409,300; and Mr. Kohnken -- $689,425. Dr. Hampers was not covered by the    
basic or supplemental plan. At year-end 1996, the accrued annual benefit        
payable to Dr. Hampers at age 65 under the retirement plan of National          
Medical Care Inc. ("NMC"), a former subsidiary of the Company (in which Dr.     
Hampers was an inactive participant), was approximately $120,000. The Company   
previously agreed to provide certain pension benefits to Mr. Ellberger and      
Dr. Hampers (see "Employment Agreements" and "Resignations of Executive         
Officers").                                                                     

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Employment Agreements. The Company has an employment agreement with Mr. 
Costello providing for his service as the Company's chairman, president and     
chief executive officer through April 1998, subject to (1) earlier termination  
in certain circumstances and (2) automatic one-year extensions unless either    
party gives notice that the agreement is not to be extended. The agreement also 
provides that Mr. Costello will stand for election as a director during its     
term. Under the agreement, Mr. Costello is entitled to an annual base salary of 
at least $900,000; an annual incentive compensation award (bonus) of at least   
$900,000 for 1995 and awards thereafter based on the performance of the Company,
in accordance with its annual incentive compensation program; participation in  
the LTIP on the same basis as other senior executives; grants of stock options; 
and participation in all other compensation and benefit plans and programs      
generally available to senior executives of the Company. The agreement also     
provides for payments in the case of Mr. Costello's disability or death, or the 
termination of his employment with or without cause, including termination      
following a "change in control" and termination by Mr. Costello for "good       
reason." For purposes of the agreement, "change in control" means the           
acquisition of 20% or more of the Common Stock, the failure of Company-nominated
directors to constitute a majority of any class of the Board of Directors, the  
occurrence of a transaction in which the Company's shareholders immediately     
preceding such transaction do not own more than 60% of the combined voting power
of the corporation resulting from such transaction, or the liquidation or       
dissolution of the Company. In the event of the termination of Mr. Costello's   
employment following a change in control, he will receive a multiple of the sum 
of his annual base salary plus bonus, pro rata bonus and LTIP awards, earned but
unpaid compensation, and the balance of the LTIP awards for all Performance     
Periods during which the change in control takes place. The foregoing           
description of Mr. Costello's employment agreement does not purport to be       
complete and is qualified in its entirety by reference to such agreement, which 
has been filed with the SEC as an exhibit to the Company's Quarterly Report on  
Form 10-Q for the quarter ended June 30, 1995, and by reference to an amendment 
to such agreement, which has been filed with the SEC as an exhibit to the       
Company's Current Report on Form 8-K filed on October 10, 1996.                 

  The Company has an employment agreement with Mr. Ellberger providing for his
service as the Company's senior vice president, strategic planning and          
development, through May 14, 1998; at that time, the agreement will terminate   
(except with respect to the retirement arrangements described below) and his    
employment will be "at will." The agreement provides for an initial annual base 
salary of $275,000; participation in the Company's annual incentive compensation
program, LTIP, and other compensation and benefit plans and programs; the grant 
of stock options; and the grant of the restricted stock award shown in the      
Summary Compensation Table. The agreement also provides that if the Company     
should terminate Mr. Ellberger's employment without cause during the term of the
agreement (except in the event of a change in control of the Company), he will  
receive 145% of his base salary for one year or, if longer, the remaining term  
of the agreement. In addition, the agreement provides that, in determining the  
benefits payable to Mr. Ellberger under the Company's basic and supplemental    
retirement plans, his service with his prior employer will be recognized as if  
it were continuous service with the Company (except that his first year of      
service with the Company would be excluded), with an offset for any retirement  
benefits payable from his prior employer's retirement plans; however, this      
special pension arrangement will apply only if Mr. Ellberger's employment by the
Company ceases after the term of the agreement (or during such term, if his     
employment is terminated without cause, including termination without cause     
following a change in control of the Company). The agreement also provides for  
standard relocation assistance arrangements and for a Company-leased car. For   
purposes of the agreement, "change in control" has the same meaning as in Mr.   
Costello's agreement, described above. The foregoing description of Mr.         
Ellberger's employment agreement does not purport to be complete and is         
qualified in its entirety by reference to such agreement and related agreements,
which have been filed as exhibits to the Company's Annual Report on Form 10-K   
for the year ended December 31, 1996.                                           

   In 1992, the Company entered into an agreement with Mr. Lempereur relating to
his relocation from France to the United States. The agreement provided that Mr.
Lempereur would participate in the Company's U.S. compensation and benefit plans
and programs and that the Company would reimburse Mr. Lempereur for the cost of 
trips between Florida and France for his family and would provide Mr. Lempereur 
with a Company-leased car. The agreement also provided for the loan referred to 
under "Relationships and Transactions with Management and Others" and for       
arrangements relating to his                                                    

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return to France following the end of his assignment. This description of Mr.   
Lempereur's agreement does not purport to be complete and is qualified in its   
entirety by reference to the agreement, which has been filed as an exhibit to   
the Company's Annual Report on Form 10-K for the year ended December 31, 1996.  

Dr. Hampers previously had an employment agreement providing for his      
employment as an executive vice president of the Company and head of its health 
care business. Under the agreement, Dr. Hampers was initially entitled to an    
annual base salary of at least $675,000, subject to increases of at least 9%    
every 18 months, and to participate in the Company's annual incentive           
compensation program. The agreement also provided for benefits generally        
available to senior executives of the Company, as well as the use of a corporate
aircraft (and an option to purchase the aircraft at its fair market value).     
Further, the agreement entitled Dr. Hampers to a supplementary annual pension   
benefit equal to the amount by which (1) the lesser of (a) $300,000 and (b)     
three times his actual annual pension benefit exceeded (2) such actual pension  
benefit, subject to certain cost-of-living adjustments. The agreement prohibited
Dr. Hampers from engaging in certain competitive activities during its term and 
for three years thereafter and provided for the continuation of compensation for
the term of the agreement in the event his employment terminated other than for 
cause. The foregoing description of Dr. Hampers' employment agreement does not  
purport to be complete and is qualified in its entirety by reference to such    
agreement, which was filed with the SEC as an exhibit to the Company's Annual   
Report on Form 10-K for the year ended December 31, 1991, and by reference to   
related agreements, which were filed with the SEC as exhibits to the Company's  
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996 and its      
Registration Statement on Form S-1 filed on August 2, 1996.                     

See "Resignations of Executive Officers" for information concerning the   
resignations of Mr. Lempereur and Dr. Hampers, and "Relationships and           
Transactions with Management and Others" for information concerning Dr. Hampers'
purchase of a corporate aircraft from the Company and litigation by him against 
the Company and others arising out of his employment agreement.                 

Severance Agreements. The Company has severance agreements with all of its
executive and other officers (except for Mr. Costello, whose employment         
agreement, discussed above, provides for severance arrangements). These         
agreements generally provide that in the event of the involuntary termination of
the individual's employment without cause (including constructive termination   
caused by a material reduction in his or her authority or responsibility)       
following a change in control of the Company, he or she will receive a severance
payment equal to the greater of (1) 2.99 times his or her average annual taxable
compensation for the five years preceding the change in control, plus certain   
additional benefits, subject to reduction in certain cases to prevent the       
recipient from incurring liability for excise taxes and the Company from        
incurring nondeductible compensation expense, or (2) three times the            
individual's annual base salary plus bonus, plus a "gross-up" payment to cover  
any excise tax obligations resulting from the severance payment; in the event   
employment terminates after January 1, 1999 (following a change in control), and
in the case of officers elected in and subsequent to May 1996, the severance    
payment would be made solely in accordance with clause (2). For purposes of     
these severance agreements, the definition of "change in control" is identical  
to the definition contained in Mr. Costello's employment agreement (see         
"Employment Agreements"). This description of the Company's severance agreements
does not purport to be complete and is qualified in its entirety by reference to
the forms of such agreements, which have been filed as exhibits to the Company's
Registration Statement on Form S-1 filed on August 2, 1996.                     

Executive Salary Protection Plan. The Company has had an Executive Salary 
Protection Plan ("ESPP") for many years. All executive and other officers       
participate in the ESPP, which provides that, in the event of a participant's   
death or disability prior to age 70, the Company will continue to pay all or a  
portion of base salary to the participant or a beneficiary for a period based on
the participant's age at the time of death or disability. Payments under the    
ESPP may not exceed 100% of base salary for the first year and 50% thereafter in
the case of death (60% in the case of disability). This description of the ESPP 
does not purport to be complete and is qualified in its entirety by reference to
the text of the ESPP, as amended, which has been filed as an exhibit to the     
Company's Annual Report on Form 10-K for the year ended December 31, 1996.      

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Resignations of Executive Officers. In connection with Mr. Lempereur's  
resignation as an executive officer of the Company in February 1997, he entered 
into an agreement with the Company providing that (1) he will remain an         
employee, and continue to receive salary and participate in the Company's       
benefit plans and programs, through November 1997, at which time he will be     
entitled to receive severance pay for seven months; (2) he will be considered   
for an annual incentive compensation award for 1996; (3) he will remain a       
participant in the LTIP for the 1994-1996 Performance Period and, on a pro rata 
basis, the 1995-1997 and 1996-1998 Performance Periods; (4) his unvested stock  
options will become exercisable in full; and (5) his participation in the       
Company's split-dollar life insurance program will terminate, although he can   
elect to purchase the policy by reimbursing the Company for the premiums paid on
his behalf (approximately $490,000). The agreement also provides that Mr.       
Lempereur will receive amounts due him under other Company plans and programs in
accordance with their terms; that he will receive outplacement assistance and   
reimbursement for the expenses incurred in his relocation to France, generally  
in accordance with standard Company practice; and that his loan from the Company
(see "Employment Agreements" and "Relationships and Transactions with Management
and Others") will be repaid upon the sale of his Florida residence or, if       
earlier, December 31, 1997.                                                     

   Dr. Hampers entered into an agreement with the Company in June 1996 providing
for the termination of his employment agreement and his severance agreement (see
"Employment Agreements" and "Severance Agreements"). His termination agreement  
also provided that (1) he would continue to receive salary and certain benefits,
as specified in his employment agreement, through December 31, 1996 (including  
the use of a corporate aircraft and an option to purchase the aircraft at its   
fair market value); (2) effective January 1, 1997, he would be eligible to      
commence receiving the pension benefit contemplated by his employment agreement;
(3) he would be entitled to participate in the Company's annual incentive       
compensation program for 1996 (however, no award was paid to him under such     
program for 1996); and (4) he would remain a participant in the LTIP for the    
1994-1996 Performance Period and, on a pro rata basis, the 1995-1997 Performance
Period.                                                                         

 In connection with Mr. Kohnken's resignation as an executive officer of the
Company on September 30, 1996, he entered into an agreement with the Company    
providing that (1) he would receive the severance payment included in "All Other
Compensation" in the Summary Compensation Table above; (2) he would be          
considered for an annual incentive compensation award for 1996; (3) he would    
remain a participant in the LTIP, on a pro rata basis, for the 1994-1996,       
1995-1997 and 1996-1998 Performance Periods; (4) certain restrictions on shares 
and stock options granted to him in 1991 would be removed, and any unvested     
options he held would become exercisable in full; and (5) his participation in  
the Company's split-dollar life insurance program would be terminated, although 
he could elect to purchase the policy by reimbursing the Company for the        
premiums paid on his behalf (approximately $323,000). The agreement also        
provided that he would receive amounts due him under other Company plans and    
programs in accordance with their terms.                                        

  The foregoing descriptions of the agreements with Mr. Lempereur, Dr. Hampers
and Mr. Kohnken do not purport to be complete and are qualified in their        
entirety by reference to such agreements, which have been filed with the SEC as 
exhibits to the Company's Annual Report on Form 10-K for the year ended December
31, 1996 (in the case of Mr. Lempereur), the Company's Registration Statement on
Form S-1 filed on August 2, 1996 (in the case of Dr. Hampers), and its Current  
Report on Form 8-K filed on October 10, 1996 (in the case of Mr. Kohnken).      

Directors' Compensation and Consulting Arrangements. Under the Company's  
current compensation program for nonemployee directors, (1) each nonemployee    
director receives an annual retainer of $24,000, payable in Common Stock; (2)   
the Chairs of the Audit and Compensation Committees receive annual cash         
retainers of $12,000, and the Chairs of the Nominating Committee and the        
Committee on Corporate Responsibility receive annual cash retainers of $2,000;  
and (3) each nonemployee director receives $2,000 in cash for each Board meeting
and $1,000 in cash for each committee meeting attended (except that committee   
chairs receive $1,200 per committee meeting). In addition, the Company has had a
retirement plan under which a person retiring after more than four years of     
service as a nonemployee director receives annual payments of $24,000 for a     
period equal to the length of service as a nonemployee director (but not more   
than 15 years). In the event of a director's death, payments are made to the    
director's surviving spouse.                                                    

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Subject to shareholder approval of the 1997 Stock Plan for Nonemployee  
Directors (see "Approval of 1997 Stock Plan for Nonemployee Directors"), a new  
compensation program for nonemployee directors will be implemented effective    
July 1, 1997. Under the new program, (1) each nonemployee director will receive 
an annual retainer of $50,000, of which $35,000 will be in the form of Common   
Stock and the balance will be in cash or Common Stock, at the election of the   
director; (2) each committee chair will receive an additional annual retainer of
$3,000 in cash or Common Stock, at the election of the director; and (3) each   
nonemployee director will receive $2,000 for each Board meeting and $1,000 for  
each committee meeting attended (except that committee chairs will receive      
$1,200 per committee meeting), in cash or Common Stock, at the election of the  
director.                                                                       

In addition, the current nonemployee directors' retirement plan will      
terminate effective July 1, 1997. Previously retired directors will continue to 
receive their remaining benefits under the plan. Benefits earned and accrued    
with respect to current directors will be frozen, vested (to the extent not     
previously vested) and converted to present value (as determined by an          
independent actuarial consulting firm) based on a 7% discount rate and certain  
other assumptions. The amount so determined will be deferred in cash or in      
Common Stock (as described below), at the election of the director, and will be 
paid following the director's termination from service.                         

  Under both the current and new compensation programs, a nonemployee director
may defer payment of all or part of the fees received for attending Board and   
committee meetings and/or the cash retainers (or cash portions of the retainers)
referred to above. The deferred cash (plus an interest equivalent) will be      
payable to the director or his or her heirs or beneficiaries in a lump sum or in
quarterly installments over two to 20 years following a date specified by the   
director (but in no event earlier than the director's termination from service).
The interest equivalent on deferred cash is computed at the higher of (1) the   
prime rate plus two percentage points or (2) 120% of the prime rate, in either  
case compounded semiannually. This program provides for the payment of          
additional survivors' benefits in certain circumstances. Following the effective
date of the new compensation program, the Common Stock portion of the annual    
retainer may be deferred and held, and the balance of the annual retainer or    
other retainers and/or fees a director elects to receive in the form of Common  
Stock will be deferred and held, in a trust established by the Company.         
Dividends paid on the Common Stock held in such trust will be reinvested in     
Common Stock, and directors will have the right to direct the voting of the     
Common Stock held in such trust; however, such Common Stock will not be         
delivered to a director until his or her termination from service (or a         
subsequent date specified by the director).                                     

Nonemployee directors are reimbursed for expenses they incur in attending 
Board and committee meetings, and the Company maintains business travel accident
insurance coverage for them. In addition, nonemployee directors receive a fee of
$1,000 per day for work performed at the Company's request.                     

  The Company has a consulting agreement with Kamsky Associates Inc. (of which
Ms. Kamsky is chairman and co-chief executive officer) relating to the Company's
interests in The People's Republic of China. The agreement expires on May 31,   
1997 (and is not being renewed) and provides for monthly fees of $25,000, plus  
additional payments based on the extent to which the Company establishes certain
business relationships in The People's Republic of China. In 1996, the Company  
paid fees totaling $300,000 under this agreement. NMC has had a consulting      
agreement with another company of which Ms. Kamsky is a principal relating to   
business opportunities in nine other countries in the Asia Pacific region. The  
agreement expires on May 31, 1997 and provides for monthly fees of $10,000, plus
additional payments based on the extent to which NMC establishes certain        
business relationships in the relevant countries. From January 1996 through     
September 1996 (when NMC separated from the Company), NMC paid Ms. Kamsky's     
company consulting fees totaling $108,000 under its agreement. The foregoing    
description does not purport to be complete and is qualified in its entirety by 
reference to the agreements referred to above, which have been filed with the   
SEC as exhibits to the Company's Annual Reports on Form 10-K for the years ended
December 31, 1992 and 1994 and the Company's Quarterly Report on Form 10-Q for  
the quarter ended March 31, 1995.                                               

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 Compensation Committee Interlocks and Insider Participation. Prior to May
10, 1996, the Compensation Committee consisted of Messrs. Eckmann, Holmes and   
Phipps, as well as Edward W. Duffy (who retired from the Board on that date) and
Peter S. Lynch (who resigned from the Board on that date). In addition, Thomas  
L. Gossage, then chairman and chief executive officer of Hercules, Incorporated 
("Hercules"), was a member of the Compensation Committee until his resignation  
from the Board in March 1996. On May 10, 1996, the Compensation Committee was   
reconstituted to consist of Messrs. Eckmann, Holmes, Phipps and Vanderslice; Mr.
Akers joined the Compensation Committee in January 1997 and Mr. Murphy in March 
1997. As noted above, Mr. Holmes served as acting president and chief executive 
officer of the Company for a two-month period in 1995. During 1996, the Company 
purchased approximately $428,000 of products from, and sold approximately       
$36,000 of products to, Hercules.                                               

RELATIONSHIPS AND TRANSACTIONS WITH MANAGEMENT AND OTHERS                       

The following are descriptions of certain relationships and transactions  
between the Company and its directors and executive officers and/or businesses  
with which they are affiliated. Information regarding certain consulting        
arrangements appears under "Compensation -- Directors' Compensation and         
Consulting Arrangements."                                                       

  Commercial Transactions. Mr. Costello is a director of Becton, Dickinson and
Company ("Becton Dickinson") and FMC Corporation ("FMC"). During 1996, various  
units of the Company purchased approximately $3.3 million of materials and/or   
products from, and sold approximately $556,000 of materials and/or products to, 
units of Becton Dickinson. In addition, during 1996 various units of the Company
purchased approximately $3.1 million of materials and/or products from, and sold
approximately $171,000 of materials and/or products to, FMC.                    

   Thomas L. Gossage was a director of the Company from July 1995 to March 1996,
during which time he was chairman and chief executive officer of Hercules.      
During 1996, the Company purchased approximately $428,000 of products from, and 
sold approximately $36,000 of products to, Hercules.                            

 The foregoing transactions were in the ordinary course of business and were
on terms believed to be similar to those with unaffiliated parties.             

Under his employment agreement and the terms of his resignation (see      
"Employment Agreements" and "Resignations of Executive Officers" under the      
heading "Compensation"), Dr. Hampers was previously granted an option to        
purchase, for its fair market value, a Gulfstream IV aircraft owned by the      
Company. In August 1996, Dr. Hampers purchased the aircraft for $19 million.    
This price was based upon independent parties' estimates of the fair market     
value of the aircraft.                                                          

  Loans to Officers. The Company previously made a $350,000 interest-free loan
to Mr. Lempereur in connection with his relocation to Florida. See "Employment  
Agreements" and "Resignations of Executive Officers" under the heading          
"Compensation" for additional information.                                      

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 SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS

MANAGEMENT SECURITY OWNERSHIP                                                   

   The following table sets forth the Common Stock beneficially owned at January
31, 1997 by each current director and nominee, by each of the executive officers
named in the Summary Compensation Table set forth under "Election of Directors  
-- Compensation" (other than those who resigned in 1996 and early 1997), and by 
such directors and executive officers as a group. The table includes shares     
owned by (1) those persons and their spouses, minor children and certain        
relatives, (2) trusts and custodianships for their benefit and (3) trusts and   
other entities as to which the persons have the power to direct the voting or   
investment of securities (including shares as to which the persons disclaim     
beneficial ownership). The table also includes shares in accounts under the     
Savings Plan and shares covered by currently exercisable stock options; it does 
not reflect shares covered by unexercisable stock options. The Common Stock     
owned by directors and executive officers as a group (excluding option shares)  
at January 31, 1997 represents less than 1% of the Common Stock outstanding at  
March 11, 1997.                                                                 

                                                                [Download Table]

                               AMOUNT/NATURE   
                                OF OWNERSHIP   
                              ---------------  

                                               
J. F. Akers .................       1,000      
R. H. Beber .................       7,595      
                                  258,338(O)   
H. Brown ....................       1,000      
C. Cheng ....................           0      
A. J. Costello ..............      32,710*     
                                  181,125(O)   
H. A. Eckmann ...............       3,259      
L. Ellberger ................       1,583*     
                                   66,292(O)   
M. A. Fox ...................         425      
J. W. Frick .................       2,830      
T. A. Holmes ................       3,990      
J. R. Hyde ..................       8,995      
                                  184,127(O)   
V. A. Kamsky ................       2,500      
J. J. Murphy ................           0      
J. E. Phipps ................      11,490      
                                   17,450(T,S) 
T. A. Vanderslice ...........       1,300      
Various directors, executive                   
 officers and others, as                       
 Trustees ...................       2,696 (T,S)
Directors and executive                        
 officers as a group ........      94,789*     
                                   20,146 (T,S)
                                  864,802(O)   

------------                                                                    
*       Excludes shares beneficially owned by certain executive officers in     
  respect of LTIP awards earned for the 1994-1996 Performance Period
       (payable in March 1997), as follows: Mr. Costello -- 30,917 shares; Mr.
     Ellberger -- 14,406 shares; and directors and executive officers as a
group -- 55,278 shares.                                         
(O)     Shares covered by stock options exercisable on or within 60 days after  
January 31, 1997.                                               
(T)     Shares owned by trusts and other entities as to which the person has the
power to direct voting and/or investment.                       
(S)     Shares as to which the person shares voting and/or investment power with
others.                                                         

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                                                                         ANNEX F

FINANCIAL SUPPLEMENT

W. R. GRACE & CO. 
FOR THE YEAR ENDED DECEMBER 31, 1996

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MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING                             

Management is responsible for the preparation, as well as the integrity and     
objectivity, of the Consolidated Financial Statements and other financial       
information included in this report. Such financial information has been        
prepared in conformity with generally accepted accounting principles and        
accordingly includes certain amounts that represent management's best estimates 
and judgments.                                                                  

  Management maintains internal control systems to assist it in fulfilling
its responsibility for financial reporting, including selection of personnel;   
segregation of duties; business, accounting and reporting policies and          
procedures; and an internal audit function. While no system can ensure          
elimination of all errors and irregularities, Grace's systems, which are        
reviewed and modified in response to changing conditions, have been designed to 
provide reasonable assurance that assets are safeguarded, policies and          
procedures are followed and transactions are properly executed and reported. The
concept of reasonable assurance is based on the recognition that there are      
limitations in all systems and that the cost of such systems should not exceed  
their benefits.                                                                 

The Audit Committee of the Board of Directors, which is comprised of  
directors who are neither officers nor employees of nor consultants to Grace,   
meets regularly with Grace's senior financial personnel, internal auditors and  
independent certified public accountants to review audit plans and results, as  
well as the actions taken by management in discharging its responsibilities for 
accounting, financial reporting and internal control systems. The Audit         
Committee reports its findings and recommends the selection of independent      
certified public accountants to the Board of Directors. Grace's management,     
internal auditors and independent certified public accountants have direct and  
confidential access to the Audit Committee at all times.                        

 The independent certified public accountants are engaged to conduct the
audits of and render a report on the consolidated financial statements in       
accordance with generally accepted auditing standards. These standards require a
review of the systems of internal controls and tests of transactions to the     
extent considered necessary by the independent certified public accountants for 
purposes of supporting their opinion as set forth in their report.              

                                                                [Download Table]
                                                  
Albert J. Costello       Larry Ellberger          
Chairman, President and  Senior Vice President and
Chief Executive Officer  Chief Financial Officer  

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS                              

Price Waterhouse LLP                   February 3, 1997                         
One East Broward Boulevard                                                      
Ft. Lauderdale, FL 33301                                                        

TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF W. R. GRACE & CO.                 

In our opinion, the consolidated financial statements appearing on pages F-3    
through F-23 of this report present fairly, in all material respects, the       
financial position of W. R. Grace & Co. and subsidiaries at December 31, 1996   
and 1995, and the results of their operations and their cash flows for each of  
the three years in the period ended December 31, 1996, in conformity with       
generally accepted accounting principles. These financial statements are the    
responsibility of management; our responsibility is to express an opinion on    
these financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which       
require that we plan and perform the audit to obtain reasonable assurance about 
whether the financial statements are free of material misstatement. An audit    
includes examining, on a test basis, evidence supporting the amounts and        
disclosures in the financial statements, assessing the accounting principles    
used and significant estimates made by management, and evaluating the overall   
financial statement presentation. We believe that our audits provide a          
reasonable basis for the opinion expressed above.                               

Price Waterhouse LLP                                                            

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CONSOLIDATED FINANCIAL STATEMENTS                                               
--------------------------------------------------------------------------------
W. R. Grace & Co. and Subsidiaries                                              

CONSOLIDATED STATEMENT OF OPERATIONS                                            
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

            Dollars in millions, except per share amounts                 1996         1995         1994   
---------------------------------------------------------------------------------------------------------- 
                                                                                                           
Sales and revenues....................................................  $3,454.1     $3,552.6     $3,128.5 
Other income..........................................................      38.9         41.2         42.0 
                                                                        --------     --------     -------- 
     TOTAL............................................................   3,493.0      3,593.8      3,170.5 
                                                                        --------     --------     -------- 
Cost of goods sold and operating expenses.............................   2,071.0      2,151.2      1,832.6 
Selling, general and administrative expenses..........................     713.3        913.7        785.9 
Depreciation and amortization.........................................     184.4        186.1        164.6 
Interest expense and related financing costs..........................      71.6         71.3         49.5 
Research and development expenses.....................................      93.9        111.6         99.6 
Restructuring costs and asset impairments.............................     107.5        169.0           -- 
Provision relating to asbestos-related liabilities and insurance                                           
  coverage............................................................     229.1        275.0        316.0 
Gain on sales of businesses...........................................    (326.4)          --           -- 
                                                                        --------     --------     -------- 
     TOTAL............................................................   3,144.4      3,877.9      3,248.2 
                                                                        --------     --------     -------- 
Income/(loss) from continuing operations before income taxes..........     348.6       (284.1)       (77.7)
Provision for/(benefit from) income taxes.............................     134.8       (104.5)       (42.6)
                                                                        --------     --------     -------- 
     INCOME/(LOSS) FROM CONTINUING OPERATIONS.........................     213.8       (179.6)       (35.1)
Income/(loss) from discontinued operations............................   2,643.9       (146.3)       118.4 
                                                                        --------     --------     -------- 
     NET INCOME/(LOSS)................................................  $2,857.7     $ (325.9)    $   83.3 
                                                                        ========     ========     ======== 
Earnings/(loss) per share:                                                                                 
     Continuing operations............................................  $   2.32     $  (1.87)    $   (.38)
     Net earnings/(loss)..............................................  $  31.06     $  (3.40)    $    .88 

--------------------------------------------------------------------------------
The Notes to Consolidated Financial Statements, pages F-7 to F-23, are integral 
parts of these statements.                                                      

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CONSOLIDATED STATEMENT OF CASH FLOWS                                            

                                                        [Enlarge/Download Table]

--------------------------------------------------------------------------------------------------------- 
Dollars in millions                                                   1996           1995          1994   
--------------------------------------------------------------------------------------------------------- 
                                                                                                          
OPERATING ACTIVITIES                                                                                      
Income/(loss) from continuing operations before income taxes......  $   348.6       $(284.1)      $ (77.7)
Reconciliation to cash provided by operating activities:                                                  
     Depreciation and amortization................................      184.4         186.1         164.6 
     Provision relating to asbestos-related liabilities and                                               
      insurance coverage..........................................      229.1         275.0         316.0 
     Provision relating to restructuring costs and asset                                                  
      impairments.................................................      107.5         169.0            -- 
     Gain on sales of businesses..................................     (326.4)           --            -- 
     Changes in assets and liabilities, excluding effect of                                               
      businesses acquired/divested and foreign currency exchange:                                         
       Increase in notes and accounts receivable, net.............     (126.4)        (44.7)       (159.5)
       Decrease/(increase) in inventories.........................       51.9         (62.1)        (43.4)
       Proceeds from asbestos-related insurance settlements.......      184.5         257.3         138.6 
       Payments made for asbestos-related litigation settlements,                                         
        judgments and defense costs...............................     (186.6)       (160.3)       (198.6)
       (Decrease)/increase in accounts payable....................      (36.4)        (48.3)         10.3 
       Other......................................................      (74.6)        (40.6)         74.5 
                                                                    ---------       -------       ------- 
     NET PRETAX CASH PROVIDED BY OPERATING ACTIVITIES OF                                                  
      CONTINUING OPERATIONS.......................................      355.6         247.3         224.8 
Net pretax cash provided by operating activities of discontinued                                          
  operations......................................................       38.5          96.6         314.7 
                                                                    ---------       -------       ------- 
     NET PRETAX CASH PROVIDED BY OPERATING ACTIVITIES.............      394.1         343.9         539.5 
Income taxes paid.................................................     (170.8)       (236.9)        (86.0)
                                                                    ---------       -------       ------- 
     NET CASH PROVIDED BY OPERATING ACTIVITIES....................      223.3         107.0         453.5 
                                                                    ---------       -------       ------- 
INVESTING ACTIVITIES (1)                                                                                  
Capital expenditures..............................................     (456.6)       (537.6)       (444.6)
Businesses acquired in purchase transactions, net of cash acquired                                        
  and debt assumed................................................      (32.1)        (37.4)       (276.9)
Net investing activities of discontinued operations...............     (192.9)       (295.2)        (32.9)
Net proceeds from divestments.....................................    2,720.3          56.7         583.9 
Proceeds from disposals of assets.................................       36.6          17.9          34.0 
Other.............................................................       (2.4)         (6.0)         34.9 
                                                                    ---------       -------       ------- 
     NET CASH PROVIDED BY/(USED FOR) INVESTING ACTIVITIES.........    2,072.9        (801.6)       (101.6)
                                                                    ---------       -------       ------- 
FINANCING ACTIVITIES (1)                                                                                  
Dividends paid....................................................      (46.0)       (112.6)       (132.0)
Repayments of borrowings having original maturities in excess of                                          
  three months....................................................     (196.1)        (68.1)       (141.2)
Increase in borrowings having original maturities in excess of                                            
  three months....................................................         .6         148.5         535.1 
Net (repayments of)/increase in borrowings having original                                                
  maturities of three months or less..............................     (344.3)        414.9        (605.8)
Stock options exercised...........................................       70.7         164.1          21.1 
Net financing activities of discontinued operations...............     (136.7)        120.8            .2 
Purchase of treasury stock........................................   (1,319.3)        (12.1)           -- 
Repurchase of limited partnership interest........................     (297.0)           --            -- 
Other.............................................................         .3            .2           (.2)
                                                                    ---------       -------       ------- 
     NET CASH (USED FOR)/PROVIDED BY FINANCING ACTIVITIES.........   (2,267.8)        655.7        (322.8)
                                                                    ---------       -------       ------- 
Effect of exchange rate changes on cash and cash equivalents......        (.7)          1.2           1.6 
                                                                    ---------       -------       ------- 
Increase/(decrease) in cash and cash equivalents..................       27.7         (37.7)         30.7 
                                                                    ---------       -------       ------- 
     CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.................       40.6          78.3          47.6 
                                                                    ---------       -------       ------- 
     CASH AND CASH EQUIVALENTS, END OF YEAR.......................  $    68.3       $  40.6       $  78.3 
                                                                    =========       =======       ======= 

--------------------------------------------------------------------------------------------------------- 

The Notes to Consolidated Financial Statements, pages F-7 to F-23, are integral 
parts of these statements.                                                      

(1) See Notes 1 and 6 for supplemental information relating to noncash investing
and financing activities.                                                       

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CONSOLIDATED BALANCE SHEET                                                      
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]


Dollars in millions, except par value                           December 31,           1996         1995  
                                                                                                          
--------------------------------------------------------------------------------------------------------- 

ASSETS                                                                                                    

CURRENT ASSETS                                                                                            
Cash and cash equivalents...................................................        $   68.3     $   40.6 
Notes and accounts receivable, net..........................................           831.4        596.8 
Inventories.................................................................           376.1        491.9 
Net assets of discontinued operations.......................................           297.4        323.7 
Deferred income taxes.......................................................           183.9        206.1 
Other current assets........................................................            17.8         22.2 
                                                                                    --------     -------- 
     TOTAL CURRENT ASSETS...................................................         1,774.9      1,681.3 

Properties and equipment, net...............................................         1,871.3      1,736.1 
Goodwill, less accumulated amortization of $18.6 (1995 - $20.6).............            40.6        111.8 
Net assets of discontinued operations - health care.........................              --      1,435.3 
Asbestos-related insurance receivable.......................................           296.3        321.2 
Deferred income taxes.......................................................           309.2        386.6 
Other assets................................................................           653.5        688.3 
                                                                                    --------     -------- 
     TOTAL ASSETS...........................................................        $4,945.8     $6,360.6 
                                                                                    ========     ======== 

LIABILITIES AND SHAREHOLDERS' EQUITY                                                                      

CURRENT LIABILITIES                                                                                       
Short-term debt.............................................................        $  315.2     $  638.3 
Accounts payable............................................................           274.7        339.2 
Income taxes................................................................           123.3        103.3 
Other current liabilities...................................................           773.9        836.4 
Minority interest...........................................................              --        297.0 
                                                                                    --------     -------- 
     TOTAL CURRENT LIABILITIES..............................................         1,487.1      2,214.2 

Long-term debt..............................................................         1,073.0      1,295.5 
Other liabilities...........................................................           850.7        852.0 
Deferred income taxes.......................................................            43.5         44.8 
Noncurrent liability for asbestos-related litigation........................           859.1        722.3 
                                                                                    --------     -------- 
     TOTAL LIABILITIES......................................................         4,313.4      5,128.8 
                                                                                    --------     -------- 

COMMITMENTS AND CONTINGENCIES (Notes 2, 6, 9 and 11)                                                      

SHAREHOLDERS' EQUITY                                                                                      
Preferred stock, par value $.01 and $100, respectively......................              --          7.4 
Common stock, par value $.01 and $1, respectively; 300,000,000 shares                                     
  authorized; outstanding at December 31: 1996 - 78,493,000;                                              
  1995 - 97,375,000.........................................................              .8         97.4 
Paid in capital.............................................................           524.1        459.8 
Retained earnings...........................................................           172.6        709.0 
Cumulative translation adjustments..........................................           (64.6)       (39.4)
Treasury stock, at cost; December 31: 1996 - 10,000; 1995 - 53,000 common                                 
  shares....................................................................             (.5)        (2.4)
                                                                                    --------     -------- 
     TOTAL SHAREHOLDERS' EQUITY.............................................           632.4      1,231.8 
                                                                                    --------     -------- 
     TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............................        $4,945.8     $6,360.6 
                                                                                    ========     ======== 

--------------------------------------------------------------------------------

The Notes to Consolidated Financial Statements, pages F-7 to F-23, are integral 
parts of these statements.                                                      

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CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY                                  

                                                        [Enlarge/Download Table]

---------------------------------------------------------------------------------------------------------- 
Dollars in millions                                                      1996          1995         1994   
---------------------------------------------------------------------------------------------------------- 
                                                                                                           
PREFERRED STOCKS                                                                                           
Balance, beginning of year.........................................    $     7.4     $    7.4     $    7.4 
Retirement of preferred stocks.....................................         (7.4)          --           -- 
                                                                        --------     --------     -------- 
     BALANCE, END OF YEAR..........................................           --          7.4          7.4 
                                                                        --------     --------     -------- 

COMMON STOCK                                                                                               
Balance, beginning of year.........................................         97.4         94.1         93.5 
Shares issued under stock incentive plans..........................          1.4          3.3           .6 
Retirement of treasury stock.......................................         (9.9)          --           -- 
Change in par value of common stock................................        (88.1)          --           -- 
                                                                        --------     --------     -------- 
     BALANCE, END OF YEAR..........................................           .8         97.4         94.1 
                                                                        --------     --------     -------- 

PAID IN CAPITAL                                                                                            
Balance, beginning of year.........................................        459.8        308.8        287.8 
Shares issued under stock incentive plans..........................         98.5        151.1         20.5 
Retirement of treasury stock.......................................       (122.3)          --           -- 
Change in par value of common stock................................         88.1           --           -- 
Other..............................................................           --          (.1)          .5 
                                                                        --------     --------     -------- 
     BALANCE, END OF YEAR..........................................        524.1        459.8        308.8 
                                                                        --------     --------     -------- 

RETAINED EARNINGS                                                                                          
Balance, beginning of year.........................................        709.0      1,147.5      1,196.2 
Net income/(loss)..................................................      2,857.7       (325.9)        83.3 
Dividends paid.....................................................        (46.0)      (112.6)      (132.0)
Dividend of common equity interest in health care business.........     (2,172.3)          --           -- 
Retirement of preferred stock......................................          7.4           --           -- 
Retirement of treasury stock.......................................     (1,183.2)          --           -- 
                                                                        --------     --------     -------- 
     BALANCE, END OF YEAR..........................................        172.6        709.0      1,147.5 
                                                                        --------     --------     -------- 

CUMULATIVE TRANSLATION ADJUSTMENTS                                                                         
Balance, beginning of year.........................................        (39.4)       (53.3)       (67.3)
Translation adjustments............................................        (25.2)        13.9         14.0 
                                                                        --------     --------     -------- 
     BALANCE, END OF YEAR..........................................        (64.6)       (39.4)       (53.3)
                                                                        --------     --------     -------- 

TREASURY STOCK                                                                                             
Balance, beginning of year.........................................         (2.4)          --           -- 
Purchase of common stock...........................................     (1,319.3)       (12.1)          -- 
Shares issued under stock incentive plans..........................          5.8          9.7           -- 
Retirement of treasury stock.......................................      1,315.4           --           -- 
                                                                        --------     --------     -------- 
     BALANCE, END OF YEAR..........................................          (.5)        (2.4)          -- 
                                                                        --------     --------     -------- 

     TOTAL SHAREHOLDERS' EQUITY....................................    $   632.4     $1,231.8     $1,504.5 
                                                                        ========     ========     ======== 

--------------------------------------------------------------------------------

The Notes to Consolidated Financial Statements, pages F-7 to F-23, are integral 
parts of these statements.                                                      

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                      
--------------------------------------------------------------------------------
Dollars in millions, except per share amounts                                   
--------------------------------------------------------------------------------

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING AND FINANCIAL    
REPORTING POLICIES                                                      
--------------------------------------------------------------------------------

W. R. Grace & Co., through its subsidiaries, is primarily engaged in the        
packaging and specialty chemicals businesses on a worldwide basis. As used in   
these notes, the term "Company" refers to Grace New York (as defined below)     
through September 27, 1996, and thereafter to W. R. Grace & Co., a Delaware     
corporation. The term "Grace" refers to the Company and/or one or more of its   
subsidiaries.                                                                   

REORGANIZATION On September 28, 1996, W. R. Grace & Co., a New York corporation 
subsequently renamed Fresenius National Medical Care Holdings, Inc. (Grace New  
York), distributed all of the Company's outstanding common stock (which has a   
par value of $.01 per share) to the holders of Grace New York common stock      
(which had a par value of $1.00 per share) on a one-for-one basis. As a result  
of the distribution, Grace New York's principal remaining asset was the         
outstanding capital stock of National Medical Care, Inc. (NMC), a health care   
company that was classified as a discontinued operation in the second quarter of
1995. On September 29, 1996, a wholly owned subsidiary of Fresenius Medical Care
AG (FMC), a German corporation, merged with and into Grace New York, resulting  
in the combination of NMC with the worldwide dialysis business of Fresenius AG  
(Fresenius), a German health care corporation and the principal shareholder of  
FMC.                                                                            

  The Grace New York preferred stock issued and outstanding at the time of
the above distribution remained outstanding shares of Grace New York, and the   
treasury shares held by Grace New York at the time of the distribution were     
retained by Grace New York. Accordingly, the distribution was treated as a      
retirement of preferred stocks and a retirement of treasury stock within the    
Consolidated Statement of Shareholders' Equity for the year ended December 31,  
1996.                                                                           

For further information, see the Grace New York Joint Proxy           
Statement-Prospectus dated August 2, 1996 (Joint Proxy Statement-Prospectus),   
the Company's Prospectus dated August 2, 1996 (Prospectus), and Notes 6 and 13. 

PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the   
accounts of Grace and majority-owned companies. Intercompany transactions and   
balances are eliminated in consolidation. Investments in affiliated companies   
(20%-50% owned) are accounted for under the equity method.                      

RECLASSIFICATIONS Certain amounts in prior years' consolidated financial        
statements and related notes have been reclassified to conform to the current   
year's presentation and as required with respect to discontinued operations.    

USE OF ESTIMATES The preparation of financial statements in conformity with     
generally accepted accounting principles requires that management make estimates
and assumptions affecting the reported amounts of assets and liabilities        
(including contingent assets and liabilities) at the date of the consolidated   
financial statements and the reported revenues and expenses during the reporting
period. Actual amounts could differ from those estimates.                       

CASH EQUIVALENTS Cash equivalents consist of highly liquid instruments with     
maturities of three months or less when purchased. The recorded amounts         
approximate fair value because of the short maturities of these investments.    

INVENTORIES Inventories are stated at the lower of cost or market. The methods  
used to determine cost include first-in/first-out and, for substantially all    
U.S. chemical inventories, last-in/first-out. Market values for raw materials   
are based on current cost and, for other inventory classifications, net         
realizable value.                                                               

PROPERTIES AND EQUIPMENT Properties and equipment are stated at the lower of    
cost or fair value. Depreciation of properties and equipment is generally       
computed using the straight-line method over the estimated useful life of the   
asset. Interest is capitalized in connection with major project expenditures and
amortized, generally on a straight-line basis, over the estimated useful life of
the asset. Fully depreciated assets are retained in properties and equipment and
related accumulated depreciation accounts until they are removed from service.  
In the case of disposals, assets and related depreciation are removed from the  
accounts and the net amount, less any proceeds from disposal, is charged or     
credited to income.                                                             

GOODWILL Goodwill arises from certain purchase transactions and is amortized    
using the straight-line method over appropriate periods not exceeding 40 years. 

RESEARCH AND DEVELOPMENT COSTS Research and development costs are charged to    
expense as incurred.                                                            

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IMPAIRMENT In 1995, Grace adopted Statement of Financial Accounting Standards   
(SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for     
Long-Lived Assets to Be Disposed Of." In accordance with this statement, Grace  
reviews long-lived assets and related goodwill for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not  
be fully recoverable.                                                           

INCOME TAXES Grace uses an asset and liability approach for the accounting and  
financial reporting of income taxes.                                            

FOREIGN CURRENCY TRANSLATION Foreign currency transactions and financial        
statements (except for those relating to countries with highly inflationary     
economies) are translated into U.S. dollars at current exchange rates, except   
that revenues, costs and expenses are translated at average exchange rates      
during each reporting period. The financial statements of subsidiaries located  
in countries with highly inflationary economies are remeasured as if the        
functional currency was the U.S. dollar. The remeasurement creates translation  
adjustments that are reflected in net income.                                   

FINANCIAL INSTRUMENTS Grace enters into interest rate swap agreements and       
foreign exchange forward and option contracts to manage exposure to fluctuations
in interest and foreign currency exchange rates. Grace does not hold or issue   
derivative financial instruments for trading purposes.                          

     The cash differentials paid or received under interest rate swap agreements
are accrued and recognized as adjustments to interest expense. The related      
amounts payable to or receivable from the counterparties are included in other  
current liabilities or notes and accounts receivable, net. Cash flows related to
interest rate swap agreements are classified within operating activities in the 
Consolidated Statement of Cash Flows, consistent with the interest payments on  
the underlying debt. The fair values of interest rate swap agreements are not   
recognized in the Consolidated Financial Statements, as these agreements modify 
the interest rate basis (i.e., whether fixed or floating rate) of debt          
instruments of similar face amounts and tenor.                                  

     Gains or losses resulting from the settlement prior to maturity of interest
rate swap agreements are either deferred (recorded as other liabilities or other
assets) and amortized to interest expense and related financing costs over a    
period relevant to the agreement (if the underlying debt remains outstanding) or
recognized immediately (if the underlying debt has been repaid or retired).     

  Grace enters into foreign currency forward and option contracts to hedge
transactions and firm commitments denominated in foreign currencies and, from   
time to time, net investments in foreign subsidiaries. Gains or losses on hedges
of transactional exposures are recorded as adjustments to gains or losses on the
underlying transactions. Gains or losses on hedges of foreign                   
currency-denominated firm commitments are deferred and recorded as part of the  
basis in the transaction in the period in which the transaction is consummated. 
Gains and losses on forward contracts that hedge net investments in foreign     
subsidiaries are recorded in the cumulative translation adjustments account in  
shareholders' equity. Cash flows related to foreign currency forward and option 
contracts are classified within operating activities in the Consolidated        
Statement of Cash Flows.                                                        

OTHER INCOME Other income consists of interest income, equity in earnings of    
affiliated companies, gains on sales of investments and other items.            

EARNINGS PER SHARE Earnings per share are computed on the basis of the weighted 
average number of common shares outstanding.                                    
--------------------------------------------------------------------------------

2.   ASBESTOS AND RELATED INSURANCE LITIGATION                                  
--------------------------------------------------------------------------------

Grace is a defendant in property damage and personal injury lawsuits relating to
previously sold asbestos-containing products and anticipates that it will be    
named as a defendant in additional asbestos-related lawsuits in the future.     
Grace was a defendant in approximately 41,500 asbestos-related lawsuits at      
December 31, 1996 (31 involving claims for property damage and the remainder    
involving approximately 91,500 claims for personal injury), as compared to      
approximately 40,800 lawsuits at December 31, 1995 (47 involving claims for     
property damage and the remainder involving approximately 92,400 claims for     
personal injury).                                                               

PROPERTY DAMAGE LITIGATION                                                      

The plaintiffs in property damage lawsuits generally seek to have the defendants
absorb the cost of removing, containing or repairing the asbestos-containing    
materials in the affected buildings. Each property damage case is unique in that
the age, type, size and use of the building, and the difficulty of asbestos     
abatement, if necessary, vary from structure to structure. Thus, the amounts    
involved in prior dispositions of property damage cases are not necessarily     
indicative of the amounts that may be required to dispose of cases in the       
future. Information regarding product identification, the amount of product in  
the building, the age, type, size and use of the building, the jurisdictional   
history of prior cases and the court in which the case is pending provide       
meaningful guidance as to the range of potential costs. Some of this information
is not yet available in the property damage cases currently pending against     
Grace. Accordingly, it is not possible to estimate with precision the costs of  
defending against and disposing of these cases. In accordance with SFAS No. 5,  
Grace has recorded an accrual for all existing property damage cases for which  
sufficient information is available to form a range of estimated exposure. At   
December 31, 1996 and 1995, estimates were not accrued for one and four cases,  
respectively, due to insufficient information. Grace believes that the number of
property damage cases to be filed in the future and the costs associated with   
these filings are not estimable.                                                

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Through December 31, 1996, 135 asbestos property damage cases were    
dismissed without payment of any damages or settlement amounts; judgments were  
entered in favor of Grace in nine cases (excluding cases settled following      
appeals of judgments in favor of Grace); judgments were entered in favor of the 
plaintiffs in seven cases for a total of $60.3 (none of which is on appeal); and
186 property damage cases were settled for a total of $450.5. Property damage   
case activity for 1996 and 1995 is as follows:                                  

                                                        [Enlarge/Download Table]

--------------------------------------------------------------------------------------------------------------------
December 31,                                                                                           1995     1996
--------------------------------------------------------------------------------------------------------------------
                                                                                                                    
Cases outstanding, beginning of year.................................................................   47       65 
New cases filed......................................................................................    1        5 
Settlements..........................................................................................   (9)     (18)
Dismissals...........................................................................................   (5)      (4)
Judgments, net.......................................................................................   (3)      (1)
                                                                                                        --       -- 
    Cases outstanding, end of year...................................................................   31       47 
                                                                                                        ==       == 
--------------------------------------------------------------------------------------------------------------------

PERSONAL INJURY LITIGATION                                                      
Personal injury claims are generally similar to each other (differing primarily 
in the type of asbestos-related illness allegedly suffered by the plaintiff).   
However, Grace's estimated liability for such claims is influenced by numerous  
variables, including the solvency of other former asbestos producers,           
cross-claims by co-defendants, the rate at which new claims are filed, the      
jurisdiction in which the filings are made, and the defense and disposition     
costs associated with these claims.                                             
  Through December 31, 1996, approximately 11,800 asbestos personal injury
lawsuits involving 27,400 claims were dismissed without payment of any damages  
or settlement amounts (primarily on the basis that Grace products were not      
involved), and approximately 30,500 lawsuits involving 66,200 claims were       
disposed of for a total of $186.0. Personal injury claim activity for 1996 and  
1995 is as follows:                                                             

                                                        [Enlarge/Download Table]

---------------------------------------------------------------------------------------------------------------- 
December 31,                                                                                   1995        1996  
---------------------------------------------------------------------------------------------------------------- 
                                                                                                                 
Claims outstanding, beginning of year.......................................................   92,436     67,889 
New claims..................................................................................   30,274     34,306 
Claims under amended complaints(1)..........................................................    8,298      2,120 
Settlements.................................................................................  (36,630)    (9,585)
Dismissals..................................................................................   (2,866)    (2,288)
Judgments, net..............................................................................       (1)        (6)
                                                                                               ------     ------ 
    Claims outstanding, end of year.........................................................   91,511     92,436 
                                                                                               ======     ====== 
---------------------------------------------------------------------------------------------------------------- 

(1) Of the 8,298 claims shown, approximately 1,500 were filed under amended     
complaints in 1996. The remaining claims relate to disputed filings that
were submitted to local counsel in prior years but were not reported to 
Grace until 1996, when a majority of such claims was settled.           

ASBESTOS-RELATED LIABILITY                                                      
Subject to the factors discussed above, Grace estimates that its probable       
liability is as follows with respect to the defense and disposition of asbestos 
property damage and personal injury cases and claims at December 31, 1996 and   
1995:                                                                           

                                                        [Enlarge/Download Table]

---------------------------------------------------------------------------------------------------------------- 
December 31,                                                                                   1995(1)    1996(2)
---------------------------------------------------------------------------------------------------------------- 
                                                                                                                 
Current liability for asbestos-related litigation(3).........................................  $135.0     $100.0 
Noncurrent liability for asbestos-related litigation.........................................   859.1      722.3 
                                                                                               ------     ------ 
    Total asbestos-related liability(4)......................................................  $994.1     $822.3 
                                                                                               ======     ====== 
---------------------------------------------------------------------------------------------------------------- 

(1) Reflects property damage and personal injury cases and claims pending at    
 December 31, 1996, as well as personal injury claims expected to be filed
through 2001. See discussion below.                                     
(2) Reflects property damage and personal injury cases and claims pending at    
 December 31, 1995, as well as personal injury claims expected to be filed
through 1998. See discussion below.                                     
(3) Included in "other current liabilities" in the Consolidated Balance Sheet.  
(4) Excludes one property damage case at December 31, 1996 as to which the      
    liability is not yet estimable because Grace has not yet been able to obtain
sufficient information through discovery proceedings.                   

Prior to 1995, Grace recorded noncash charges to reflect its estimate of the    
costs of defending against and disposing of the asbestos property damage and    
personal injury cases and claims then pending. In the fourth quarter of 1995,   
Grace determined that it had adequate experience to reasonably estimate the     
costs of defending against and disposing of asbestos personal injury claims to  
be filed during the three-year period 1996-1998 and recorded a noncash charge of
$260.0 ($169.0 after-tax), primarily to reflect such anticipated filings. Based 
on certain developments during 1996, Grace determined in the 1996 fourth quarter
that it had adequate experience to reasonably estimate the costs of defending   
against and disposing of asbestos personal injury claims to be filed during the 
five-year period 1997-2001 and recorded a noncash charge of $348.4 ($226.4      
after-tax), primarily to reflect such anticipated filings. The 1996 provision   
also reflects increases in the estimated costs of defending against and         
disposing of personal injury claims pending at year-end 1996, and the 1995      
provision also reflects increases in the estimated costs of defending against   
and disposing of certain property damage cases pending at year-end 1995 and     
personal injury claims filed during 1995. However, as discussed above, these    
estimates are not necessarily indicative of actual costs. Based on the factors  
discussed above, Grace does not                                                 

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believe that it can reasonably estimate the number and defense and disposition  
costs of personal injury claims that may be brought against Grace after 2001.   
The accruals recorded for future cases and claims are not discounted to their   
present values; further, the actual cash payments related to future cases and   
claims are expected to continue beyond 2001.                                    

ASBESTOS-RELATED INSURANCE RECEIVABLE                                           
Grace previously purchased insurance policies with respect to its               
asbestos-related lawsuits and claims. The following tables display the activity 
in Grace's notes receivable and asbestos-related insurance receivable accounts  
during 1996 and 1995:                                                           
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                                                       1996       1995  
------------------------------------------------------------------------------------------------------- 
                                                                                                        
NOTES RECEIVABLE                                                                                        
Notes receivable from insurance carriers, beginning of year, net of discount of                         
  $11.6 in 1996 (1995 - $15.0)......................................................  $118.4     $187.0 
Proceeds from asbestos-related insurance settlements................................   (93.3)    (127.0)
Current year asbestos-related insurance settlements.................................    19.2       55.0 
Current year amortization, net......................................................     4.2        3.4 
                                                                                      ------     ------ 
  Notes receivable from insurance carriers at year-end, net of discount of $7.4                         
     (1995 - $11.6)(1)..............................................................  $ 48.5     $118.4 
                                                                                      ======     ====== 
INSURANCE RECEIVABLE                                                                                    
Asbestos-related insurance receivable, beginning of year............................  $321.2     $512.6 
Proceeds from asbestos-related insurance settlements................................   (91.2)    (130.3)
Adjustments to asbestos-related insurance receivable(2).............................   119.3      (15.0)
Transfers from asbestos-related insurance receivable to notes receivable from                           
  insurance carriers................................................................   (19.2)     (55.0)
Other...............................................................................     1.2        8.9 
                                                                                      ------     ------ 
     Asbestos-related insurance receivable, end of year(1)..........................  $331.3     $321.2 
                                                                                      ------     ------ 
     Total amounts due from insurance carriers......................................  $379.8     $439.6 
                                                                                      ======     ====== 

------------------------------------------------------------------------------------------------------- 

(1) See Note 7 for classification between current portion (classified in "notes 
   and accounts receivable, net") and noncurrent portion (classified in "other
assets") in the Consolidated Balance Sheet.                             
(2) Reflects noncash adjustments to receivable in conjunction with increases in 
asbestos-related liability and lower than estimated proceeds from       
    settlements with insurance carriers caused by reduced coverage available for
certain years. See discussion below.                                    

Notes receivable from insurance carriers represent amounts due from insurance   
carriers in reimbursement for amounts previously paid by Grace in defending and 
disposing of asbestos cases and claims; payments under these notes will be      
received through 2001. These notes do not bear stated interest rates and,       
therefore, have been discounted using a weighted average interest rate of 6.7%  
(which Grace estimates as its borrowing rate for the terms of the notes).       
Installments due in 1997 are classified as "current" in the Consolidated Balance
Sheet.                                                                          
The asbestos-related insurance receivable at December 31, 1996        
predominantly represents amounts expected to be received from carriers under    
settlement agreements in reimbursement for defense and disposition costs to be  
paid by Grace in the future in connection with property damage and personal     
injury cases and claims pending at year-end 1996 and personal injury claims     
expected to be filed through 2001 (through 1998 as of December 31, 1995).       
   In the fourth quarter of 1996, Grace recorded a noncash pretax benefit of
$119.3 ($77.5 after-tax), primarily representing the additional insurance       
proceeds Grace expects to receive in reimbursement for the cash outflows        
associated with personal injury claims expected to be filed against Grace       
through 2001.                                                                   
     As a result of fourth quarter 1995 insurance settlements and a reassessment
of its insurance receivable, Grace recorded a noncash net pretax charge of $15.0
($9.7 after-tax) during the fourth quarter of 1995. This charge reflected a     
reduction in the receivable, primarily due to lower than estimated proceeds from
settlements with insurance carriers (caused by the reduced coverage available   
for certain years) and a discount on notes receivable received in connection    
with prior settlements, partially offset by an increase in expected future      
reimbursements of costs to defend against and dispose of property damage cases  
pending at year-end 1995 and personal injury claims to be filed through 1998.   
   Certain of Grace's insurance carriers have become insolvent. From time to
time, Grace has been successful in collecting funds from insolvent carriers.    
However, since recovery from these carriers is not probable, Grace has not      
accrued a related receivable.                                                   

INSURANCE LITIGATION                                                            
Grace has settled with and been paid by its primary insurance carriers with     
respect to both property damage and personal injury cases and claims. With one  
minor exception, Grace has also settled with its excess insurance carriers that 
wrote policies available for property damage cases; those settlements involve   
amounts paid and to be paid to Grace. In addition, Grace has settled with many  
excess insurance carriers that wrote policies available for personal injury     
claims. Grace is currently in litigation with certain remaining excess insurance
carriers whose policies generally represent layers of coverage Grace has not yet
reached and, therefore, are not reflected in the asbestos-related insurance     
receivable referred to above. Such policies are believed by Grace to be         
available for asbestos-related personal injury lawsuits. Insurance coverage for 
asbestos-related liabilities has not been commercially available since 1985.    

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  In September 1993 the U.S. Court of Appeals for the Second Circuit ruled
that, under New York law (which governs a significant portion of the policies   
that provide Grace's asbestos-related insurance coverage), coverage for asbestos
property damage cases is triggered based on the date of installation of         
asbestos-containing materials. This decision was initially reversed in the      
fourth quarter of 1993 but subsequently confirmed in the second quarter of 1994.
As a result of this decision (which had the effect of reducing the amount of    
insurance coverage available to Grace with respect to asbestos lawsuits) Grace  
recorded a noncash pretax charge of $316.0 ($200.0 after-tax) in the second     
quarter of 1994.                                                                

  Grace's ultimate exposure with respect to its asbestos-related cases and
claims will depend on the extent to which its insurance will cover damages for  
which it may be held liable, amounts paid in settlement and litigation costs. In
Grace's opinion, it is probable that recoveries from its insurance carriers     
(including amounts reflected in the receivable discussed above), along with     
other funds, will be available to satisfy the property damage and personal      
injury cases and claims pending at December 31, 1996, as well as personal injury
claims expected to be filed in the foreseeable future. Consequently, Grace      
believes that the resolution of its asbestos-related litigation will not have a 
material adverse effect on its consolidated financial position.                 
--------------------------------------------------------------------------------

3.   ACQUISITIONS AND DIVESTMENTS                                               
--------------------------------------------------------------------------------

ACQUISITIONS                                                                    

During 1996, Grace acquired a manufacturer of flexible packaging, a producer of 
can coatings and closure sealants for the rigid container industry, and kidney  
dialysis centers purchased by NMC prior to disposition, for a total of $122.1 in
cash. In 1995, Grace made acquisitions totaling $260.8, all of which involved   
cash purchases of kidney dialysis centers and medical imaging facilities by NMC.
Acquisitions in the first quarter of 1995, prior to the classification of NMC as
a discontinued operation (see Note 6), totaled $41.1. Acquisitions by NMC after 
the first quarter of 1995 are presented as an investing activity and are        
included in net investing activities of discontinued operations in the          
Consolidated Statement of Cash Flows for 1996 and 1995.                         

     In 1994, Grace made acquisitions totaling $351.7, primarily in health care.
These include the purchases of Home Nutritional Services, Inc. for $131.8 in    
cash and kidney dialysis centers and other health care businesses for an        
aggregate of $145.3 in cash. 1994 acquisitions also included construction       
chemicals businesses and a European flexible packaging business.                

DIVESTMENTS                                                                     

During 1996, Grace completed divestments for gross proceeds totaling $5,394.0   
(inclusive of debt assumed by buyers). In addition to the disposition of NMC    
(see Notes 1 and 6), Grace sold its water treatment and process chemicals       
business to Betz Laboratories, Inc. for cash proceeds of $636.4 (subject to     
adjustment), the final $100.0 of which was paid in January 1997, plus the       
assumption of certain liabilities. Sales and revenues of the water treatment and
process chemicals business for the six months ended June 30, 1996 and for the   
years ended December 31, 1995 and 1994 were $201.2, $398.5 and $363.4,          
respectively; its financial position and results of operations were not         
significant for those periods. The divestment of this business and Grace's      
biopesticides business resulted in a pretax gain of $326.4, and an after-tax    
gain of $210.1 ($2.28 per common share), in continuing operations. In 1996 Grace
also divested its worldwide separations science business (Amicon) and the       
transgenic plant business of its Agracetus subsidiary. These businesses had     
previously been classified as discontinued operations.                          

    In 1995, Grace realized gross proceeds of $58.8 (inclusive of debt assumed
by the buyers) from divestments, including payments received in connection with 
divestments completed in prior years. The operations divested consisted of three
small units of Grace's construction products business, the composite materials  
business, Grace's transportation services business and various investments.     

     In 1994, Grace realized gross proceeds of $646.2 (inclusive of debt assumed
by the buyers) from divestments, including payments received in connection with 
divestments completed in prior years. Substantially all of the businesses       
divested during 1994 had previously been classified as discontinued operations. 
Divestment proceeds in 1994 included $42.8 received for Grace's remaining       
interest in The Restaurant Enterprises Group, Inc. (REG).                       

    See Note 6 for a discussion of divestment activity related to discontinued
operations.                                                                     
--------------------------------------------------------------------------------

4.   RESTRUCTURING COSTS AND ASSET IMPAIRMENTS                                  
--------------------------------------------------------------------------------

RESTRUCTURING COSTS                                                             

Grace recorded restructuring charges of $75.4 in 1996 and $129.8 in 1995 ($49.0 
and $85.1 after-tax, respectively). Grace began implementing a worldwide program
in 1995 to streamline processes and reduce general and administrative expenses, 
factory administration costs and noncore corporate research and development     
expenses. Under this program, Grace has implemented, and expects to further     
implement, additional cost reductions and efficiency improvements, as it further
evaluates and reengineers its operations. In connection with these actions,     
Grace recorded pretax charges of $53.7 and $21.7 in the second and fourth       
quarters of 1996, respectively. These charges primarily relate to headcount     
reductions, the restructuring of Grace's European packaging operations (in areas
such as working capital management, manufacturing and sales) and the further    
restructuring of Grace's corporate research activities, certain of which are now
conducted at product line facilities.                                           

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 The components of the 1996 and 1995 restructuring charges, spending and
other activity during 1995 and 1996, and the remaining reserve balances at      
December 31, 1996, were as follows:                                             
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                 Employee                                               
                                                Termination  Plant/Office     Asset     Other           
                                                 Benefits      Closures    Write-downs  Costs    Total  
                                                -----------  ------------  -----------  ------   ------ 
                                                                                                        
Restructuring provisions recorded in 1995......   $  74.3       $ 13.4       $  18.6    $ 23.5   $129.8 
Cash payments during 1995......................     (13.0)        (3.5)           --      (3.1)   (19.6)
Noncash activity...............................        --           --          (4.3)     (1.5)    (5.8)
                                                   ------        -----        ------    ------   ------ 
     Restructuring reserve at December 31,                                                              
       1995....................................   $  61.3       $  9.9       $  14.3    $ 18.9   $104.4 
Restructuring provisions recorded in 1996......      69.3          6.1            --        --     75.4 
Cash payments during 1996......................     (57.8)         (.6)           --     (16.0)   (74.4)
Noncash activity...............................        --           --         (14.3)       --    (14.3)
                                                   ------        -----        ------    ------   ------ 
     Restructuring reserve at December 31,                                                              
       1996....................................   $  72.8       $ 15.4       $    --    $  2.9   $ 91.1 
                                                   ======        =====        ======    ======   ====== 

--------------------------------------------------------------------------------

Employee termination benefits primarily represent severance pay and other       
benefits (including benefits under long-term incentive programs paid over time) 
associated with the elimination of approximately 1,300 positions worldwide, with
more than 60% of the eliminated positions coming from worldwide corporate staff 
functions and the restructuring of Grace's worldwide packaging operations.      
Through December 31, 1996, approximately 800 positions had been eliminated      
worldwide.                                                                      

ASSET IMPAIRMENTS                                                               

During 1996 and 1995, Grace determined that, due to various events and changes  
in circumstances (including the worldwide restructuring programs described      
above), certain long-lived assets and related goodwill were impaired. As a      
result, in the fourth quarters of 1996 and 1995, Grace recorded noncash pretax  
charges of $32.1 and $39.2, respectively ($20.9 and $26.6 after-tax,            
respectively), the majority of which related to assets that will continue to be 
held and used in Grace's packaging and specialty chemicals businesses. The      
components of the 1996 and 1995 charges were (a) goodwill and other intangibles 
of $11.1 and $4.7, respectively; (b) properties and equipment of $9.0 and $20.0,
respectively; (c) long-term investments of $6.7 and $8.6, respectively; and (d) 
other assets of $5.3 and $5.9, respectively. Grace determined the amounts of the
charges based on various valuation techniques, including discounted cash flow,  
replacement cost and net realizable value for assets to be disposed of, as      
prescribed by SFAS No. 121.                                                     
--------------------------------------------------------------------------------
5.   INCOME TAXES                                                               
--------------------------------------------------------------------------------

Grace applies SFAS No. 109, "Accounting for Income Taxes," which specifies an   
asset and liability approach requiring the recognition of deferred tax assets   
and liabilities with respect to the expected future tax consequences of events  
that have been recorded in the Consolidated Financial Statements and tax        
returns. If it is more likely than not that all or a portion of deferred tax    
assets will not be realized, a valuation allowance is provided against such     
deferred tax assets.                                                            

  The components of income/(loss) from continuing operations before income
taxes and the related provision for/(benefit from) income taxes are as follows: 
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                          CONTINUING OPERATIONS                             1996       1995        1994   
--------------------------------------------------------------------------------------------------------- 
                                                                                                          
Income/(loss) from continuing operations before income taxes:                                             
     Domestic............................................................  $101.5     $(401.1)    $(174.4)
     Foreign.............................................................   247.1       117.0        96.7 
                                                                           ------     -------     ------- 
                                                                           $348.6     $(284.1)    $ (77.7)
                                                                           ======     =======     ======= 
Provision for/(benefit from) income taxes:                                                                
     Federal - current...................................................  $  7.6     $  37.8     $ (77.2)
     Federal - deferred..................................................    35.1      (154.3)       (7.2)
     State and local - current...........................................     1.4         1.5         2.3 
     Foreign - current...................................................    54.3        61.4        44.6 
     Foreign - deferred..................................................    36.4       (50.9)       (5.1)
                                                                           ------     -------     ------- 
                                                                           $134.8     $(104.5)    $ (42.6)
                                                                           ======     =======     ======= 

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The components of income/(loss) from consolidated operations before income taxes
and the related provision for/(benefit from) income taxes are as follows:       
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                        CONSOLIDATED OPERATIONS                             1996        1995        1994  
--------------------------------------------------------------------------------------------------------- 
                                                                                                          
Income/(loss) from consolidated operations before income taxes:                                           
     Domestic...........................................................  $2,847.1     $(480.5)    $ 44.3 
     Foreign............................................................     259.4        72.7       94.8 
                                                                          --------     -------     ------ 
                                                                          $3,106.5     $(407.8)    $139.1 
                                                                          ========     =======     ====== 
Provision for/(benefit from) income taxes:                                                                
     Federal - current..................................................  $   75.6     $ 105.6     $ 25.3 
     Federal - deferred.................................................      57.0      (226.3)     (34.8)
     State and local - current..........................................      18.9        21.7       21.8 
     Foreign - current..................................................      60.9        68.5       49.1 
     Foreign - deferred.................................................      36.4       (51.4)      (5.6)
                                                                          --------     -------     ------ 
                                                                          $  248.8     $ (81.9)    $ 55.8 
                                                                          ========     =======     ====== 

--------------------------------------------------------------------------------
At December 31, 1996 and 1995, deferred tax assets and liabilities consisted of 
the following items:                                                            
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                              NET DEFERRED TAX ASSETS                                  1996       1995 
-------------------------------------------------------------------------------------------------------
                                                                                                       
Provision relating to asbestos-related expenses, net................................  $240.4     $219.4
Reserves not yet deductible for tax purposes........................................   167.8      223.6
Research and development expenses...................................................   102.7      115.8
Postretirement benefits other than pensions.........................................    95.2       88.9
State deferred taxes................................................................    70.1       70.1
Foreign net operating loss carryforwards............................................    37.0       47.1
Pension and insurance reserves......................................................    31.9       35.2
Tax credit carryforwards............................................................    31.9       27.2
Capitalized inventory costs and inventory reserves..................................    11.0       11.9
Other...............................................................................    39.8       43.9
                                                                                      ------     ------
     Total deferred tax assets......................................................   827.8      883.1
                                                                                      ======     ======
Depreciation and amortization.......................................................   154.0      112.6
Prepaid pension cost................................................................    76.8      104.8
Other...............................................................................    75.0       20.1
                                                                                      ------     ------
     Total deferred tax liabilities.................................................   305.8      237.5
                                                                                      ======     ======
Valuation allowance for deferred tax assets.........................................    72.4       97.7
                                                                                      ------     ------
     Net deferred tax assets........................................................  $449.6     $547.9
                                                                                      ======     ======

--------------------------------------------------------------------------------
The valuation allowance shown above arises from uncertainty as to the           
realization of certain deferred tax assets, primarily state and local net       
operating loss carryforwards and net deferred tax assets. Tax planning          
strategies during 1996 enabled Grace to reverse the valuation allowance on tax  
credit carryforwards during the year. Based upon anticipated future results,    
Grace has concluded that it is more likely than not that the remaining balance  
of the net deferred tax assets, after consideration of the valuation allowance, 
will be realized.                                                               
 At December 31, 1996, there were $31.9 of tax credit carryforwards with
expiration dates through 2001. Additionally, there were foreign net operating   
loss carryforwards with a tax benefit of $37.0 having various expiration dates. 
  The U.S. federal corporate tax rate reconciles to the effective tax rate
for continuing operations as follows:                                           
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                                                 1996     1995      1994   
---------------------------------------------------------------------------------------------------------  
                                                                                                           
U.S. federal corporate tax rate................................................  35.0%    (35.0)%   (35.0)%
Increase/(decrease) in tax rate resulting from:                                                            
  Nontaxable income/nondeductible expenses.....................................  (1.6)      (.7)     (1.4) 
  Basis difference on sale of investment.......................................    --        --     (10.5) 
  U.S. state and local income taxes, net of U.S. federal income tax benefit....    .4        .2       1.5  
  U.S. and foreign taxes on foreign operations.................................   4.8       9.8        .3  
  General business credits.....................................................    --       (.5)     (9.1) 
  Valuation allowance for deferred tax assets..................................    --     (14.4)       --  
  Other, net...................................................................    .1       3.8       (.6) 
                                                                                 ----     -----     -----  
Effective tax rate.............................................................  38.7%    (36.8)%   (54.8)%
                                                                                 ====     =====     =====  

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U.S. state and local and foreign taxes have not been provided on approximately  
$236.4 of undistributed earnings of certain foreign subsidiaries, as such       
earnings are expected to be retained indefinitely by such subsidiaries for      
reinvestment. The distribution of these earnings would result in additional     
foreign withholding taxes of approximately $22.5 and additional U.S. federal    
income taxes to the extent they are not offset by foreign tax credits. It is not
practicable to estimate the total tax liability that would be incurred upon such
a distribution.                                                                 

--------------------------------------------------------------------------------
6.   DISCONTINUED OPERATIONS                                                    
--------------------------------------------------------------------------------

HEALTH CARE                                                                     

NMC                                                                             

As discussed in Note 1, Grace New York completed the distribution of the        
Company's common stock and the combination of NMC with the worldwide dialysis   
business of Fresenius in September 1996. Prior to the completion of these       
transactions, Grace received a tax-free distribution from NMC of approximately  
$2,300 (consisting of cash and the assumption of debt). As part of these        
transactions, for each Grace New York common share outstanding at the close of  
trading on September 27, 1996, Grace New York shareholders received one share of
a new class of Grace New York preferred stock and 1.04909 American Depositary   
Shares (ADS), each representing one-third of an ordinary share of FMC (which    
ADSs collectively represent approximately 44.8% of FMC's common equity).        

The distribution of approximately $2,300, along with the 44.8% common 
equity interest in FMC, valued at approximately $2,200 (based upon the number of
ADSs and their initial price per share on September 30, 1996), resulted in a    
transaction valued at approximately $4,500. That amount, less Grace New York's  
investment in NMC and transaction costs, resulted in a tax-free gain to Grace of
approximately $2,500, in discontinued operations. The 44.8% common equity       
interest in FMC is reflected as a dividend of approximately $2,200 within the   
Consolidated Statement of Shareholders' Equity.                                 

  In connection with these transactions, NMC borrowed approximately $2,500
under a stand-alone credit agreement, primarily to fund the distribution to     
Grace. Grace guaranteed $950.0 of this borrowing, but the guarantee was released
as to $800.0 in November 1996 and the balance in December 1996.                 

  Under the terms of the transactions, NMC will remain responsible for all
liabilities, if any, resulting from the previously reported investigation by the
Office of the Inspector General (OIG) of the U.S. Department of Health and Human
Services and certain related matters. In July 1996, an agreement was entered    
into with the U.S. government under which, subject to certain conditions and    
limitations, (a) FMC and Grace New York guaranteed the payment of the           
obligations, if any, of NMC to the U.S. government in respect of the OIG        
investigation and another proceeding; (b) Grace guaranteed the obligations of   
FMC under the foregoing guarantee with respect to acts and transactions that    
took place prior to the consummation of the transaction (but only if such       
obligations become due and payable and remain uncollected for 120 days); and (c)
NMC delivered a standby letter of credit in the principal amount of $150.0 in   
favor of the U.S. government to support its payment of such obligations.        

     See Notes 7 and 20 to the consolidated financial statements included in the
Prospectus, and "Business of Fresenius Medical Care -- Regulatory and Legal     
Matters -- Legal and Regulatory Proceedings -- OIG Investigation" and "-- OIG   
Agreements" in the Joint Proxy Statement-Prospectus, for additional information.

Amicon                                                                          

  On December 31, 1996, Grace completed the sale of Amicon, resulting in a
pretax gain of $70.4 and an after-tax gain of $40.0 ($0.44 per common share of  
the Company). The sale price was $125.0 (inclusive of debt assumed), subject to 
a post-closing working capital adjustment; $6.5 was paid at closing and the     
balance was paid in January 1997.                                               

COCOA                                                                           

    Grace's cocoa business was classified as a discontinued operation in 1993.
During the fourth quarter of 1995, Grace revised the divestment plan for the    
business. The revised plan focused on the improvement of operating cash flow    
through the adoption of new strategies and a new global organizational          
structure, while better positioning the business for outright sale. As a result 
of this revised divestment plan, Grace recorded an additional provision of      
$151.3 (net of an applicable tax effect of $48.7) related to the cocoa business 
and other remaining discontinued operations. In December 1996, Grace announced  
that it had entered into a definitive agreement to sell the cocoa business to   
Archer-Daniels-Midland Company. As a result, in the fourth quarter of 1996,     
Grace reassessed its estimated loss on the divestment of the business and       
reversed previously recorded provisions of $31.9 (net of an applicable tax      
effect of $18.1), within income from discontinued operations. The divestment of 
the cocoa business was completed in February 1997 with Grace receiving $470.0   
(inclusive of debt assumed by the buyer), subject to adjustment.                

OTHER                                                                           

In the fourth quarter of 1996, Grace classified its thermal and emission control
systems business (TEC Systems) as a discontinued operation. In connection with  
classifying TEC Systems as a discontinued operation, Grace recorded a provision 
of $4.6 (net of an applicable tax benefit of $2.4) related to TEC Systems'      
anticipated net operating results through the expected date of divestment, as   
well as the loss anticipated on the divestment.                                 

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   In May 1996, Grace completed the sale of the transgenic plant business of
its Agracetus subsidiary to the Monsanto Company for $150.0, resulting in a     
pretax gain of $129.0 ($79.4 after-tax, or $0.86 per common share of the        
Company). Additionally, in March 1996, Grace sold its microwave business for    
gross proceeds of $3.9.                                                         

 In February 1995, Grace sold its composite materials business for gross
proceeds of $3.0. During 1994, Grace sold its battery separators business and a 
portion of its engineered materials and systems businesses for gross proceeds of
$316.2, approximating prior estimates. Grace also sold its animal genetics and  
Caribbean fertilizer operations in 1994 for proceeds of $44.1. In 1994, Grace   
also sold substantially all of its interests in Colowyo Coal Company (Colowyo)  
for proceeds of $218.3, including $192.8 of proceeds from a nonrecourse         
financing secured by a portion of the revenues from certain long-term coal      
contracts. Grace retained a limited partnership interest in Colowyo, entitling  
it to share in the revenues from these coal contracts.                          

    These businesses were classified as discontinued operations in 1993 (other
than TEC Systems in 1996 and Colowyo in 1992).                                  

RESULTS OF DISCONTINUED OPERATIONS                                              

Losses from Grace's discontinued operations (other than its discontinued health 
care operations and TEC Systems), subsequent to their classification as such    
were $11.6 in 1996, $45.2 in 1995 and $14.2 in 1994. These amounts have been    
charged against established reserves as adjusted in 1996 and 1995. Results of   
Grace's discontinued operations that have not been charged against previously   
established reserves are as follows:                                            

                                                        [Enlarge/Download Table]

--------------------------------------------------------------------------------------------------------------------- 
                                                                                     1996         1995         1994   
--------------------------------------------------------------------------------------------------------------------- 
                                                                                                                      
HEALTH CARE (THROUGH 1996 THIRD QUARTER)                                                                              
Sales and revenues...............................................................  $1,666.9     $2,076.8     $1,875.1 
                                                                                   --------     --------     -------- 
Income from operations before taxes(1)...........................................  $   60.3     $  104.6     $  227.1 
Income tax provision.............................................................      35.5         82.6        102.4 
                                                                                   --------     --------     -------- 
    Income from discontinued health care operations..............................  $   24.8     $   22.0     $  124.7 
                                                                                   --------     --------     -------- 
TEC SYSTEMS (PRIOR TO CLASSIFICATION AS A DISCONTINUED OPERATION AT DECEMBER 31,                                      
  1996)                                                                                                               
Sales and revenues...............................................................  $  102.5     $  112.9     $   89.7 
                                                                                   --------     --------     -------- 
Loss from operations before taxes................................................  $  (18.5)    $  (28.3)    $  (10.3)
Income tax benefit...............................................................      (7.2)       (11.3)        (4.0)
                                                                                   --------     --------     -------- 
    Loss from discontinued TEC Systems operations................................  $  (11.3)    $  (17.0)    $   (6.3)
                                                                                   --------     --------     -------- 
    Total operating results......................................................  $   13.5     $    5.0     $  118.4 
GAIN/(NET LOSS) ON DISPOSITIONS OF BUSINESSES....................................   2,716.1       (200.0)          -- 
PROVISION FOR/(BENEFIT FROM) INCOME TAXES ON DISPOSITIONS OF BUSINESSES..........      85.7        (48.7)          -- 
                                                                                   --------     --------     -------- 
    TOTAL INCOME/(LOSS) FROM DISCONTINUED OPERATIONS.............................  $2,643.9     $ (146.3)    $  118.4 
                                                                                   ========     ========     ======== 

--------------------------------------------------------------------------------
(1) Reflects an allocation of interest expense based on the ratio of the net    
  assets of the health care businesses as compared to Grace's total capital.
  The above operating results include interest expense allocations of $76.3,
$93.5 and $60.4 for 1996, 1995 and 1994, respectively.                  

For financial reporting purposes, the assets, liabilities, results of operations
and cash flows of Grace Cocoa Associates, L.P. (LP) are included in the         
Consolidated Financial Statements as a component of discontinued operations, and
the outside investors' former interests in LP (at December 31, 1995) are        
reflected as a minority interest in the Consolidated Balance Sheet. Grace       
purchased the minority interest during the fourth quarter of 1996 in            
anticipation of the sale of the cocoa business.                                 

The net assets of Grace's remaining discontinued operations (excluding
intercompany assets) at December 31, 1996 are as follows:                       

                                                        [Enlarge/Download Table]

---------------------------------------------------------------------------------------------------------
                                                                              COCOA      OTHER     TOTAL 
---------------------------------------------------------------------------------------------------------
                                                                                                         
Current assets..............................................................  $312.3     $48.2     $360.5
Properties and equipment, net...............................................   185.8      21.4      207.2
Investments in and advances to affiliated companies.........................      --      12.1       12.1
Other assets................................................................    59.2       5.9       65.1
                                                                              ------     -----     ------
     Total assets...........................................................  $557.3     $87.6     $644.9
                                                                              ------     -----     ------
Current liabilities.........................................................  $241.3     $21.5     $262.8
Other liabilities...........................................................    81.1       3.6       84.7
                                                                              ------     -----     ------
     Total liabilities......................................................  $322.4     $25.1     $347.5
                                                                              ------     -----     ------
     Net assets.............................................................  $234.9     $62.5     $297.4
                                                                              ======     =====     ======
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7.   OTHER BALANCE SHEET ITEMS                                                  
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                                                        1996       1995  
-------------------------------------------------------------------------------------------------------- 
                                                                                                         
NOTES AND ACCOUNTS RECEIVABLE, NET                                                                       
Trade receivables, less allowances of $11.3 (1995 - $12.8)...........................  $501.7     $488.5 
Notes receivable from dispositions of businesses.....................................   215.6         -- 
Asbestos-related insurance receivable - current......................................    35.0         -- 
Notes receivable from insurance carriers - current, net of discounts of $2.5                             
  (1995 - $4.3)......................................................................    17.2       62.0 
Other receivables, less allowances of $.2 (1995 - $.1)...............................    61.9       46.3 
                                                                                       ------     ------ 
                                                                                       $831.4     $596.8 
                                                                                       ======     ====== 

======================================================================================================== 
INVENTORIES                                                                                              
Raw and packaging materials..........................................................  $100.9     $137.1 
In process...........................................................................    67.6       78.0 
Finished products....................................................................   179.0      248.6 
General merchandise..................................................................    73.4       76.6 
Less: Adjustment of certain inventories to a last-in/first-out (LIFO) basis..........   (44.8)     (48.4)
                                                                                       ------     ------ 
                                                                                       $376.1     $491.9 
                                                                                       ======     ====== 

======================================================================================================== 
OTHER ASSETS                                                                                             
Prepaid pension costs................................................................  $275.1     $245.8 
Long-term receivables, less allowances of $42.7 (1995 - $24.7).......................   152.9      146.5 
Deferred charges.....................................................................   102.4      106.9 
Long-term investments................................................................    57.4       69.4 
Notes receivable from insurance carriers - noncurrent, net of discounts of $4.9                          
  (1995 - $7.3)......................................................................    31.3       56.4 
Patents and licenses.................................................................    15.8       34.0 
Investments in and advances to affiliated companies..................................     9.5       17.4 
Other................................................................................     9.1       11.9 
                                                                                       ------     ------ 
                                                                                       $653.5     $688.3 
                                                                                       ======     ====== 

-------------------------------------------------------------------------------------------------------- 

In 1995, Grace entered into agreements to sell up to $300.0 of interests in     
designated pools of trade receivables ($180.0 pertaining to NMC). At December   
31, 1995, $295.8 had been received pursuant to such sales ($179.8 pertaining to 
NMC); these amounts were reflected as reductions to trade accounts receivable.  
Under the terms of these agreements, new interests in trade receivables were    
sold as collections reduced previously sold trade receivables. While only       
interests in designated pools of trade receivables were sold, the entire        
designated pools were available as the sole recourse with respect to the        
interests sold. There was no further recourse to Grace, nor was Grace required  
to repurchase any of the trade receivables in the pools. The costs related to   
such sales were expensed as incurred and recorded as interest expense and       
related financing costs. There were no gains or losses on these transactions.   
These agreements were terminated as to Grace in connection with the NMC         
transaction discussed in Note 6.                                                
Inventories valued at LIFO cost comprised 26.6% and 21.6% of total    
inventories at December 31, 1996 and 1995, respectively. The liquidation of     
prior years' LIFO inventory layers in 1996, 1995 and 1994 did not materially    
affect the cost of goods sold in any of these years.                            
--------------------------------------------------------------------------------

8.   PROPERTIES AND EQUIPMENT                                                   
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                                                    1996          1995    
--------------------------------------------------------------------------------------------------------- 
                                                                                                          
Land............................................................................  $    51.5     $    44.1 
Buildings.......................................................................      622.6         595.5 
Machinery, equipment and other..................................................    2,088.1       1,967.1 
Projects under construction.....................................................      545.7         548.2 
                                                                                     ------        ------ 
     Properties and equipment, gross............................................    3,307.9       3,154.9 
Accumulated depreciation and amortization.......................................   (1,436.6)     (1,418.8)
                                                                                     ------        ------ 
     Properties and equipment, net..............................................  $ 1,871.3     $ 1,736.1 
                                                                                     ======        ====== 
--------------------------------------------------------------------------------------------------------- 

Interest costs are incurred in connection with the financing of certain assets  
prior to placing them in service. Interest costs capitalized in 1996, 1995 and  
1994 were $23.5, $21.3 and $9.4, respectively.                                  
Depreciation and lease amortization expense relating to properties and
equipment amounted to $179.7, $179.5 and $157.9 in 1996, 1995 and 1994,         
respectively.                                                                   
  Grace's rental expense for operating leases amounted to $25.6, $25.7 and
$28.8 in 1996, 1995 and 1994, respectively. See Note 11 for information         
regarding contingent rentals.                                                   

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 At December 31, 1996, minimum future payments for operating leases are:
--------------------------------------------------------------------------------

                                                                [Download Table]
                                                                               
1997...................................................................  $ 26.3
1998...................................................................    22.3
1999...................................................................    18.8
2000...................................................................    17.1
2001...................................................................    11.4
Later years............................................................    20.8
                                                                         ------
Total minimum lease payments...........................................  $116.7
                                                                         ======

--------------------------------------------------------------------------------
The above minimum lease payments reflect anticipated sublease income of $12.3   
per year for 1997 through 2001 and a total of $17.5 in later years.             
--------------------------------------------------------------------------------

9.   DEBT                                                                       
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                                                      1996         1995   
--------------------------------------------------------------------------------------------------------- 
                                                                                                          
SHORT-TERM DEBT                                                                                           
Bank borrowings (6.1% and 6.2% weighted average interest rates at year-end 1996                           
  and 1995, respectively)(1)......................................................  $  178.7     $  295.3 
Current maturities of long-term debt..............................................     105.5         22.2 
Other short-term borrowings(2)....................................................      31.0        320.8 
                                                                                    --------     -------- 
                                                                                    $  315.2     $  638.3 
                                                                                    ========     ======== 
LONG-TERM DEBT                                                                                            
Commercial paper (5.8% and 6.2% weighted average interest rates at year-end 1996                          
  and 1995, respectively)(1)......................................................  $   77.8     $   45.7 
Bank borrowings (6.1% and 6.2% weighted average interest rates at year-end 1996                           
  and 1995, respectively)(1)......................................................     272.2        304.3 
8.0% Notes Due 2004(3)............................................................     276.0        300.0 
7.4% Notes Due 2000(3)............................................................     248.7        287.0 
7.75% Notes Due 2002(3)...........................................................     119.0        131.0 
Term Loan Agreement (6.3% weighted average interest rate at year-end 1996 and                             
  1995)(4)........................................................................        --         30.0 
Medium-Term Notes, Series A (6.9% weighted average interest rate at year-end 1996                         
  and 1995)(5)....................................................................     113.5        128.5 
Sundry indebtedness with various maturities through 2002..........................      71.3         91.2 
                                                                                    --------     -------- 
                                                                                     1,178.5      1,317.7 
Less current maturities of long-term debt.........................................     105.5         22.2 
                                                                                    --------     -------- 
                                                                                    $1,073.0     $1,295.5 
                                                                                    ========     ======== 
Full-year weighted average interest rate on total debt(6).........................       7.3%         7.8%

--------------------------------------------------------------------------------
(1) Under bank revolving credit agreements in effect at year-end 1996, Grace may
borrow up to $1,000.0 at interest rates based upon the prevailing prime,
  federal funds and/or Eurodollar rates. Of that amount, $650.0 is available
  under short-term facilities expiring on May 16, 1997, unless extended, and
  $350.0 is available under a long-term facility expiring in September 1999.
These agreements also support the issuance of commercial paper and bank 
  borrowings, $528.7 of which was outstanding at December 31, 1996 (included
    in both short-term debt and long-term debt above). At December 31, 1996, the
 aggregate amount of net unused and unreserved borrowings under short-term
and long-term facilities was $471.3. Grace's ability to borrow under its
existing facilities is subject to compliance with various covenants,    
including covenants requiring maintenance of total debt to total        
capitalization and interest coverage ratios.                            
(2) Represents borrowings under various lines of credit and other miscellaneous 
borrowings, primarily of non-U.S. subsidiaries.                         
(3) During the third quarter of 1994, Grace sold $300.0 of 8.0% notes due 2004  
at an initial public offering price of 99.794% of par, to yield 8.03%.  
    During the first quarter of 1993, Grace sold at par $300.0 of 7.4% notes due
2000. During 1992, Grace sold at par $150.0 of 7.75% notes due 2002.    
    Interest on all three series of notes is payable semiannually, and the notes
   may not be redeemed prior to maturity; however, Grace has repurchased notes
from time to time in response to unsolicited offers.                    
(4) During the second quarter of 1995, Grace entered into a three-year term loan
    agreement maturing on April 24, 1998. The agreement provided for interest at
  a Eurodollar floating rate, payable semiannually. Grace's borrowings under
this agreement were repaid in October 1996 with proceeds from the NMC   
transaction discussed in Note 6, and the agreement was terminated.      
(5) The Medium-Term Notes (MTNs) bear interest at either fixed or floating rates
  and have maturity dates through July 19, 1999. Interest on each fixed-rate
MTN is payable semiannually, and interest on each floating-rate MTN is  
payable either monthly or quarterly, depending on the issue.            
(6) Computation includes interest expense allocated to discontinued operations. 

 Scheduled maturities of long-term debt outstanding at December 31, 1996
are: 1997 -- $105.5; 1998 -- $9.0; 1999 -- $350.5; 2000 -- $316.9; 2001 -- $.5; 
and thereafter -- $396.1. Payment of a majority of Grace's borrowings may be    
accelerated, and its principal borrowing agreements terminated, upon the        
occurrence of a default under other Grace borrowings.                           
    Total interest expense and financing costs, including amounts allocated to
discontinued operations, were $147.9 for 1996, $164.8 for 1995 and $109.9 for   
1994. Including amounts allocated to discontinued operations, interest payments 
made in 1996, 1995 and 1994, excluding related financing costs, amounted to     
$154.4, $183.1 and $101.8, respectively.                                        

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10.   FINANCIAL INSTRUMENTS                                                     
--------------------------------------------------------------------------------

DEBT AND INTEREST RATE SWAP AGREEMENTS                                          

Grace's debt and interest rate management objective is to reduce the cost of    
borrowing over the long term. This debt management strategy emphasizes          
maintaining borrowing liquidity by developing and maintaining access to a       
variety of long-term and short-term capital markets. Grace's interest rate      
profile is managed separately by using interest rate swap agreements to modify  
the rate profile of the underlying debt. Most of Grace's interest rate swap     
agreements currently have the effect of converting fixed-rate term debt into    
variable-rate debt based on LIBOR. Grace enters into only standard swap         
agreements that have readily quantifiable impacts on interest cost and are      
characterized by broad market liquidity. The maturities and notional amounts of 
interest rate swap agreements generally match the underlying debt, resulting in 
changes in the fair value of these interest rate swap agreements being          
substantially offset by changes in the fair value of the debt. Grace does not   
use derivative financial instruments (interest rate or foreign currency) for    
trading purposes and is not a party to leveraged instruments.                   

   At December 31, 1996 and 1995, the notional amounts of interest rate swap
agreements that convert fixed-rate debt to variable-rate were $505.5 and        
$1,157.5, respectively, and the notional amounts of interest rate swap          
agreements that convert variable-rate debt to fixed-rate were $36.0 and $626.0, 
respectively. Notional amounts are used in calculating the amounts paid or      
received under interest rate swap agreements but do not represent assets or     
liabilities of Grace or provide a meaningful estimate of risk.                  

     During 1996 and 1995, Grace realized negative cash flows from interest rate
swap agreements of $13.5 and $16.5, respectively. In addition, interest expense 
was reduced by $8.9 and $11.1 in 1996 and 1995, respectively, due to the        
amortization of deferred gains on interest rate agreements. Unamortized net     
gains as of December 31, 1996 and 1995 were $22.8 and $31.7, respectively.      

FAIR VALUE OF INTEREST RATE SWAP AGREEMENTS, DEBT AND OTHER FINANCIAL           
INSTRUMENTS                                                                     

At December 31, 1996 and 1995, Grace would have been required to pay net amounts
of $34.7 and $32.5, respectively, to terminate its interest rate swap           
agreements. At those dates, the fair values of Grace's long-term debt were      
$1,207.1 and $1,361.1, respectively (as compared to recorded values of $1,178.5 
and $1,317.7, respectively). Fair value is determined based on expected future  
cash flows (discounted at market interest rates), quotes from financial         
institutions and other appropriate valuation methodologies. At December 31, 1996
and 1995, the recorded values of other financial instruments such as cash,      
short-term investments, trade receivables and payables and short-term debt      
approximated their fair values, based on the short-term maturities and floating 
rate characteristics of these instruments.                                      

FOREIGN CURRENCY CONTRACTS                                                      

Grace conducts business in a wide variety of currencies and consequently enters 
into foreign exchange forward and option contracts to manage its exposure to    
fluctuations in foreign currency exchange rates. These contracts generally      
involve the exchange of one currency for another at a future date. At December  
31, 1996 and 1995, Grace had notional amounts of approximately $50.2 and $45.5, 
respectively, in contracts to buy or sell foreign currencies in the future.     

CREDIT RISK                                                                     

Grace is exposed to credit risk to the extent of potential nonperformance by    
counterparties to financial instruments. The counterparties to Grace's interest 
rate swap agreements and foreign exchange contracts comprise a diversified group
of major financial institutions, all of which are rated investment grade. Credit
risk is further reduced by bilateral netting agreements between Grace and its   
counterparties. At December 31, 1996, Grace's credit exposure was not           
significant and was limited to the fair values of these instruments; Grace      
believes the risk of incurring losses due to credit risk is remote.             

MARKET RISK                                                                     

Exposure to market risk on financial instruments results from fluctuations in   
interest and currency rates during the periods in which the contracts are       
outstanding. The mark-to-market valuations of interest rate and foreign exchange
agreements and associated underlying exposures are closely monitored at all     
times. Grace uses portfolio sensitivities and stress tests to monitor risk.     
Overall financial strategies and the effects of using derivatives are reviewed  
periodically.                                                                   

--------------------------------------------------------------------------------

11.   COMMITMENTS AND CONTINGENT LIABILITIES                                    
--------------------------------------------------------------------------------

ENVIRONMENTAL                                                                   

  Grace is subject to loss contingencies resulting from environmental laws
and regulations. Grace accrues for anticipated costs associated with            
investigatory and remediation efforts where an assessment has indicated that a  
loss is probable and can be reasonably estimated. These accruals do not take    
into account any discounting for the time value of money. At December 31, 1996, 
Grace's liability for environmental investigatory and remediation costs related 
to continuing and discontinued operations totaled $256.4, as compared to $280.3 
at December 31, 1995. These amounts reflect provisions of $77.0 ($50.0          
after-tax) recorded in the fourth quarter of 1995 and $40.0 ($26.0 after-tax)   
recorded in the first quarter of 1994, which are reflected in the Consolidated  
Statement of Operations as part of cost of goods sold and operating expenses.   
The 1995 provision related                                                      

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principally to increased cost estimates associated with five former             
manufacturing sites. Grace is in litigation with certain excess insurance       
carriers regarding the applicability of the carriers' policies to environmental 
remediation costs; given the uncertainties inherent in this litigation, Grace   
has not recorded a receivable with respect to such insurance coverage (except in
one instance where a settlement with a carrier has been reached).               

    Grace made cash payments of $20.3 in 1996, $31.3 in 1995 and $30.8 in 1994
to remediate environmentally impaired sites. These amounts have been charged    
against previously established reserves. Grace's environmental liabilities are  
reassessed whenever circumstances become better defined and/or remediation      
efforts and their costs can be better estimated. These liabilities are currently
evaluated quarterly, based on available information, including the progress of  
remedial investigation at each site, the current status of discussions with     
regulatory authorities regarding the method and extent of remediation at each   
site and the apportionment of costs among potentially responsible parties. As   
some of these issues are decided (the outcomes of which are subject to          
uncertainties) and/or new sites are assessed and costs can be reasonably        
estimated, Grace will continue to review and analyze the need for adjustments to
the recorded accruals. However, Grace believes that it is adequately reserved   
for all probable and estimable environmental exposures. Grace's classification  
of its environmental reserves between current and noncurrent liabilities is     
considered appropriate in relation to expected future cash outlays.             

CONTINGENT RENTALS                                                              

    Grace is the named tenant or guarantor with respect to leases entered into
by previously divested businesses. These leases, some of which extend through   
the year 2017, have future minimum lease payments aggregating $203.1, offset by 
$201.8 of anticipated future minimum rental income from existing tenants and    
subtenants. In addition, Grace is liable for other expenses (primarily property 
taxes) relating to the above leases; these expenses are paid by tenants and     
subtenants. Grace believes that the risk of significant loss from these lease   
obligations is remote. However, a significant portion of the rental income and  
other expenses is payable by tenants and subtenants that have filed for         
bankruptcy protection or are otherwise experiencing financial difficulties.     
Further, Grace may incur losses as a result of unforeseen developments that can 
not be reasonably estimated.                                                    

--------------------------------------------------------------------------------

12.   MINORITY INTEREST                                                         
--------------------------------------------------------------------------------

Minority interest in the Consolidated Financial Statements as of December 31,   
1995 consisted of a limited partnership interest in LP (see Note 6). Four Grace 
entities served as general partners of LP, and its sole limited partner acquired
its interest in exchange for a $300.0 cash capital contribution ($297.0 of which
was funded by outside investors). In November 1996, Grace purchased the limited 
partnership interest. For financial reporting purposes, the assets, liabilities,
results of operations and cash flows of LP were included in Grace's Consolidated
Financial Statements as a component of discontinued operations and the limited  
partnership interest was reflected as a minority interest. At December 31, 1995,
the assets of LP consisted of Grace's worldwide cocoa business and long-term    
notes and demand notes due from or guaranteed by Grace. Grace sold its cocoa    
business in February 1997.                                                      

--------------------------------------------------------------------------------

13.   SHAREHOLDERS' EQUITY                                                      
--------------------------------------------------------------------------------

Under its Certificate of Incorporation, the Company is authorized to issue      
300,000,000 shares of common stock, $.01 par value. Of the common stock unissued
at December 31, 1996, approximately 13,190,000 shares were reserved for issuance
pursuant to stock options and other stock incentives. The Certificate of        
Incorporation also authorizes 53,000,000 shares of preferred stock, $.01 par    
value, none of which has been issued. 3,000,000 of such shares have been        
designated Series A Junior Participating Preferred Stock and are reserved for   
issuance in connection with the Company's Preferred Stock Purchase Rights       
(Rights). A Right trades together with each outstanding share of common stock   
and entitles the holder to purchase one hundredth of a share of Series A Junior 
Participating Preferred Stock under certain circumstances and subject to certain
conditions. The Rights are not and will not become exercisable unless and until 
certain events occur, and at no time will the Rights have any voting power.     

    Grace New York initiated a share repurchase program in April 1996. Through
September 27, 1996, Grace New York acquired 9,864,800 shares of its common stock
under this program for $727.1, or an average price of approximately $73.70 per  
share. From September 28, 1996 (see Note 1) through December 31, 1996, the      
Company acquired 11,193,700 shares of its common stock for $592.2, or an average
purchase price of $52.90 per share. Prior to year-end 1996, the Company retired 
substantially all of these shares of treasury stock using the cost method. The  
weighted average number of shares of common stock outstanding during 1996 was   
91,976,000 (1995 -- 95,822,000; 1994 -- 93,936,000).                            

Dividends paid on the Grace New York preferred stocks issued and      
outstanding prior to the NMC transaction, as discussed in Notes 1 and 6,        
amounted to $.4 in 1996 and $.5 in each of 1995 and 1994.                       

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14. STOCK INCENTIVE PLANS                                                       
--------------------------------------------------------------------------------

Each stock option granted under the Company's stock incentive plans has an      
exercise price equal to the fair market value of the Company's common stock on  
the date of grant. Options become exercisable at the time or times determined by
the Compensation Committee of the Company's Board of Directors and may have     
terms of up to ten years and one month. In connection with the transactions     
described in Notes 1 and 6, the number of shares covered by outstanding options 
and the exercise prices of such options were adjusted to preserve their economic
value. The following table sets forth information relating to such options, as  
so adjusted:                                                                    

                                                        [Enlarge/Download Table]

---------------------------------------------------------------------------------------------------------------------
                                                1996                        1995                        1994         
                                       ----------------------      ----------------------      ----------------------
                                                     AVERAGE                     Average                     Average 
                                         NUMBER      EXERCISE        Number      Exercise        Number      Exercise
                                       OF SHARES      PRICE        of Shares      Price        of Shares      Price  
---------------------------------------------------------------------------------------------------------------------
                                                                                                                     
Balance at beginning of year, as                                                                                     
  adjusted...........................   8,833,450     $26.06       11,819,009     $24.53       10,813,635     $23.50 
Options granted......................   1,009,818      51.47        2,645,693      30.05        2,109,692      27.23 
                                        ---------                   ---------                   ---------            
                                        9,843,268                  14,464,702                  12,923,327            
Options exercised....................  (3,331,555)     24.56       (5,513,119)     24.67         (941,504)     18.81 
Options terminated or canceled.......    (371,947)     28.21         (118,133)     27.23         (162,814)     24.05 
                                        ---------                   ---------                   ---------            
     Balance at end of year, as                                                                                      
       adjusted......................   6,139,766      30.92        8,833,450      26.06       11,819,009      24.53 

---------------------------------------------------------------------------------------------------------------------

At December 31, 1996, options covering 3,994,828 shares (1995 -- 6,477,637;     
1994 -- 8,746,414) were exercisable and 6,975,000 shares (1995 -- 2,970,186;    
1994 -- 5,506,863) were available for additional grants. Currently outstanding  
options expire on various dates through October 2006.                           

The Company has adopted SFAS No. 123, "Accounting for Stock-Based     
Compensation." As permitted by SFAS No. 123, the Company continues to follow the
measurement provisions of Accounting Principles Board Opinion No. 25,           
"Accounting for Stock Issued to Employees," and does not recognize compensation 
expense for its stock-based incentive plans. Had compensation cost for the      
Company's stock-based incentive compensation plans been determined based on the 
fair value at the grant dates for awards under those plans consistent with the  
methodology prescribed by SFAS No. 123, the Company's net income and earnings   
per share for 1996 and 1995 would have been reduced to the pro forma amounts    
indicated below.                                                                

                                                        [Enlarge/Download Table]

--------------------------------------------------------------------------------------------------------- 
                                                                                    1996           1995   
--------------------------------------------------------------------------------------------------------- 
                                                                                                          
Net income/(loss):                                                                                        
As reported.....................................................................  $2,857.7       $ (325.9)
Pro forma.......................................................................  $2,854.0       $ (334.3)
Earnings/(loss) per share:                                                                                
As reported.....................................................................  $  31.06       $  (3.40)
Pro forma.......................................................................  $  31.02       $  (3.49)

--------------------------------------------------------------------------------------------------------- 

These pro forma amounts may not be indicative of future pro forma income and    
earnings per share.                                                             

   The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model, with the following historical weighted      
average assumptions applied to grants in 1996 and 1995:                         

                                                        [Enlarge/Download Table]

---------------------------------------------------------------------------------------------------------
                                                                                          1996       1995
---------------------------------------------------------------------------------------------------------
                                                                                                         
Dividend yields.........................................................................    1%         3%
Expected volatility.....................................................................   26%        25%
Risk-free interest rates................................................................    6%         7%
Expected life (in years)................................................................    4          4 

---------------------------------------------------------------------------------------------------------

Based upon the above assumptions, the weighted-average fair value of options    
granted during 1996 and 1995 was $14.00 and $7.00, respectively.                

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15. PENSION PLANS                                                               
--------------------------------------------------------------------------------

Grace maintains defined benefit pension plans covering employees of certain     
units who meet age and service requirements. Benefits are generally based on    
final average salary and years of service. Grace funds its U.S. pension plans in
accordance with U.S. federal laws and regulations. Non-U.S. pension plans are   
funded under a variety of methods as required under differing local laws and    
customs and, therefore, cannot be summarized. Approximately 60% of U.S. and     
non-U.S. plan assets at December 31, 1996 were common stocks, with the remainder
primarily fixed-income securities.                                              

Pension cost/(benefit) is comprised of the following components:      

                                                        [Enlarge/Download Table]

                                                     1996                    1995                     1994       
                                              ------------------      -------------------      ------------------
                                               U.S.     NON-U.S.       U.S.      Non-U.S.       U.S.     Non-U.S.
-----------------------------------------------------------------------------------------------------------------
                                                                                                                 
Service cost on benefits earned during the                                                                       
  year......................................  $ 15.2     $ 10.7       $  14.6     $ 10.5       $ 19.8     $ 13.4 
Interest cost on benefits earned in prior                                                                        
  years.....................................    55.5       23.1          50.6       21.4         46.9       19.3 
Actual (return)/loss on plan assets.........   (98.2)     (39.1)       (132.3)     (52.0)        16.9       10.6 
Deferred loss/(gain) on plan assets.........    30.4        8.2          71.1       26.2        (84.6)     (37.4)
Amortization of net loss/(gains) and prior                                                                       
  service costs.............................      .1        (.3)          (.8)       (.8)        (7.1)      (1.6)
Net curtailment and settlement gain(1)......    (1.3)      (2.4)           --         --           --         -- 
                                              ------     ------       -------     ------       ------     ------ 
     Net pension cost/(benefit).............  $  1.7     $  0.2       $   3.2     $  5.3       $ (8.1)    $  4.3 
                                              ======     ======       =======     ======       ======     ====== 

--------------------------------------------------------------------------------
(1) As a result of selling its water treatment and process chemicals business in
  1996, Grace's U.S. and non-U.S. plans recognized curtailment gains of $1.3
and $6.3, respectively.                                                 

The funded status of these plans was as follows:                                
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                     U.S.                                  NON-U.S.               
                                     ------------------------------------    ------------------------------------ 
                                      ASSETS EXCEED        ACCUMULATED        ASSETS EXCEED        ACCUMULATED    
                                       ACCUMULATED           BENEFITS          ACCUMULATED           BENEFITS     
                                         BENEFITS         EXCEED ASSETS          BENEFITS         EXCEED ASSETS   
                                     ----------------    ----------------    ----------------    ---------------- 
                                      1996      1995      1996      1995      1996      1995      1996      1995  
----------------------------------------------------------------------------------------------------------------- 
                                                                                                                  
Actuarial present value of benefit                                                                                
  obligation:                                                                                                     
Vested.............................  $655.4    $679.6    $ 55.6    $ 52.0    $161.8    $133.5    $ 75.2    $ 67.5 
                                     ======    ======    ======    ======    ======    ======    ======    ====== 
Accumulated benefit obligation.....  $659.3    $680.4    $ 55.7    $ 52.0    $162.5    $133.9    $ 82.8    $ 75.1 
                                     ======    ======    ======    ======    ======    ======    ======    ====== 
Total projected benefit                                                                                           
  obligation.......................  $680.8    $710.0    $ 57.0    $ 55.7    $183.2    $189.4    $103.3    $ 92.4 
Plan assets at fair value..........   822.2     795.8        --        --     313.4     302.5       6.1       7.3 
                                     ------    ------    ------    ------    ------    ------    ------    ------ 
Plan assets in excess of/(less                                                                                    
  than) projected benefit                                                                                         
  obligation.......................   141.4      85.8     (57.0)    (55.7)    130.2     113.1     (97.2)    (85.1)
Unamortized net (gain)/loss at                                                                                    
  initial adoption.................   (60.4)    (73.7)      4.2       4.9      (4.7)     (6.3)      3.8       4.5 
Unamortized prior service cost.....    34.3      41.7      13.7      16.3       4.1       3.6        --        -- 
Unrecognized net loss/(gain).......    47.5      97.6       8.9       8.6     (17.3)    (16.0)     15.0      (3.2)
                                     ------    ------    ------    ------    ------    ------    ------    ------ 
  Prepaid/(accrued) pension cost...  $162.8    $151.4    $(30.2)   $(25.9)   $112.3    $ 94.4    $(78.4)   $(83.8)
                                     ======    ======    ======    ======    ======    ======    ======    ====== 

--------------------------------------------------------------------------------

The following significant assumptions were used in 1996, 1995 and 1994:         
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                        1996                     1995                     1994         
                                                 -------------------     --------------------     -------------------- 
                                                 U.S.      NON-U.S.      U.S.      NON-U.S.       U.S.      NON-U.S.   
---------------------------------------------------------------------------------------------------------------------- 
                                                                                                                       
Discount rate at December 31,..................  8.0 %    3.4 -  8.7%    7.3 %     5.1 - 11.6%    8.5 %     5.0 - 12.0%
Expected long-term rate of return..............  9.0      6.0 - 10.5     9.0       6.0 - 10.5     9.0       6.0 - 10.5 
Rate of compensation increase..................  4.5      2.5 -  7.5     4.5       4.0 -  7.5     5.5       4.0 -  7.5 

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16.   OTHER POSTRETIREMENT BENEFIT PLANS                                        
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Grace provides certain other postretirement health care and life insurance      
benefits for retired employees of specified U.S. units. These retiree medical   
and life insurance plans provide various levels of benefits to employees        
(depending on their dates of hire) who retire from Grace after age 55 with at   
least 10 years of service. The plans are currently unfunded.                    

     Grace applies SFAS No. 106, which requires the accrual method of accounting
for the future costs of postretirement health care and life insurance benefits  
over the employees' years of service. Grace pays the costs of postretirement    
benefits as they are incurred.                                                  

Included in other liabilities as of December 31, 1996 and 1995 are the
following:                                                                      

                                                        [Enlarge/Download Table]

-------------------------------------------------------------------------------------------------------- 
                                                                                        1996       1995  
                                                                                       ------     ------ 
-------------------------------------------------------------------------------------------------------- 
                                                                                                         

Accumulated postretirement benefit obligation:                                                           
     Retirees........................................................................  $199.9     $209.0 
     Fully eligible participants.....................................................     6.4       15.2 
     Active ineligible participants..................................................    43.7       34.4 
                                                                                       ------     ------ 
                                                                                        250.0      258.6 
     Unrecognized net loss...........................................................   (39.9)     (54.9)
     Unrecognized prior service benefit..............................................    32.8       44.3 
                                                                                       ------     ------ 
Accrued postretirement benefit obligation............................................  $242.9     $248.0 
                                                                                       ======     ====== 

--------------------------------------------------------------------------------

Net periodic postretirement benefit cost for 1996, 1995 and 1994 is comprised of
the following components:                                                       

                                                        [Enlarge/Download Table]

---------------------------------------------------------------------------------------------------------- 
                                                                                 1996      1995      1994  
                                                                                 -----     -----     ----- 
---------------------------------------------------------------------------------------------------------- 
                                                                                                           

Service cost...................................................................  $ 1.9     $ 1.6     $ 2.1 
Interest cost on accumulated postretirement benefit obligation.................   19.0      18.3      16.2 
Amortization of net loss.......................................................    1.9        .2       1.2 
Amortization of prior service benefit..........................................   (3.7)     (4.3)     (4.3)
Curtailment gain...............................................................    (.9)       --        -- 
                                                                                 -----     -----     ----- 
     Net periodic postretirement benefit cost..................................  $18.2     $15.8     $15.2 
                                                                                 =====     =====     ===== 

--------------------------------------------------------------------------------

During 1996, Grace's retiree medical plans were amended to enhance benefits to  
retirees effective January 1, 1997. This amendment, including a previous plan   
amendment, decreased the accumulated postretirement benefit obligation by $32.8 
at December 31, 1996 and will be amortized over an average remaining future     
service life of approximately 10 years.                                         

    Medical care cost trend rates were projected at 9.2% in 1996, declining to
6.0% through 2001 and remaining level thereafter. An increase of one percentage 
point in each year's assumed medical care cost trend rate, holding all other    
assumptions constant, would increase the annual net periodic postretirement     
benefit cost by $2.3 and the accumulated postretirement benefit obligation by   
$19.9. The discount rates at December 31, 1996, 1995 and 1994 were 8.0%, 7.3%   
and 8.5%, respectively.                                                         

Effective January 1, 1994, Grace adopted SFAS No. 112, "Employers'    
Accounting for Postemployment Benefits," which requires accrual accounting for  
nonaccumulating postemployment benefits. Grace's primary postemployment         
obligation is for disabled workers' medical benefits; these are currently       
included in accrued postretirement costs under SFAS No. 106. The adoption of    
SFAS No. 112 did not have a material effect on Grace's results of operations or 
financial position.                                                             

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17.   GEOGRAPHIC AREA INFORMATION                                               
--------------------------------------------------------------------------------

The table below presents information related to Grace's continuing operations by
geographic region for the years 1996-1994.                                      

                                                        [Enlarge/Download Table]

-------------------------------------------------------------------------------------------------------------------- 
                                                                 UNITED STATES             ASIA      LATIN           
                                                                  AND CANADA     EUROPE   PACIFIC   AMERICA   TOTAL  
                                                                 -------------   ------   -------   -------   ------ 
-------------------------------------------------------------------------------------------------------------------- 
                                                                                                                     
Sales and revenues.....................................    1996     $ 1,690      $1,056    $ 468     $ 240    $3,454 
                                                           1995       1,735       1,120      445       253     3,553 
                                                           1994       1,606         939      366       218     3,129 
Pretax operating income/(loss)(1)(2)...................    1996         (33)         52       53        29       101 
                                                           1995        (186)         44       61         9       (72)
                                                           1994        (190)         69       55        20       (46)
Identifiable assets(3).................................    1996       1,963         879      505       203     3,550 
                                                           1995       2,132         998      411       246     3,787 
                                                           1994       1,879         905      308       208     3,300 

Pretax operating income and identifiable assets are reconciled below to         
income/(loss) from continuing operations before income taxes and total assets,  
respectively, as presented in the Consolidated Statement of Operations and the  
Consolidated Balance Sheet.                                                     

                                                        [Enlarge/Download Table]

                                                                               1996       1995       1994  
                                                                              ------     ------     ------ 
---------------------------------------------------------------------------------------------------------- 
                                                                                                           
Pretax operating income(1)..................................................  $  101     $  (72)    $  (46)
Gain on sales of businesses.................................................     326         --         -- 
Interest expense and related financing costs(2).............................     (72)       (71)       (50)
Corporate restructuring costs and asset impairments/other activities........     (18)      (122)        -- 
Provision for corporate governance..........................................      --        (30)        -- 
Gain on sale of remaining interest in REG...................................      --         --         27 
Other income/(expenses), net(2).............................................      12         11         (9)
                                                                              ------     ------     ------ 
     Income/(loss) from continuing operations before income taxes...........  $  349     $ (284)    $  (78)
                                                                              ======     ======     ====== 
---------------------------------------------------------------------------------------------------------- 
Identifiable assets(3)......................................................  $3,550     $3,787     $3,300 
General corporate assets(4).................................................   1,099        815        860 
Net assets of discontinued operations.......................................     297      1,759      2,071 
                                                                              ------     ------     ------ 
     Total assets...........................................................  $4,946     $6,361     $6,231 
                                                                              ======     ======     ====== 

--------------------------------------------------------------------------------
(1) Includes (a) 1996, 1995 and 1994 pretax provisions of $229, $275 and $316,  
respectively, relating to asbestos-related liabilities and insurance    
   coverage (see Note 2); and (b) 1996 and 1995 pretax charges of $90 and $87,
  respectively, relating to restructuring costs, asset impairments and other
costs (see Note 4).                                                     

(2) Corporate interest and financing costs and nonallocable expenses are not    
    reflected in pretax operating income because significant financing decisions
are centralized at the corporate level. Other income/(expenses), net    
   includes interest income relating to the settlement of prior years' federal
income tax returns of $7.5 and $9.8 in 1996 and 1995, respectively.     

(3) Includes asbestos-related receivables and settlements due from insurance    
    carriers, net of discounts, of $331 and $49, respectively, in 1996; $321 and
$118, respectively, in 1995; and $513 and $187, respectively, in 1994.  

(4) General corporate assets consist principally of deferred tax assets, prepaid
pension costs and corporate receivables and investments. At December 31,
   1996, general corporate assets include $215.6 of receivables from the sales
of Amicon and Grace's water treatment and process chemicals business.   
--------------------------------------------------------------------------------

18.   SUBSEQUENT EVENT                                                          
--------------------------------------------------------------------------------

In February 1997, Grace announced that it had entered into an agreement to sell 
its specialty polymers business to National Starch and Chemical Company for     
$147.0, subject to adjustment. The transaction is expected to be completed in   
the second quarter of 1997.                                                     

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QUARTERLY SUMMARY AND STATISTICAL INFORMATION Unaudited -- dollars in millions, 
except per share                                                                
--------------------------------------------------------------------------------

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                      QUARTER ENDED                         MARCH 31     JUNE 30     SEPTEMBER 30     DECEMBER 31   
-----------------------------------------------------------------------------------------------------------------   
                                                                                                                    

1996                                                                                                                
Sales and revenues........................................   $ 862       $ 920         $  821          $   851      
Cost of goods sold and operating expenses.................     512         549            503              507      
Net income/(loss).........................................      63         334          2,518              (57)     
Earnings/(loss) per share:                                                                                          
     Net earnings/(loss)..................................   $ .65       $3.45         $27.66          $  (.70)     

Dividends declared per common share.......................   $.125       $.125         $ .125          $  .125      
Market price of common stock:(1)                                                                                    
     High.................................................   $  52 3/16   $ 53 5/16     $  52          $    56 1/4  
     Low..................................................      34 3/4      45 5/8         33 1/16          46 1/4  
     Close................................................      50 5/8      45 5/8         52               51 3/4  

-----------------------------------------------------------------------------------------------------------------   
1995                                                                                                                
Sales and revenues........................................   $ 830       $ 901         $  916          $   906      
Cost of goods sold and operating expenses.................     482         527            542              600      
Net income/(loss).........................................      47          79             22             (474)     
Earnings/(loss) per share:                                                                                          
     Net earnings/(loss)..................................   $ .50       $ .83         $  .22          $ (4.87)     

Dividends declared per common share.......................   $ .35       $ .35         $  .35          $  .125      
Market price of common stock: (1)                                                                                   
     High.................................................   $  35 1/8    $ 41 15/16    $  45 7/8      $    42 11/16
     Low..................................................      24 13/16    33 1/16        39 5/8           35 1/4  
     Close................................................      34 5/16     39 9/16        43               38 1/16 

--------------------------------------------------------------------------------
(1) Principal market: New York Stock Exchange. The stock prices for 1995 and the
first nine months of 1996 have been adjusted so that they are on a basis
comparable to the stock prices following the disposition of NMC.        

--------------------------------------------------------------------------------

CAPITAL EXPENDITURES, NET FIXED ASSETS AND DEPRECIATION AND LEASE AMORTIZATION  
Dollars in millions                                                             
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                                                              DEPRECIATION AND  
                                      CAPITAL EXPENDITURES                                   LEASE AMORTIZATION 
                                              (1)                  NET FIXED ASSETS                 (2)         
                                      --------------------    --------------------------    --------------------
                                      1996    1995    1994     1996      1995      1994     1996    1995    1994
----------------------------------------------------------------------------------------------------------------
                                                                                                                

Operating units.....................  $397    $455    $327    $1,691    $1,565    $1,249    $164    $163    $142
General corporate...................    57      49      30       180       155       144      16      17      16
                                      ----    ----    ----    ------    ------    ------    ----    ----    ----
     Total continuing operations....   454     504     357     1,871     1,720     1,393     180     180     158
Discontinued operations.............     3      34      88        --        16       337      --      --      --
                                      ----    ----    ----    ------    ------    ------    ----    ----    ----
     Total..........................  $457    $538    $445    $1,871    $1,736    $1,730    $180    $180    $158
                                      ====    ====    ====    ======    ======    ======    ====    ====    ====

----------------------------------------------------------------------------------------------------------------
GEOGRAPHIC LOCATION                                                                                             
United States and Canada............  $186    $242    $200    $  941    $  854    $  702    $ 82    $ 82    $ 75
Europe..............................    83     100      75       403       440       381      58      60      51
Other areas.........................   128     113      52       347       271       166      24      21      16
                                      ----    ----    ----    ------    ------    ------    ----    ----    ----
     Subtotal.......................   397     455     327     1,691     1,565     1,249     164     163     142
General corporate...................    57      49      30       180       155       144      16      17      16
                                      ----    ----    ----    ------    ------    ------    ----    ----    ----
     Total continuing operations....   454     504     357     1,871     1,720     1,393     180     180     158
Discontinued operations.............     3      34      88        --        16       337      --      --      --
                                      ----    ----    ----    ------    ------    ------    ----    ----    ----
     Total..........................  $457    $538    $445    $1,871    $1,736    $1,730    $180    $180    $158
                                      ====    ====    ====    ======    ======    ======    ====    ====    ====

--------------------------------------------------------------------------------
(1) Excludes capital expenditures of discontinued operations subsequent to their
classification as such.                                                 
(2) Certain 1995 and 1994 amounts have been reclassified to conform to the 1996 
presentation.                                                           

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FINANCIAL SUMMARY(1) Dollars in millions, except per share amounts              
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                       1996        1995         1994         1993        1992                  
---------------------------------------------------------------------------------------------------------------                
                                                                                                                               
STATEMENT OF OPERATIONS                                                                                                        
Sales and revenues.................................  $3,454.1    $3,552.6     $3,128.5     $2,824.7    $2,985.2                
Cost of goods sold and operating expenses..........   2,071.0     2,151.2      1,832.6      1,692.9     1,814.0                
Depreciation and amortization......................     184.4       186.1        164.6        153.9       164.6                
Interest expense and related financing costs.......      71.6        71.3         49.5         43.0        49.4                
Research and development expenses..................      93.9       111.6         99.6        100.8        99.5                
Income/(loss) from continuing operations before                                                                                
  income taxes.....................................     348.6      (284.1)       (77.7)        44.5        91.9                
Provision for/(benefit from) income taxes..........     134.8      (104.5)       (42.6)        16.4        84.1                
Income/(loss) from continuing operations...........     213.8      (179.6)       (35.1)        28.1         7.7                
Income/(loss) from discontinued operations(2)......   2,643.9      (146.3)       118.4         (2.1)     (112.2)               
Cumulative effect of accounting changes............        --          --           --           --      (190.0)               
Net income/(loss)..................................   2,857.7      (325.9)        83.3         26.0      (294.5)               
---------------------------------------------------------------------------------------------------------------                
FINANCIAL POSITION                                                                                                             
Current assets.....................................  $1,774.9    $1,681.3     $2,228.9     $2,077.6    $2,091.4                
Current liabilities................................   1,487.1     2,214.2      2,231.5      1,992.6     1,639.6                
Properties and equipment, net......................   1,871.3     1,736.1      1,730.1      1,454.1     1,707.9                
Total assets.......................................   4,945.8     6,360.6      6,230.6      6,108.6     5,598.6                
Total debt.........................................   1,388.2     1,933.8      1,529.7      1,706.1     1,819.2                
Shareholders' equity -- common stock...............     632.4     1,224.4      1,497.1      1,510.2     1,537.5                
---------------------------------------------------------------------------------------------------------------                
DATA PER COMMON SHARE                                                                                                          
Earnings/(loss) from continuing operations.........  $   2.32    $  (1.87)    $   (.38)    $    .30    $    .08                
Cumulative effect of accounting changes............        --          --           --           --       (2.12)               
Net earnings/(loss)................................     31.06       (3.40)         .88          .28       (3.29)               
Dividends..........................................       .50        1.175        1.40         1.40        1.40                
Book value.........................................      8.06       12.57        15.91        16.16       17.10                
Average common shares outstanding (thousands)......    91,976      95,822       93,936       91,461      89,543                
---------------------------------------------------------------------------------------------------------------                
OTHER STATISTICS                                                                                                               
Income from continuing operations before special                                                                               
  items(3).........................................  $  222.5    $  205.7     $  163.9     $  128.1    $  152.8                
Dividends paid on common stock.....................      45.6       112.1        131.5        127.9       125.4                
Capital expenditures...............................     456.6       537.6        444.6        309.6       398.4                
Common shareholders of record......................    17,415      19,496       18,501       19,358      20,869                
Common stock price range(4)........................  56 1/4-33 1/16 45 7/8-24 13/16 29 15/16-23 3/16 26 9/16-22 5/16  29-20 5/8
Number of employees -- continuing operations                                                                                   
  (thousands)......................................      17.4        20.3         19.9         19.8        19.4                
---------------------------------------------------------------------------------------------------------------                

(1) Certain prior-year amounts have been reclassified to conform to the 1996    
presentation.                                                           
(2) Comprised of income from operations of $13.5, $5.0 and $118.4 in 1996, 1995 
  and 1994, respectively. 1996 also includes (a) the gain of $2,603.1 on the
dispositions of NMC, Amicon and Agracetus and (b) a $31.9 reversal of a 
  previously recorded provision for Grace's cocoa business, partially offset
   by (c) the charge of $4.6 recorded in connection with the classification of
    TEC Systems as a discontinued operation. 1995 includes a provision of $151.3
relating to Grace's remaining discontinued operations, primarily Grace's
cocoa business.                                                         
(3) Income/(loss) from continuing operations reconciles to income from          
continuing operations before special items as follows:                  

                                                        [Enlarge/Download Table]

                                                                  1996       1995       1994       1993      1992  
                                                                --------   --------   --------   --------  --------
                                                                                                                   
Income/(loss) from continuing operations....................... $  213.8   $ (179.6)  $  (35.1)  $   28.1  $    7.7
Special items (after-tax):                                                                                         
Gain on sales of businesses....................................   (210.1)        --         --         --        --
Restructuring costs and asset impairments/other activities.....     69.9      138.0         --         --        --
Provisions relating to asbestos-related liabilities and                                                            
  insurance coverage...........................................    148.9      178.7      200.0      100.0        --
Provision for corporate governance.............................       --       18.6         --         --        --
Provisions for environmental liabilities at former                                                                 
  manufacturing sites..........................................       --       50.0       26.0         --        --
Gain on sale of remaining interest in REG......................       --         --      (27.0)        --        --
Provision relating to fumed silica plant.......................       --         --         --         --     140.0
Postretirement benefits prior to plan amendments...............       --         --         --         --       5.1
                                                                 -------    -------    -------    -------   -------
Income from continuing operations before special items......... $  222.5   $  205.7   $  163.9   $  128.1  $  152.8
                                                                 =======    =======    =======    =======   =======

Although "Income from continuing operations before special items" is a  
 measure not recognized under generally accepted accounting principles and
may be inconsistent with similar measures presented by other companies, 
    Grace management believes that the presentation of this measure enhances the
comparability of Grace's operating results from period to period.       

(4) The stock prices for 1995 -- 1992 and the first nine months of 1996 have    
been adjusted so that they are on a basis comparable to the stock prices
following the disposition of NMC.                                       

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL 
CONDITION 

REVIEW OF OPERATIONS                                                            

Overview                                                                        

Sales and revenues decreased 3% in 1996 versus 1995, and increased 14% in 1995  
over 1994. Excluding divested businesses from all periods, sales and revenues   
increased 3% in 1996 over 1995 and 14% in 1995 over 1994.                       

     Pretax income/(loss) from continuing operations was $348.6 million in 1996,
$(284.1) million in 1995 and $(77.7) million in 1994. As noted in footnote (3)  
to the table below, pretax income/(loss) from continuing operations for all     
three years was affected by various special items. Grace's 1996 pretax operating
income before special items of $419.4 million increased 14% over 1995, and 1995 
pretax operating income before special items of $367.4 million increased 19%    
over 1994. Excluding divested businesses, pretax operating income before special
items increased 12% in 1996 over 1995 and 20% in 1995 over 1994.                

   For all periods presented, pretax operating results have been restated to
reflect the classification of certain businesses as discontinued operations.    

                                                        [Enlarge/Download Table]

                                                                           (Dollars in millions)          
W.R. GRACE & CO. AND SUBSIDIARIES                                  -------------------------------------- 
PRETAX OPERATING RESULTS -- CONTINUING OPERATIONS                    1996           1995           1994   
-----------------------------------------------------------------  --------       --------       -------- 
                                                                                                          
Sales and revenues, before divested businesses...................  $3,252.2       $3,150.9       $2,758.7 
Sales and revenues of divested businesses (1)....................     201.9          401.7          369.8 
                                                                   --------       --------       -------- 
     Sales and revenues..........................................  $3,454.1       $3,552.6       $3,128.5 
                                                                   ========       ========       ======== 

Operating income/(loss) before divested businesses...............  $  407.2       $  217.5       $  (17.3)
Operating income/(loss) of divested businesses (1)...............       2.0           (6.6)          (1.9)
                                                                   --------       --------       -------- 
     Operating income/(loss) (2)(3)..............................  $  409.2       $ (224.1)      $  (19.2)

Other income/(expenses) (4):                                                                              
     Interest expense and related financing costs................     (71.6)         (71.3)         (49.5)
     Other income/(expenses), net................................      11.0           11.3           (9.0)
                                                                   --------       --------       -------- 
     Income/(loss) from continuing operations....................  $  348.6       $ (284.1)      $  (77.7)
                                                                   ========       ========       ======== 

(1) Primarily reflects Grace's water treatment and process chemicals business,  
divested in June 1996.                                                  

(2) Reflects the allocation of general corporate overhead, general corporate    
research expenses and certain other income and expense items that can be
identified with continuing operations.                                  

(3) A reconciliation of operating income/(loss) to operating income before      
special items is as follows:                                            

                                                        [Enlarge/Download Table]
                                                                                                                         
Operating income/(loss)..................................................................... $ 409.2   $(224.1)  $ (19.2)
Special items:                                                                                                           
  Gain on sales of businesses...............................................................  (326.4)       --        -- 
  Restructuring costs and asset impairments/other activities................................   107.5     209.5        -- 
  Provisions relating to asbestos-related liabilities and insurance coverage................   229.1     275.0     316.0 
  Provision for corporate governance........................................................      --      30.0        -- 
  Provisions for environmental liabilities at former manufacturing sites....................      --      77.0      40.0 
  Gain on sale of remaining interest in REG.................................................      --        --     (27.0)
                                                                                             -------   -------   ------- 
  Operating income before special items..................................................... $ 419.4   $ 367.4   $ 309.8 
                                                                                             -------   -------   ------- 

  Although "Operating income before special items" is a measure not recognized
 under generally accepted accounting principles and may be inconsistent with
   similar measures presented by other companies, Grace management believes that
the presentation of this measure enhances the comparability of Grace's    
operating results from period to period.                                  

(4) Corporate interest and financing costs and nonallocable expenses are not    
reflected in pretax operating income from continuing operations because 
significant financing decisions are centralized at the corporate level. 
Other income/(expenses), net includes interest income relating to the   
settlement of prior years' federal income tax returns of $7.5 million in
1996 and $9.8 million in 1995.                                          

                                                        [Enlarge/Download Table]

        W.R. GRACE & CO. AND SUBSIDIARIES                (Dollars in millions)              Percentage Change     
         (excluding divested businesses)           ----------------------------------  ---------------------------
               SALES AND REVENUES                    1996         1995         1994    '96 VS. '95     '95 vs. '94
-------------------------------------------------  --------     --------     --------  -----------     -----------
                                                                                                                  
Packaging........................................  $1,735.4     $1,692.1     $1,417.5       2.6%           19.4%  
Container........................................     274.7        279.9        252.9      (1.9)           10.7   
                                                   --------     --------     --------      ----            ----   
  Total Packaging................................  $2,010.1     $1,972.0     $1,670.4       1.9            18.1   
Catalysts and other silica-based products........     732.2        699.9        615.1       4.6            13.8   
Construction.....................................     435.0        397.2        387.1       9.5             2.6   
Other (1)........................................      74.9         81.8         86.1      (8.4)           (5.0)  
                                                   --------     --------     --------                             
  Sales and revenues.............................  $3,252.2     $3,150.9     $2,758.7       3.2%           14.2%  
                                                   ========     ========     ========                             

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                                                        [Enlarge/Download Table]

                                            1996 AS A PERCENTAGE OF 1995              1995 as a Percentage of 1994      
SALES AND REVENUES ESTIMATED          ----------------------------------------  ----------------------------------------
VARIANCE ANALYSIS                     VOLUME   PRICE/MIX   TRANSLATION   TOTAL  Volume   Price/Mix   Translation   Total
------------------------------------  ------   ---------   -----------   -----  ------   ---------   -----------   -----
                                                                                                                        
Packaging...........................    3.9%      (1.0)%        (.3)%     2.6%   10.2%      6.0%         3.2%      19.4%
Container...........................    1.0        (.3)        (2.6)     (1.9)    4.9        .8          5.0       10.7 
     Total Packaging................    3.4        (.9)         (.6)      1.9     9.4       5.2          3.5       18.1 
Catalysts and other silica-based                                                                                        
  products..........................    7.2       (1.3)        (1.3)      4.6     4.7       4.7          4.4       13.8 
Construction........................    8.8         .9          (.2)      9.5      .4       1.1          1.1        2.6 
Other (1)...........................   (5.9)        .1         (2.6)     (8.4)   (8.2)      (.8)         4.0       (5.0)
     Sales and revenues.............    4.7%       (.8)%        (.7)%     3.2%    9.7%      1.7%         2.8%      14.2%

(1) Primarily reflects Grace's specialty polymers business, which is expected to
be divested in 1997.                                                    

SALES AND REVENUES                                                              

As noted in the preceding table, sales and revenues (excluding divested         
businesses) increased 3% in 1996 over 1995, reflecting a favorable volume       
variance estimated at 5% (with increased volumes in all core product lines),    
offset by unfavorable price/product mix and currency translation variances      
estimated at 1% each. The following is a discussion of the sales and revenues of
Grace's product lines.                                                          

PACKAGING                                                                       

1996 sales increased 3% over 1995, a year in which sales increased 19% over     
1994. 1996 laminate sales increased in all regions, particularly in Latin       
America and Asia Pacific due to market share growth, and in North America       
primarily due to a strong fourth quarter in the rollstock and processed and     
prepared foods market segments. 1996 sales growth in bags was modest overall.   
Sales volumes in bags increased in Latin America due to economic improvement in 
Argentina, increased cattle slaughter rates in Uruguay and higher per capita    
beef consumption in Brazil. Growth in North American bag sales, due to continued
penetration of TBG(TM) (total boneguard) bags in the fresh red meat segment, was
partially offset by lower volumes in the meat producing and processing          
industries, as higher corn prices led to reductions in beef herds, which in turn
drove down volumes. Sales of bags in Asia Pacific and Europe were flat, as the  
negative effects of reduced beef consumption due to consumer fears associated   
with the outbreak of E. coli bacteria and the publicity surrounding bovine      
spongiform encephalopathy in the United Kingdom -- commonly referred to as "mad 
cow disease" -- were partially offset by the positive effects of increased      
consumption of other fresh red meats, poultry and fish. Film sales in 1996 were 
flat, as sales growth in Europe was offset by sales declines in North America   
and Asia Pacific due to continued pricing pressures. The improvement in Europe  
resulted from growth in demand in the U.K. bakery market segment and higher     
sales from new product introductions.                                           

CONTAINER                                                                       

Sales decreased slightly in 1996 versus 1995, as sales declines in closure      
compounds (due to lower consumer demand for beverage products in Europe and a   
decrease in market share in Asia Pacific) were partially offset by volume       
increases from improved market penetration of can coating products in Latin     
America (primarily due to the 1996 acquisition of Bayem S.A. de C.V., a Mexican 
producer of can coatings and closure sealants for the rigid container industry).
North American container sales were up slightly due to strong sales of can      
sealing compounds.                                                              

CATALYSTS AND OTHER SILICA-BASED PRODUCTS                                       

1996 sales of catalysts and other silica-based products benefited from continued
expansion into new markets and the introduction of higher-value-added products  
and new technologies, partially offset by competitive pricing pressures. Volumes
increased in all regions, especially in Asia Pacific due to an increase in      
market share in refinery catalysts. However, in Europe and North America,       
refinery catalyst sales continued to be negatively impacted by competitive      
pricing pressures. Polyolefin catalyst sales were positively impacted by the    
strong resin market, and silica/adsorbent sales benefited from new product      
applications in Europe and Asia Pacific.                                        

CONSTRUCTION                                                                    

Sales increased in all regions and within all product lines, especially in North
America, where volumes in concrete and waterproofing products benefited from    
growth in housing starts and infrastructure projects. Also significantly        
contributing to the increase was the positive impact of an increase in market   
share for fire protection and concrete products in Asia Pacific. Sales also have
risen due to the introduction of new products.                                  

OPERATING RESULTS -- 1996 COMPARED TO 1995                                      

Pretax operating income before special items (excluding divested businesses)    
increased 12% in 1996 as compared to 1995, as cost management programs continued
to favorably impact results across all regions and product lines. As further    
discussed below under "Statement of Operations: Restructuring Costs, Asset      
Impairments and Other Costs," Grace has implemented a worldwide program to      
streamline processes and reduce general and administrative expenses, factory    
administration costs and noncore corporate research and development expenses. In
addition, North American results in 1996 were positively affected by sales      
volume increases in construction products and bags and laminates, partially     
offset by a decline in refinery catalyst sales. European results were favorably 
impacted by volume increases in construction products and silicas/adsorbents. In
Asia Pacific, results declined, reflecting lower pricing and an unfavorable     
product mix in bags, and volume declines in closure compounds, partially offset 
by volume increases in construction products and refinery and polyolefin        
catalysts, as discussed above. Also affecting 1996 results were higher expenses 
associated with the start-up of new silica and packaging plants in Kuantan,     
Malaysia. Latin American results were favorably impacted by volume increases in 
bags and can coating products, as discussed above.                              

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OPERATING RESULTS -- 1995 COMPARED TO 1994                                      

As noted above, sales and revenues (excluding divested businesses) increased 14%
in 1995 over 1994, reflecting favorable volume, price/product mix and currency  
translation variances estimated at 10%, 1% and 3%, respectively. Pretax         
operating income before special items (excluding divested businesses) increased 
20% in 1995 over 1994. Volumes increased in all core product lines. Packaging   
volume increases reflected higher sales of bags, films and laminates in all     
regions, other than laminates in Latin America. Container volume increases      
resulted from increased sales of can sealing products in Asia Pacific and       
coating products in Latin America. Volume increases in catalysts and other      
silica-based products reflected higher sales in all regions, especially refinery
catalysts in Asia Pacific and Europe, and silica/adsorbent products in Europe   
and Asia Pacific. North American operations experienced reduced profitability in
refinery catalysts; refiners continued to experience low margins, as the narrow 
spread between light and heavy crude oil prices led customers to crack          
higher-quality light crude (which requires fewer catalysts). Construction       
products experienced volume increases, primarily in Asia Pacific due to         
increased construction activity, partially offset by volume decreases in fire   
protection products in North America (due to a small market share decline) and  
waterproofing products in North America and Europe (due to higher material costs
and a slowdown in the nonresidential construction market). Operating income     
before taxes also benefited from an economic recovery in Europe that revitalized
key markets and the absence of costs incurred in 1994 to streamline European    
packaging and container operations, partially offset by higher operating costs  
incurred to increase market share in the Asia Pacific region.                   

STATEMENT OF OPERATIONS                                                         

INTEREST EXPENSE AND RELATED FINANCING COSTS                                    

Excluding amounts allocated to discontinued operations, interest expense and    
related financing costs of $71.6 million in 1996 were flat versus 1995.         
Including amounts allocated to discontinued operations, interest expense and    
related financing costs decreased 10% in 1996 over 1995, to $147.9 million,     
primarily due to lower average short-term interest rates.                       

     Grace's debt and interest rate management objectives are to reduce its cost
of funding over the long term. To manage the interest profile on its debt, Grace
enters into interest rate agreements; during 1996 most of these agreements      
effectively converted fixed-rate debt into variable-rate debt. These agreements 
have readily quantifiable impacts on interest cost and are characterized by     
broad market liquidity.                                                         

See "Financial Condition: Liquidity and Capital Resources" below for  
further information on borrowings and interest rate agreements.                 

RESEARCH AND DEVELOPMENT EXPENSES                                               

Research and development spending decreased 16% in 1996 versus 1995. The        
decrease reflects the positive impact of cost management initiatives, primarily 
the closing of Grace's corporate research facility, the transfer of core        
research and development activities to existing product line facilities, and the
termination of activities not related to Grace's core packaging and specialty   
chemicals businesses. Research and development activities include research in   
specialty packaging, catalysts, construction materials and process engineering. 

RESTRUCTURING COSTS, ASSET IMPAIRMENTS AND OTHER COSTS                          

Restructuring Costs                                                             

Grace recorded restructuring charges of $75.4 million in 1996 and $129.8 million
in 1995 ($49.0 million and $85.1 million after-tax, respectively). Grace began  
implementing a worldwide program in 1995 to streamline processes and reduce     
general and administrative expenses, factory administration costs and noncore   
corporate research and development expenses. Under this program Grace has       
implemented, and expects to further implement, additional cost reductions and   
efficiency improvements, as it further evaluates and reengineers its operations.
In connection with these actions, Grace recorded pretax charges of $53.7 million
and $21.7 million in the second and fourth quarters of 1996, respectively. These
charges primarily relate to headcount reductions, the restructuring of Grace's  
European packaging operations (in areas such as working capital management,     
manufacturing and sales) and the further restructuring of Grace's corporate     
research activities, certain of which are now conducted at product line         
facilities.                                                                     

 The components of the 1996 and 1995 restructuring charges, spending and
other activity during 1995 and 1996, and the remaining reserve balances at      
December 31, 1996, were as follows:                                             
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                 EMPLOYEE                                               
                                                TERMINATION  PLANT/OFFICE     ASSET     OTHER           
                                                 BENEFITS      CLOSURES    WRITE-DOWNS  COSTS    TOTAL  
                                                -----------  ------------  -----------  ------   ------ 
                                                                                                        
Restructuring provisions recorded in 1995......   $  74.3       $ 13.4       $  18.6    $ 23.5   $129.8 
Cash payments during 1995......................     (13.0)        (3.5)           --      (3.1)   (19.6)
Noncash activity...............................        --           --          (4.3)     (1.5)    (5.8)
                                                   ------        -----        ------    ------   ------ 
Restructuring reserve at December 31, 1995.....   $  61.3       $  9.9       $  14.3    $ 18.9   $104.4 
Restructuring provisions recorded in 1996......      69.3          6.1            --        --     75.4 
Cash payments during 1996......................     (57.8)         (.6)           --     (16.0)   (74.4)
Noncash activity...............................        --           --         (14.3)       --    (14.3)
                                                   ------        -----        ------    ------   ------ 
Restructuring reserve at December 31, 1996.....   $  72.8       $ 15.4       $    --    $  2.9   $ 91.1 
                                                   ======        =====        ======    ======   ====== 

--------------------------------------------------------------------------------

Employee termination benefits primarily represent severance pay and other       
benefits (including benefits under long-term incentive programs paid over time) 
associated with the elimination of approximately 1,300 positions worldwide, with
more than                                                                       

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60% of the eliminated positions coming from worldwide corporate staff functions 
and the restructuring of Grace's worldwide packaging operations. Through        
December 31, 1996, approximately 800 positions had been eliminated worldwide.   

    Grace's estimated annual cost savings under the restructuring programs are
expected to total approximately $140 million when fully realized, with          
approximately $100 million being realized annually as a result of the actions   
taken through the end of 1996. The remaining actions under the programs are     
expected to be substantially implemented during 1997.                           

Asset Impairments                                                               

During 1996 and 1995, Grace determined that, due to various events and changes  
in circumstances (including the worldwide restructuring programs described      
above), certain long-lived assets and related goodwill were impaired. As a      
result, in the fourth quarters of 1996 and 1995, Grace recorded noncash pretax  
charges of $32.1 million and $39.2 million, respectively ($20.9 million and     
$26.6 million after-tax, respectively), the majority of which related to assets 
that will continue to be held and used in Grace's packaging and specialty       
chemicals businesses. The components of the 1996 and 1995 charges were (a)      
goodwill and other intangibles of $11.1 million and $4.7 million, respectively; 
(b) properties and equipment of $9.0 million and $20.0 million, respectively;   
(c) long-term investments of $6.7 million and $8.6 million, respectively; and   
(d) other assets of $5.3 million and $5.9 million, respectively. Grace          
determined the amounts of the charges based on various valuation techniques,    
including discounted cash flow, replacement cost and net realizable value for   
assets to be disposed.                                                          

Other Costs                                                                     

In the fourth quarter of 1995, Grace recorded pretax charges totaling $40.5     
million ($25.9 million after-tax) relating to the write-down of corporate assets
($27.0 million) and working capital assets ($13.5 million).                     

Income Taxes                                                                    

Grace's effective tax (benefit) rates were 38.7% in 1996, (36.8)% in 1995 and   
(54.8)% in 1994. Excluding the special items shown in the table under "Review of
Operations: Overview" above, Grace's effective tax rates were 38.0%, 33.1% and  
34.8% in 1996, 1995 and 1994, respectively. The lower effective tax rate in 1995
compared to 1996 was largely due to the reversal in 1995 of a valuation         
allowance on foreign net operating losses. The lower effective tax rate in 1995 
compared to 1994 was primarily due to the reversal in 1995 of the valuation     
allowance on foreign net operating losses and lower state income taxes,         
partially offset by higher taxes on foreign operations.                         

    Grace has provided a valuation allowance relating to uncertainty as to the
realization of certain deferred tax assets, primarily state and local net       
operating loss carryforwards and net deferred tax assets. Tax planning          
strategies during 1996 enabled Grace to reverse the valuation allowance on tax  
credit carryforwards during the year. Based on anticipated future results, Grace
has concluded that it is more likely than not that the remaining balance of the 
net deferred tax assets, after consideration of the valuation allowance, will be
realized.                                                                       

DISCONTINUED OPERATIONS                                                         

Health Care                                                                     

During 1996, Grace completed the separation of National Medical Care, Inc. (NMC)
and sold its separations science business (Amicon). These businesses,           
representing Grace's principal health care businesses, had been classified as   
discontinued operations in 1995. 1996 income from discontinued operations of    
$2,643.9 million includes income of $24.8 million ($60.3 million pretax) from   
health care operations, a tax-free gain of approximately $2.5 billion on the NMC
transaction, and a gain of $40.0 million ($70.4 million pretax) on the sale of  
Amicon. (Loss)/income from discontinued operations of $(146.3) million in 1995  
and $118.4 million in 1994 includes income from health care operations of $22.0 
million ($104.6 million pretax) and $124.7 million ($227.1 million pretax),     
respectively.                                                                   

Cocoa                                                                           

Grace's cocoa business was classified as a discontinued operation in 1993.      
During the fourth quarter of 1995, Grace revised the divestment plan for the    
business. The revised plan focused on the improvement of operating cash flow    
through the adoption of new strategies and a new global organizational          
structure, while better positioning the business for outright sale. As a result 
of this revised divestment plan, Grace recorded an additional provision of      
$151.3 million (net of an applicable tax effect of $48.7 million) related to the
cocoa business and other remaining discontinued operations. In December 1996,   
Grace announced that it had entered into a definitive agreement to sell the     
cocoa business to Archer-Daniels-Midland Company. As a result, in the fourth    
quarter of 1996, Grace reassessed its estimated loss on the divestment of the   
business and reversed previously recorded provisions of $31.9 million (net of an
applicable tax effect of $18.1 million), within income from discontinued        
operations. The divestment of the cocoa business was completed in February 1997,
with Grace receiving $470.0 million (inclusive of debt assumed by the buyer),   
subject to adjustment.                                                          

Other                                                                           

In the fourth quarter of 1996, Grace classified its thermal and emission control
systems business (TEC Systems) as a discontinued operation. In connection with  
classifying TEC Systems as a discontinued operation, Grace recorded a provision 
of $4.6 million (net of an applicable tax benefit of $2.4 million) related to   
TEC Systems' anticipated net operating results through the expected date of     
divestment, as well as the loss anticipated on the divestment.                  

   In May 1996, Grace completed the sale of the transgenic plant business of
its Agracetus subsidiary to the Monsanto Company for $150.0 million, resulting  
in a pretax gain of $129.0 million ($79.4 million after-tax, or $0.86 per common
share of the Company). Additionally, in March 1996, Grace sold its microwave    
business for gross proceeds of $3.9 million.                                    

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 In February 1995, Grace sold its composite materials business for gross
proceeds of $3.0 million. During 1994, Grace sold its battery separators        
business and a portion of its engineered materials and systems businesses for   
gross proceeds of $316.2 million, approximating prior estimates. Grace also sold
its animal genetics and Caribbean fertilizer operations in 1994 for proceeds of 
$44.1 million. In 1994, Grace also sold substantially all of its interests in   
Colowyo Coal Company (Colowyo) for proceeds of $218.3 million, including $192.8 
million of proceeds from a nonrecourse financing secured by a portion of the    
revenues from certain long-term coal contracts. Grace retained a limited        
partnership interest in Colowyo, entitling it to share in the revenues from     
these coal contracts.                                                           

    These businesses were classified as discontinued operations in 1993 (other
than TEC Systems in 1996 and Colowyo in 1992).                                  

FINANCIAL CONDITION                                                             

Liquidity and Capital Resources                                                 

Grace's continuing operating activities provided net pretax cash of $355.6      
million in 1996, versus $247.3 million in 1995. The improved cash flow from     
operations in 1996 was offset by the expenditure of $2.1 million for the defense
and disposition of asbestos-related property damage and personal injury         
litigation, net of amounts received under settlements with insurance carriers,  
compared to a cash inflow from asbestos-related litigation, net of insurance    
recoveries, of $97.0 million in 1995. After giving effect to the net pretax cash
provided by operating activities of discontinued operations and payments of     
income taxes, the net cash provided by operating activities increased $116.3    
million in 1996 versus 1995.                                                    

 Investing activities provided $2,072.9 million of cash in 1996, largely
reflecting net cash proceeds of $2,720.3 million from divestments of businesses.
This excluded (a) $100.0 million received in January 1997 on the 1996 sale of   
the water treatment and process chemicals business; and (b) $115.6 million      
received in January 1997 on the 1996 sale of Amicon. Grace made capital         
expenditures of $456.6 million in 1996, primarily related to the packaging and  
catalysts and other silica-based products businesses. Also, net investing       
activities of discontinued operations for 1996 used $192.9 million of cash      
(compared to $295.2 million in 1995); primarily decreasing as a result of the   
disposition of NMC in the 1996 third quarter. Grace anticipates total capital   
expenditures for 1997 to approximate $300 million, all of which will be directed
towards its core businesses.                                                    

Net cash used for financing activities in 1996 was $2,267.8 million,  
primarily reflecting reductions in debt, the repurchase of stock (discussed     
below), and the payment of dividends, partially offset by proceeds from the     
exercise of employee stock options. Total debt was $1,388.2 million at December 
31, 1996, a decrease of $545.6 million from December 31, 1995. In addition to   
the reduction of debt, in 1996 Grace terminated agreements to sell up to $300   
million of interests in designated pools of trade receivables, $180 million of  
which pertained to NMC. At December 31, 1995, $295.8 million had been received  
pursuant to such sales, $179.8 million of which pertained to NMC.               

   Grace initiated a program in April 1996 to repurchase 10.0 million shares
of its common stock. As of September 27, 1996, Grace had acquired 9,864,800     
shares under this program at a cost of $727.1 million (or an average price of   
approximately $73.70 per share, before adjustment for the effect of the NMC     
transaction on the price per share of Grace stock). Following the NMC           
transaction, Grace implemented a second program to repurchase up to 20% of the  
approximately 89.0 million shares then outstanding. Through March 4, 1997, Grace
had repurchased 16,019,900 shares at a cost of $849.1 million (or an average    
price of approximately $53.00 per share).                                       

  As Grace's balance sheet is restructured to support its core businesses,
Grace is targeting a ratio of debt (net of cash and short-term investments) to  
earnings before interest, taxes, depreciation and amortization (EBITDA) of 1.6  
to 2.0. Grace believes this ratio is the appropriate measure of leverage for    
management purposes because it compares debt to the pretax cash flow available  
to service debt. Also, it is not subject to distortion (as traditional          
debt/equity or debt/capital ratios are) following a major share repurchase      
program such as those Grace has executed. At the targeted debt/EBITDA level of  
1.6 to 2.0, Grace benefits from the tax advantages of debt financing on its     
overall weighted average cost of capital while retaining the financial          
flexibility to invest in the continued growth of its core businesses. Grace     
believes it can safely exceed its target leverage range on a short-term basis to
meet its investment needs. The cash received and to be received from divestments
is being used to reduce debt and repurchase shares to bring the capital         
structure within the target range. At December 31, 1996, the debt/EBITDA ratio  
was 2.3, outside the target range primarily due to the timing of the share      
repurchases ahead of cash divestment proceeds. It is expected that the ratio    
will be within the target range in 1997.                                        

    In May 1996, Grace entered into a revolving credit agreement, expiring May
1997, providing for total borrowings of $1.85 billion, and terminated three     
previous agreements providing for total borrowings of $850 million. During the  
fourth quarter of 1996, Grace reduced the borrowings available under this new   
credit agreement to $650 million, reflecting the completion of the NMC          
transaction. In addition, Grace continues to have $350 million available under a
separate long-term facility expiring on September 1, 1999. Thus, Grace had      
committed borrowing facilities totaling $1.0 billion, of which $471.3 million   
was available, at the end of 1996.                                              

  In October 1996, Grace announced that it expected to divest four noncore
businesses by late 1996 or 1997. The businesses to be sold were Grace's cocoa   
business, Amicon, TEC Systems and Grace's specialty polymers business. As noted 
above, in December 1996, Grace completed the sale of Amicon and announced that  
it had entered into a definitive agreement to sell its cocoa business. In       
February 1997, Grace completed the sale of the cocoa business and entered into  
an agreement to sell its specialty polymers business. Grace expects to complete 
the sale of its specialty polymers business in the second quarter of 1997 and   
the sale of TEC Systems in 1997.                                                

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ASBESTOS-RELATED MATTERS                                                        

Grace is a defendant in lawsuits relating to previously sold asbestos-containing
products. In 1996, Grace paid $2.1 million for the defense and disposition of   
asbestos-related property damage and personal injury litigation, net of amounts 
received under settlements with insurance carriers. During the fourth quarter of
1996, Grace recorded a noncash pretax charge of $229.1 million ($148.9 million  
after-tax), primarily to reflect the estimated costs of defending against and   
disposing of personal injury claims expected to be filed through 2001. The      
estimated costs used to determine the amount of this charge have not been       
discounted to their present values, and the time period over which the          
associated cash is actually expended is likely to extend beyond 2001. The       
balance sheet at year-end 1996 includes a receivable of $331.3 million due from 
insurance carriers. Grace also has recorded notes receivable of $55.9 million   
($48.5 million after discounts) for amounts to be received from 1997 to 2001    
pursuant to settlement agreements previously entered into with insurance        
carriers.                                                                       

Although the total amounts to be paid in 1997 with respect to         
asbestos-related claims (after giving effect to payments to be received from    
insurance carriers), cannot be precisely estimated, Grace expects that it will  
be required to expend approximately $75-$100 million (pretax) in 1997 to defend 
against and dispose of such claims (after giving effect to anticipated insurance
recoveries). The amounts with respect to the probable cost of defending against 
and disposing of asbestos-related claims and probable recoveries from insurance 
carriers represent estimates and are on an undiscounted basis; the outcomes of  
such claims cannot be predicted with certainty. See Note 2 to the Consolidated  
Financial Statements for further information concerning asbestos-related        
lawsuits and claims.                                                            

ENVIRONMENTAL MATTERS                                                           

Grace is subject to loss contingencies resulting from environmental laws and    
regulations. Worldwide expenses of continuing operations related to the         
operation and maintenance of environmental facilities and the disposal of       
hazardous and nonhazardous wastes totaled $44.5 million in 1996, $42.6 million  
in 1995 and $35.0 million in 1994. Such costs are estimated to be $45.0 million 
in 1997 and $47.0 million in 1998. In addition, worldwide capital expenditures  
for continuing operations relating to environmental protection totaled $17.1    
million in 1996, compared to $14.9 million and $21.5 million in 1995 and 1994,  
respectively. Capital expenditures to comply with environmental initiatives in  
future years are estimated to be $13.0 million in 1997 and $12.0 million in     
1998. Grace also has incurred costs to remediate environmentally impaired sites.
These costs were $20.3 million in 1996, $31.3 million in 1995 and $30.8 million 
in 1994. These amounts have been charged against previously established         
reserves. Future cash outlays for remediation costs are expected to total $23.0 
million in 1997 and $26.0 million in 1998. Expenditures have been funded from   
internal sources of cash and are not expected to have a significant effect on   
liquidity.                                                                      

Grace accrues for anticipated costs associated with investigatory and 
remediation efforts where an assessment has indicated that a loss is probable   
and can be reasonably estimated. In the fourth quarter of 1995 and the first    
quarter of 1994, Grace recorded pretax provisions of $77.0 million and $40.0    
million ($50.0 million and $26.0 million after-tax), respectively. The 1995     
provision related principally to increased cost estimates associated with five  
former manufacturing sites. At December 31, 1996, Grace's liability for         
environmental investigatory and remediation costs related to continuing and     
discontinued operations totaled $256.4 million, as compared to $280.3 million at
December 31, 1995. These accruals do not take into account any discounting for  
the time value of money. Additionally, Grace is in litigation with certain      
excess insurance carriers regarding the applicability of the carriers' policies 
to environmental remediation costs; given the uncertainties inherent in this    
litigation, Grace has not recorded a receivable with respect to such insurance  
coverage (except in one instance where a settlement with a carrier has been     
reached).                                                                       

 Grace's environmental liabilities are reassessed whenever circumstances
become better defined and/or remediation efforts and their costs can be better  
estimated. These liabilities are currently evaluated quarterly, based on        
available information, including the progress of remedial investigation at each 
site, the current status of discussions with regulatory authorities regarding   
the method and extent of remediation at each site and the apportionment of costs
among potentially responsible parties. As some of these issues are decided (the 
outcomes of which are subject to uncertainties) and/or new sites are assessed   
and costs can be reasonably estimated, Grace will continue to review and analyze
the need for adjustments to the recorded accruals. However, Grace believes that 
it is adequately reserved for all probable and estimable environmental          
exposures.                                                                      

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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON 
FINANCIAL STATEMENT SCHEDULE

To the Shareholders and Board of Directors of W. R. Grace & Co.                 

Our audits of the consolidated financial statements referred to in our report   
dated February 3, 1997 appearing on page F-2 herein also included an audit of   
the Financial Statement Schedule appearing on page F-33 herein. In our opinion, 
this Financial Statement Schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related         
consolidated financial statements.                                              

PRICE WATERHOUSE LLP                                                            

Price Waterhouse LLP                                                            
Ft. Lauderdale, Florida                                                         
February 3, 1997                                                                

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                                                                     SCHEDULE II

W. R. GRACE & CO. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN MILLIONS) 

FOR THE YEAR 1996 

                                                        [Enlarge/Download Table]

                                                                     ADDITIONS (DEDUCTIONS)                  
                                                    ---------------------------------------------------------
                                                                      CHARGED                                
                                                    BALANCE AT     (CREDITED) TO                     BALANCE 
                                                    BEGINNING        COSTS AND         OTHER,        AT END  
                   DESCRIPTION                      OF PERIOD        EXPENSES          NET**        OF PERIOD
--------------------------------------------------  ----------     -------------     ----------     ---------
                                                                                                             
Valuation and qualifying accounts deducted from                                                              
  assets:                                                                                                    
  Allowances for notes and accounts receivable....    $ 12.9          $   4.9          $   (6.3)     $  11.5 
  Allowances for long-term receivables............    $ 24.7          $   3.7          $   14.3      $  42.7 
  Securities of divested businesses...............    $  3.5          $    --          $     .4      $   3.9 
  Valuation allowance for deferred tax assets.....    $ 97.7          $ (25.3)         $     --      $  72.4 
Reserves:                                                                                                    
  Foreign employee benefit obligations*...........    $ 95.3          $   6.9          $  (17.3)     $  84.9 
  Discontinued operations.........................    $366.7          $(105.7)         $  (91.8)     $ 169.2 

FOR THE YEAR 1995 

                                                        [Enlarge/Download Table]

                                                                    ADDITIONS (DEDUCTIONS)                  
                                                   ---------------------------------------------------------
                                                                     CHARGED                                
                                                   BALANCE AT     (CREDITED) TO                     BALANCE 
                                                   BEGINNING        COSTS AND         OTHER,        AT END  
                   DESCRIPTION                     OF PERIOD        EXPENSES          NET**        OF PERIOD
-------------------------------------------------  ----------     -------------     ----------     ---------
                                                                                                            
Valuation and qualifying accounts deducted from                                                             
  assets:                                                                                                   
  Allowances for notes and accounts receivable...    $ 95.2          $ 131.2         $  (213.5)     $  12.9 
  Allowances for long-term receivables...........    $ 20.6          $   3.7         $      .4      $  24.7 
  Securities of divested businesses..............    $  4.9          $    --         $    (1.4)     $   3.5 
  Valuation allowance for deferred tax assets....    $137.0          $ (32.0)        $    (7.3)     $  97.7 
Reserves:                                                                                                   
  Foreign employee benefit obligations*..........    $ 82.5          $  10.6         $     2.2      $  95.3 
  Discontinued operations........................    $239.3          $ 127.4         $      --      $ 366.7 

FOR THE YEAR 1994 

                                                        [Enlarge/Download Table]

                                                                    ADDITIONS (DEDUCTIONS)                  
                                                   ---------------------------------------------------------
                                                                     CHARGED                                
                                                   BALANCE AT     (CREDITED) TO                     BALANCE 
                                                   BEGINNING        COSTS AND         OTHER,        AT END  
                   DESCRIPTION                     OF PERIOD        EXPENSES          NET**        OF PERIOD
-------------------------------------------------  ----------     -------------     ----------     ---------
                                                                                                            
Valuation and qualifying accounts deducted from                                                             
  assets:                                                                                                   
  Allowances for notes and accounts receivable...    $ 50.3          $ 102.2         $   (57.3)     $  95.2 
  Allowances for long-term receivables...........    $ 13.4          $   6.9         $      .3      $  20.6 
  Securities of divested businesses..............    $161.2          $    --         $  (156.3)     $   4.9 
  Valuation allowance for deferred tax assets....    $129.7          $    --         $     7.3      $ 137.0 
Reserves:                                                                                                   
  Foreign employee benefit obligations*..........    $ 64.4          $  11.6         $     6.5      $  82.5 
  Discontinued operations........................    $132.1          $ 107.2         $      --      $ 239.3 

--------------------------------------------------------------------------------
* Represents legally mandated employee benefit obligations, primarily pension 
benefits, relating to Grace's operations in Europe.                       

** Consists of additions and deductions applicable to businesses acquired,      
 disposals of businesses, bad debt write-offs, foreign currency translation,
reclassifications (including the deconsolidation of amounts relating to   
discontinued operations) and miscellaneous other adjustments.             

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                                                                      EXHIBIT 11

W. R. GRACE & CO. AND SUBSIDIARIES
WEIGHTED AVERAGE NUMBER OF SHARES AND EARNINGS USED IN PER SHARE
COMPUTATIONS

The weighted average number of shares of Common Stock outstanding were as       
follows:                                                                        

                                                        [Enlarge/Download Table]

                                                                         (IN THOUSANDS)       
                                                                  ----------------------------
                                                                   1996       1995       1994 
                                                                  ------     ------     ------
                                                                                              
Weighted average number of shares of Common Stock outstanding.... 91,976     95,822     93,936

Additional dilutive effect of outstanding options (as determined                              
  by the application of the treasury stock method)...............  2,504      2,189        659
                                                                  ------     ------     ------
Weighted average number of shares of Common Stock outstanding                                 
  assuming full dilution......................................... 94,480     98,011     94,595
                                                                  ======     ======     ======

Income/(loss) used in the computation of earnings/(loss) per share were as      
follows:                                                                        

                                                        [Enlarge/Download Table]

                                                                    (IN MILLIONS, EXCEPT PER    
                                                                             SHARE)             
                                                                 ------------------------------ 
                                                                   1996        1995       1994  
                                                                 --------     -------     ----- 
                                                                                                
Net income/(loss)............................................... $2,857.7     $(325.9)    $83.3 

Dividends paid on preferred stocks..............................      (.4)        (.5)      (.5)
                                                                 --------     -------     ----- 
Income/(loss) used in per share computation of earnings and in                                  
  per share computation of earnings assuming full dilution...... $2,857.3     $(326.4)    $82.8 
                                                                 ========     =======     ===== 

Earnings/(loss) per share....................................... $  31.06     $ (3.40)    $ .88 

Earnings/(loss) per share assuming full dilution................ $  30.24     $ (3.33)    $ .88 

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                                                                         ANNEX G

PART 1. FINANCIAL INFORMATION 

ITEM 1. FINANCIAL STATEMENTS                                                    

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          W.R. GRACE & CO. AND SUBSIDIARIES            Three Months Ended        Nine Months Ended   
  CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)        September 30,            September 30,     
---------------------------------------------------------------------------------------------------- 
       in millions (except per share amounts)           1997        1996         1997         1996   
---------------------------------------------------------------------------------------------------- 
                                                                                                     
Sales and revenues...................................  $833.1     $  821.3     $2,460.7     $2,603.2 
Other income.........................................    12.9          8.2         36.5         26.3 
                                                       ------     --------     --------     -------- 
     TOTAL...........................................   846.0        829.5      2,497.2      2,629.5 
                                                       ------     --------     --------     -------- 
Cost of goods sold and operating expenses............   499.2        503.9      1,492.4      1,565.7 
Selling, general and administrative expenses.........   163.3        151.6        467.9        546.5 
Depreciation and amortization........................    47.8         43.4        145.5        134.2 
Interest expense and related financing costs.........    19.2         18.2         58.6         54.9 
Research and development expenses....................    23.3         22.5         66.9         75.0 
Restructuring costs..................................      --           --         12.4         53.7 
Gain on sales of businesses..........................      --           --       (103.1)      (326.4)
                                                       ------     --------     --------     -------- 
     TOTAL...........................................   752.8        739.6      2,140.6      2,103.6 
                                                       ------     --------     --------     -------- 
     INCOME FROM CONTINUING OPERATIONS BEFORE INCOME                                                 
        TAXES........................................    93.2         89.9        356.6        525.9 
Provision for income taxes...........................    34.5         35.5        134.1        192.9 
                                                       ------     --------     --------     -------- 
     INCOME FROM CONTINUING OPERATIONS...............    58.7         54.4        222.5        333.0 
Income from discontinued operations..................    12.4      2,465.5         12.4      2,584.4 
                                                       ------     --------     --------     -------- 
     NET INCOME......................................  $ 71.1     $2,519.9     $  234.9     $2,917.4 
                                                       ------     --------     --------     -------- 
---------------------------------------------------------------------------------------------------- 
Primary earnings per share:                                                                          
     Continuing operations...........................  $  .77     $    .58     $   2.92     $   3.42 
     Net income......................................  $  .93     $  26.99     $   3.08     $  30.02 
Fully diluted earnings per share:                                                                    
     Continuing operations...........................  $  .77     $    .58     $   2.91     $   3.40 
     Net income......................................  $  .93     $  26.83     $   3.07     $  29.76 
Dividends declared per common share..................  $ .145     $   .125     $   .415     $   .375 
Weighted average shares outstanding..................    73.7         91.1         73.9         95.2 
---------------------------------------------------------------------------------------------------- 

The Notes to Consolidated Financial Statements are integral parts of these
statements. 

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W.R. GRACE & CO. AND SUBSIDIARIES                                        NINE MONTHS ENDED     
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)                           SEPTEMBER 30,       
---------------------------------------------------------------------------------------------- 
In millions                                                           1997             1996    
---------------------------------------------------------------------------------------------- 
                                                                                               
OPERATING ACTIVITIES                                                                           
Income from continuing operations before income taxes.............   $ 356.6         $   525.9 
Reconciliation to cash provided by operating activities:                                       
  Depreciation and amortization...................................     145.5             134.2 
  Provision relating to restructuring costs.......................      12.4              53.7 
  Gain on sales of businesses.....................................    (103.1)           (326.4)
  Changes in assets and liabilities, excluding effect of                                       
     businesses acquired/divested and foreign currency exchange:                               
     Increase in notes and accounts receivable, net...............     (63.6)           (158.6)
     (Increase)/decrease in inventories...........................     (13.3)             26.1 
     Proceeds from asbestos-related insurance settlements.........      53.3             139.1 
     Payments made for asbestos-related litigation settlements,                                
       judgments and defense costs................................     (88.2)            (86.6)
     Decrease in accounts payable.................................     (36.9)            (36.4)
     Other........................................................     (30.7)           (116.3)
                                                                     -------          -------- 
  NET PRETAX CASH PROVIDED BY OPERATING ACTIVITIES OF CONTINUING                               
     OPERATIONS...................................................     232.0             154.7 
Net pretax cash (used for)/provided by operating activities of                                 
  discontinued operations.........................................     (41.0)             68.6 
                                                                     -------          -------- 
  NET PRETAX CASH PROVIDED BY OPERATING ACTIVITIES................     191.0             223.3 
Income taxes paid.................................................     (54.5)           (113.8)
                                                                     -------          -------- 
  NET CASH PROVIDED BY OPERATING ACTIVITIES.......................     136.5             109.5 
                                                                     -------          -------- 
INVESTING ACTIVITIES                                                                           
Capital expenditures..............................................    (164.4)           (335.3)
Net proceeds from divestments.....................................     684.8           2,802.9 
Businesses acquired in purchase transactions, net of cash acquired                             
  and debt assumed................................................     (16.3)            (33.8)
Net investing activities of discontinued operations...............     (70.7)           (181.2)
Other.............................................................      19.5              25.3 
                                                                     -------          -------- 
  NET CASH PROVIDED BY INVESTING ACTIVITIES.......................     452.9           2,277.9 
                                                                     -------          -------- 
FINANCING ACTIVITIES                                                                           
Dividends paid....................................................     (30.5)            (36.0)
Repayments of borrowings having original maturities in excess of                               
  three months....................................................    (105.7)           (513.6)
Increase in borrowings having original maturities in excess of                                 
  three months....................................................        .5                .1 
Net repayments of borrowings having original maturities of three                               
  months or less..................................................    (165.1)           (512.7)
Stock options exercised...........................................      49.1              52.0 
Net financing activities of discontinued operations...............        --            (198.8)
Purchase of treasury stock........................................    (335.9)           (727.1)
Other.............................................................        --                .2 
                                                                     -------          -------- 
  NET CASH USED FOR FINANCING ACTIVITIES..........................    (587.6)         (1,935.9)
Effect of exchange rate changes on cash and cash equivalents......      (3.9)              (.5)
                                                                     -------          -------- 
  (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS................   $  (2.1)        $   451.0 
                                                                     -------         --------- 
---------------------------------------------------------------------------------------------- 

The Notes to Consolidated Financial Statements are integral parts of these
statements. 

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W. R. GRACE & CO. AND SUBSIDIARIES                                              
CONSOLIDATED BALANCE SHEET (UNAUDITED)                                          
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                                                             SEPTEMBER 30,     DECEMBER 31,
              In millions (except share data)                    1997              1996    
-------------------------------------------------------------------------------------------
                                                                                           
ASSETS                                                                                     
CURRENT ASSETS                                                                             
Cash and cash equivalents..................................    $    66.2         $   68.3  
Notes and accounts receivable, net.........................        616.0            831.4  
Inventories................................................        370.0            376.1  
Net assets of discontinued operations......................         26.8            297.4  
Deferred income taxes......................................        116.4            183.9  
Other current assets.......................................         26.1             17.8  
                                                                --------         --------  
  TOTAL CURRENT ASSETS.....................................      1,221.5          1,774.9  

Properties and equipment, net of accumulated depreciation                                  
  and amortization of $1,489.6 (December 31,                                               
  1996 -- $1,436.6)........................................      1,771.5          1,871.3  
Goodwill, less accumulated amortization of $14.4 (December                                 
  31, 1996 -- $18.6).......................................         37.0             40.6  
Asbestos-related insurance receivable......................        260.4            296.3  
Deferred income taxes......................................        309.2            309.2  
Other assets...............................................        600.4            653.5  
                                                                --------         --------  
  TOTAL ASSETS.............................................    $ 4,200.0         $4,945.8  
                                                             ------------      ------------

LIABILITIES AND SHAREHOLDERS' EQUITY                                                       
CURRENT LIABILITIES                                                                        
Short-term debt............................................    $    41.5         $  315.2  
Accounts payable...........................................        218.5            274.7  
Income taxes...............................................        113.1            123.3  
Other current liabilities..................................        676.4            773.9  
                                                                --------         --------  
  TOTAL CURRENT LIABILITIES................................      1,049.5          1,487.1  

Long-term debt.............................................      1,062.7          1,073.0  
Deferred income taxes......................................         43.5             43.5  
Noncurrent liability for asbestos-related litigation.......        775.5            859.1  
Other liabilities..........................................        788.8            850.7  
                                                                --------         --------  
  TOTAL LIABILITIES........................................      3,720.0          4,313.4  
                                                             ------------      ------------

COMMITMENTS AND CONTINGENCIES                                                              

SHAREHOLDERS' EQUITY                                                                       
Common stock issued, par value $.01........................           .8               .8  
Paid in capital............................................        593.1            524.1  
Retained earnings..........................................        377.0            172.6  
Cumulative translation adjustments.........................       (154.0)           (64.6) 
Deferred compensation trust, at market.....................         (5.2)              --  
Treasury stock, at cost: 6.2 million common shares at                                      
  September 30, 1997.......................................       (331.7)             (.5) 
                                                                --------         --------  
  TOTAL SHAREHOLDERS' EQUITY...............................        480.0            632.4  
                                                                --------         --------  
  TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...............    $ 4,200.0         $4,945.8  
                                                             ------------      ------------
-------------------------------------------------------------------------------------------

The Notes to Consolidated Financial Statements are integral parts of these
statements. 

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W. R. GRACE & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts) 

1. BASIS OF PRESENTATION                                                        

The interim consolidated financial statements in this Report are unaudited and  
should be read in conjunction with the consolidated financial statements in the 
Company's Annual Report on Form 10-K for the year ended December 31, 1996 (1996 
Form 10-K). The interim consolidated financial statements reflect all           
adjustments that, in the opinion of management, are necessary for a fair        
presentation of the results of the interim periods presented; all such          
adjustments were of a normal recurring nature. Certain amounts in the prior     
periods' consolidated financial statements have been reclassified to conform to 
the current periods' basis of presentation and as required with respect to      
discontinued operations.                                                        

The results of operations for the three- and nine-month interim periods ended   
September 30, 1997 are not necessarily indicative of the results of operations  
for the fiscal year ending December 31, 1997.                                   

2. ASBESTOS AND RELATED INSURANCE LITIGATION                                    

Grace is a defendant in property damage and personal injury lawsuits relating to
previously sold asbestos-containing products and anticipates that it will be    
named as a defendant in additional asbestos-related lawsuits in the future.     
Grace was a defendant in approximately 43,700 asbestos-related lawsuits at      
September 30, 1997 (17 involving claims for property damage and the remainder   
involving approximately 105,800 claims for personal injury), compared to        
approximately 41,500 lawsuits at December 31, 1996 (31 involving claims for     
property damage and the remainder involving approximately 91,500 claims for     
personal injury).                                                               

Property Damage Litigation                                                      

Through September 30, 1997, 139 asbestos property damage cases were dismissed   
without payment of any damages or settlement amounts; judgments were entered in 
favor of Grace in nine cases (excluding cases settled following appeals of      
judgments in favor of Grace); judgments were entered in favor of the plaintiffs 
in seven cases (none of which is on appeal) for a total of $60.3; and 195       
property damage cases were settled for a total of $476.6. Property damage case  
activity for the nine months ended September 30, 1997 was as follows:           
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Cases outstanding, December 31, 1996..................................................................  31 
Settlements...........................................................................................  (9)
Dismissals............................................................................................  (4)
Judgment in favor of Grace............................................................................  (1)
                                                                                                       --- 
    Cases outstanding, September 30, 1997.............................................................  17 
                                                                                                        == 

--------------------------------------------------------------------------------

Personal Injury Litigation                                                      

Through September 30, 1997, approximately 12,600 asbestos personal injury       
lawsuits involving approximately 29,100 claims were dismissed without payment of
any damages or settlement amounts (primarily on the basis that Grace products   
were not involved), and approximately 34,100 lawsuits involving approximately   
71,300 claims were disposed of for a total of $212.1. Personal injury claim     
activity for the nine months ended September 30, 1997 was as follows:           

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W. R. GRACE & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts) 

                                                        [Enlarge/Download Table]
                                                                                                                               
------------------------------------------------------------------------------------------------------------------------------ 
Claims outstanding, December 31, 1996................................................................................   91,511 
New claims...........................................................................................................   17,852 
Claims under amended complaints......................................................................................    3,261 
Settlements..........................................................................................................   (5,009)
Dismissals...........................................................................................................   (1,767)
Judgments............................................................................................................       (5)
                                                                                                                       ------- 
    Claims outstanding, September 30, 1997...........................................................................  105,843 
                                                                                                                       ------- 

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Asbestos-Related Liability                                                      

Based upon and subject to the factors discussed in Note 2 to the consolidated   
financial statements in the 1996 Form 10-K, Grace estimates that its probable   
liability with respect to the defense and disposition of asbestos property      
damage and personal injury cases and claims was as follows at September 30, 1997
and December 31, 1996:                                                          
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                                                                                               SEPTEMBER 30,     December 31,
                                                                                                  1997(1)          1996(1)   
-----------------------------------------------------------------------------------------------------------------------------
                                                                                                                             
Current liability for asbestos-related litigation(2).........................................     $ 135.0           $135.0   
Noncurrent liability for asbestos-related litigation.........................................       775.5            859.1   
                                                                                                   ------           ------   
    Total asbestos-related liability(3)......................................................     $ 910.5           $994.1   
                                                                                                ---------        ---------   

--------------------------------------------------------------------------------
(1) Reflects property damage and personal injury cases and claims pending at    
   September 30, 1997 and December 31, 1996, respectively, as well as personal
injury claims expected to be filed through 2001.                        
(2) Included in "Other current liabilities" in the Consolidated Balance Sheet.  
(3) Excludes one property damage case as to which liability is not yet estimable
    because Grace has not yet been able to obtain sufficient information through
discovery proceedings.                                                  

Asbestos-Related Insurance Receivable                                           

Grace previously purchased insurance policies with respect to its               
asbestos-related lawsuits and claims. The following table displays the activity 
in Grace's notes receivable from insurance carriers and asbestos-related        
insurance receivable during the nine months ended September 30, 1997:           
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NOTES RECEIVABLE                                                                                                              
Notes receivable from insurance carriers at December 31, 1996, net of discount of $7.4(1)............................. $ 48.5 
Proceeds from asbestos-related insurance settlements..................................................................  (17.4)
Amortization, net.....................................................................................................    1.9 
                                                                                                                       ------ 
    Notes receivable from insurance carriers at September 30, 1997, net of discount of $5.5(2)........................ $ 33.0 
                                                                                                                       ------ 
INSURANCE RECEIVABLE                                                                                                          
Asbestos-related insurance receivable at December 31, 1996(3)......................................................... $331.3 
Proceeds from asbestos-related insurance settlements..................................................................  (35.9)
                                                                                                                       ------ 
    Asbestos-related insurance receivable at September 30, 1997(3).................................................... $295.4 
                                                                                                                       ------ 
    Total amounts due from insurance carriers......................................................................... $328.4 
                                                                                                                       ------ 

--------------------------------------------------------------------------------
(1) Classified in the December 31, 1996 Consolidated Balance Sheet as $17.2 in  
"Notes and accounts receivable, net" and $31.3 in "Other assets."       
(2) Classified in the September 30, 1997 Consolidated Balance Sheet as $15.6 in 
"Notes and accounts receivable, net" and $17.4 in "Other assets."       
(3) $35.0 of the asbestos-related insurance receivable is classified in "Notes  
and accounts receivable, net" in the December 31, 1996 and September 30,
1997 Consolidated Balance Sheets.                                       

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W. R. GRACE & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts) 

Insurance Litigation                                                            

Grace's ultimate exposure with respect to its asbestos-related cases and claims 
will depend on the extent to which its insurance will cover damages for which it
may be held liable, amounts paid in settlement and litigation costs. In Grace's 
opinion, it is probable that recoveries from its insurance carriers (including  
amounts reflected in the receivable discussed above), along with other funds,   
will be available to satisfy the property damage and personal injury cases and  
claims pending at September 30, 1997, as well as personal injury claims expected
to be filed in the foreseeable future. Consequently, Grace believes that the    
resolution of its asbestos-related litigation will not have a material adverse  
effect on its consolidated financial position.                                  

For additional information, see Note 2 to the consolidated financial statements 
in the 1996 Form 10-K and "Management's Discussion and Analysis of Results of   
Operations and Financial Condition -- Financial Condition -- Asbestos-Related   
Matters" in this Report.                                                        

3. PROPOSED PACKAGING TRANSACTION                                               

In August 1997, Grace and Sealed Air Corporation (Sealed Air) entered into a    
definitive agreement to combine Grace's flexible packaging business with the    
business of Sealed Air to create a new publicly owned company, which will retain
the name "Sealed Air Corporation" (New Sealed Air). The combination would follow
(a) the borrowing of approximately $1,200.0 (subject to adjustment) by Grace,   
(b) the contribution of the proceeds of the borrowing by Grace to a new company,
which will retain the name "W.R. Grace & Co." and will own and operate Grace's  
specialty chemicals businesses (New Grace), and (c) the distribution by Grace of
one share of New Grace common stock for each outstanding Grace share. As a      
result of these transactions, the holders of Grace common stock would own 100%  
of New Grace (i.e., the specialty chemicals businesses, consisting of catalysts 
and silica-based products, construction chemicals and specialty building        
materials, and container sealants and coatings), as well as New Sealed Air      
common stock and convertible preferred stock constituting approximately 63% of  
the equity of New Sealed Air. New Grace will use the $1,200.0 contribution to   
repay substantially all of its debt, and New Sealed Air will remain liable under
the $1,200.0 borrowing. The completion of these transactions is subject to      
various conditions (including approval by the shareholders of Grace and Sealed  
Air) and is expected to occur in the first quarter of 1998. The transactions are
expected to be tax-free, for U.S. federal income tax purposes, to Grace and its 
shareholders.                                                                   

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W. R. GRACE & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts) 

4. ACQUISITIONS AND DIVESTMENTS                                                 

Acquisitions                                                                    

In April 1997, Grace purchased all of the shares of capital stock of Schurpack, 
Inc. (Schurpack), a manufacturer of flexible food packaging located in St.      
Joseph, Missouri. Schurpack, with 1996 sales of approximately $20.0, is a       
leading manufacturer of plastic laminate packaging materials for the            
institutional and retail cook-in market segment. Schurpack also co-extrudes and 
converts film for food and non-food applications.                               

In July 1996, Grace completed the acquisition of Cypress Packaging, Inc.        
(Cypress), a U.S. manufacturer of flexible packaging, primarily for the retail  
pre-cut produce market segment. In August 1996, Grace acquired Bayem S.A. de    
C.V. (Bayem), a Mexican manufacturer of can coatings and closure sealants for   
the rigid container industry.                                                   

Divestments                                                                     

In May 1997, Grace completed the sale of its specialty polymers business to     
National Starch and Chemical Company for $148.0, subject to adjustment. The     
sales and revenues of this business for the period from January through May 1,  
1997 (the date of sale) were $24.8 ($17.8 and $53.9 for the three and nine      
months ended September 30, 1996, respectively); its financial position and      
results of operations were not significant to Grace. The sale of this business  
resulted in pretax and after-tax gains of $103.1 and $63.0 ($.85 per common     
share), respectively, in continuing operations.                                 

In June 1996, Grace sold its water treatment and process chemicals business     
(Dearborn). The sales and revenues of this business for the period from January 
through June 30, 1996 (the date of sale) were $201.2; its financial position and
results of operations were not significant to Grace. The sale of this business  
and the biopesticides business (sold in the second quarter of 1996) resulted in 
pretax and after-tax gains of $326.4 and $210.1 ($2.20 per common share),       
respectively, in continuing operations.                                         

5. DISCONTINUED OPERATIONS                                                      

In February 1997, Grace sold its cocoa business to Archer-Daniels-Midland       
Company (ADM) for total proceeds of $470.0 (inclusive of debt assumed by the    
buyer), subject to adjustment. The pretax and after-tax effects of the          
divestment were consistent with prior estimates and were charged against        
previously established reserves. In October 1997, ADM paid Grace an additional  
$7.9 (including $.4 of interest income) in settlement of the purchase price     
adjustment. In anticipation of this settlement, in the third quarter of 1997    
Grace reversed previously recorded provisions of $12.4 (net of an applicable tax
effect of $6.6), in discontinued operations.                                    

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W. R. GRACE & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts) 

In the fourth quarter of 1996, Grace classified its thermal and emission control
systems business (TEC Systems) as a discontinued operation. In August 1997,     
Grace sold TEC Systems to Sequa Corporation for total proceeds of $18.4, subject
to adjustment. The pretax and after-tax loss on this sale was consistent with   
prior estimates and was charged against previously established reserves.        

Grace classified its health care business as a discontinued operation in the    
second quarter of 1995 and disposed of that business in 1996.                   

Results of these discontinued operations that were not charged against          
previously established reserves, the reversal of previously recorded provisions,
and the gain on the May 1996 sale of Grace's transgenic plant business, were as 
follows:                                                                        

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---------------------------------------------------------------------------------------------------------
                                                           Three Months Ended         Nine Months Ended  
                                                             September 30,              September 30,    
                                                          1997          1996         1997          1996  
---------------------------------------------------------------------------------------------------------
                                                                                                         
Sales and revenues......................................  $  --       $  545.5       $  --       $1,703.6
                                                          -----       --------       -----       --------
(Loss)/income from operations before taxes(1)...........  $  --       $  (16.2)      $  --       $   54.5
Income tax provision....................................     --            2.0          --           33.2
                                                          -----       --------       -----       --------
     Total Operating Results............................  $  --       $  (18.2)      $  --       $   21.3
                                                          -----       --------       -----       --------
Gain on separation/sale of businesses...................   19.0        2,473.7        19.0        2,602.7
Provision for/(benefit from) income taxes on                                                             
  separation/sale of businesses.........................    6.6          (10.0)        6.6           39.6
                                                          -----       --------       -----       --------
     Total income from discontinued operations..........  $12.4       $2,465.5       $12.4       $2,584.4
                                                          -----       --------       -----       --------
---------------------------------------------------------------------------------------------------------

(1) Reflects interest expense allocated to the health care segment of $25.1 and 
$76.3 for the three and nine months ended September 30, 1996, respectively,     
based on the ratio of the net assets of the health care business compared to    
Grace's total capital.                                                          

For the three and nine months ended September 30, 1997, the operating results of
TEC Systems, the cocoa business and other discontinued operations have been     
charged against previously established reserves and, therefore, are not         
reflected in the Consolidated Statement of Operations.                          

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W. R. GRACE & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts) 

The components of the net assets of Grace's discontinued operations (excluding  
intercompany assets) are as follows:                                            

                                                        [Enlarge/Download Table]

--------------------------------------------------------------------------------------------
                                                             SEPTEMBER 30,      December 31,
                                                                 1997               1996    
--------------------------------------------------------------------------------------------
                                                                                            
Current assets.............................................      $11.7             $360.5   
Properties and equipment, net..............................        4.6              207.2   
Investments in and advances to affiliated companies........       12.1               12.1   
Other assets...............................................        1.1               65.1   
                                                                 -----             ------   
     Total assets..........................................      $29.5             $644.9   
                                                                 -----             ------   
Current liabilities........................................      $ 1.7             $262.8   
Other liabilities..........................................        1.0               84.7   
                                                                 -----             ------   
     Total liabilities.....................................      $ 2.7             $347.5   
                                                                 -----             ------   
     Net assets............................................      $26.8             $297.4   
                                                             ----------         ----------- 
--------------------------------------------------------------------------------------------

For additional information, see Note 6 to the consolidated financial statements 
in the 1996 Form 10-K.                                                          

6. RESTRUCTURING COSTS                                                          

As discussed in Note 4 to the consolidated financial statements in the 1996 Form
10-K, Grace began implementing a worldwide program in 1995 focused on           
streamlining processes and reducing general and administrative expenses, factory
administration costs and noncore corporate research and development expenses. As
previously reported, Grace has continued to implement additional cost reductions
and efficiency improvements beyond those initiated in 1995, as its businesses   
have further evaluated and reengineered their operations. As a result of these  
evaluations, in the second quarters of 1997 and 1996, Grace recorded pretax     
charges of $12.4 ($8.0 after-tax) and $53.7 ($32.4 after-tax), respectively,    
principally related to the restructuring of its packaging business. The 1997    
charge primarily related to the restructuring of the packaging business from a  
worldwide group of independent regional units into an integrated global         
organization, and was primarily comprised of employee termination benefits. The 
1996 charge primarily related to the restructuring of Grace's European packaging
business and consisted of costs related to employee termination benefits and    
lease termination costs.                                                        

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W. R. GRACE & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts) 

7. INVENTORIES                                                                  

The components of Grace's inventories are as follows:                           

                                                        [Enlarge/Download Table]

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                                                                        SEPTEMBER 30,     December 31,        
                                                                            1997              1996            
--------------------------------------------------------------------------------------------------------------
                                                                                                              
Raw materials..........................................................   $    97.3         $  100.9          
In process.............................................................        80.8             67.6          
Finished products......................................................       169.0            179.0          
General merchandise....................................................        69.5             73.4          
Less: Adjustment of certain inventories to a last-in/first-out (LIFO)                                         
  basis................................................................       (46.6)           (44.8)         
                                                                             ------           ------          
                                                                          $   370.0         $  376.1          
                                                                        ------------      ------------        
--------------------------------------------------------------------------------------------------------------

8. OTHER ASSETS                                                                 

The components of Grace's other assets are as follows:                          

                                                        [Enlarge/Download Table]

--------------------------------------------------------------------------------------------------------------
                                                                        SEPTEMBER 30,     December 31,        
                                                                            1997              1996            
--------------------------------------------------------------------------------------------------------------
                                                                                                              
Prepaid pension costs..................................................   $   280.3         $  275.1          
Long-term receivables, less allowance of $19.9 (December 31,                                                  
  1996 - $42.7)........................................................       129.0            152.9          
Deferred charges.......................................................       109.0            102.4          
Other..................................................................        82.1            123.1          
                                                                             ------           ------          
                                                                          $   600.4         $  653.5          
                                                                        ------------      ------------        
--------------------------------------------------------------------------------------------------------------

9. SHAREHOLDERS' EQUITY                                                         

During the first quarter of 1997, the Company substantially completed the share 
repurchase program initiated in 1996 by acquiring 6,306,300 additional shares of
its common stock for $335.9, or an average price of $53.26 per share. For       
additional information, see Note 13 to the consolidated financial statements in 
the 1996 Form 10-K.                                                             

In 1997, Grace established a trust to fund certain deferred employee incentive  
compensation and nonemployee director compensation and benefits. The shares held
in the trust are valued at the closing market price at the end of each reporting
period. At September 30, 1997, 71,161 shares were held in the trust.            

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W. R. GRACE & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts) 

10. EARNINGS PER SHARE                                                          

In the first quarter of 1997, the Financial Accounting Standards Board issued   
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per       
Share," which establishes new standards for computing and presenting earnings   
per share effective December 31, 1997. At December 31, 1997, all prior periods  
will be restated to reflect the new basic and diluted earnings per share amounts
required by SFAS No. 128. Had the Company followed the methodology prescribed by
SFAS No. 128 for the three and nine months ended September 30, 1997, earnings   
per share (EPS) for those periods would have been as follows:                   

                                                        [Enlarge/Download Table]

--------------------------------------------------------------------------------------------------------
                          Actual                                               Pro Forma                
             Three Months Ended September 30,                       Three Months Ended September 30,    
                    1997          1996                                     1997         1996            
--------------------------------------------------------------------------------------------------------
                                                                                                        
Primary EPS         $ .93        $26.99                Basic EPS           $ .97       $27.66           
                    -----        ------                                    -----       ------           
Fully diluted                                                                                           
  EPS               $ .93        $26.83                Diluted EPS         $ .93       $26.99           
                    -----        ------                                    -----       ------           

--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

--------------------------------------------------------------------------------------------------------
                          Actual                                               Pro Forma                
              Nine Months Ended September 30,                       Nine Months Ended September 30,     
                    1997          1996                                     1997         1996            
--------------------------------------------------------------------------------------------------------
                                                                                                        
Primary EPS         $3.08        $30.02                Basic EPS           $3.18       $30.64           
                    -----        ------                                    -----       ------           
Fully diluted                                                                                           
  EPS               $3.07        $29.76                Diluted EPS         $3.08       $30.02           
                    -----        ------                                    -----       ------           

--------------------------------------------------------------------------------

11. YEAR 2000 COMPUTER SYSTEMS COMPLIANCE                                       

Grace has made and will continue to make certain expenditures to ensure that its
software systems and applications continue to function properly in and after    
2000. These expenditures have not been and are not anticipated to be material to
Grace's financial position or results of operations.                            

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF                                 
RESULTS OF OPERATIONS AND FINANCIAL CONDITION                                   

REVIEW OF OPERATIONS                                                            

OVERVIEW                                                                        

Grace is one of the world's leading packaging and specialty chemicals companies.
Grace's principal businesses are flexible packaging and container sealants and  
coatings (Grace Packaging); catalysts and silica-based products (Grace Davison);
and construction chemicals and specialty building materials (Grace Construction 
Products).                                                                      

Excluding divested businesses, sales and revenues increased 3.7% for the 1997   
third quarter and 3.8% for the nine months ended September 30, 1997 over the    
comparable periods of 1996. Including the divested businesses, sales and        
revenues increased 1.4% for the third quarter of 1997 over the third quarter of 
1996 and decreased 5.5% for the nine months ended September 30, 1997 compared to
the nine months ended September 30, 1996. Pretax operating income from          
continuing operations was $108.0 million for the 1997 third quarter, an increase
of .7% versus the 1996 third quarter. As noted in footnote (2) to the table     
below, pretax income from continuing operations for the nine months ended       
September 30, 1997 and 1996 was affected by various special items. Excluding    
these special items, Grace's pretax operating income was $317.8 million for the 
nine months ended September 30, 1997, an increase of 6.0% over the same period  
in 1996. Pretax income from continuing operations was $93.2 million for the     
third quarter of 1997, a 3.7% increase compared to the 1996 third quarter, and  
was $356.6 million for the nine months ended September 30, 1997, a 32.2%        
decrease compared to the nine months ended September 30, 1996. Pretax operating 
results for the three and nine months ended September 30, 1996 have been        
restated to reflect the classification of certain businesses as discontinued    
operations.                                                                     

                                                        [Enlarge/Download Table]

-------------------------------------------------------------------------------------------------------- 
                                                       Three Months Ended           Nine Months Ended    
PRETAX OPERATING RESULTS - CONTINUING OPERATIONS         September 30,                September 30,      
(In millions)                                          1997          1996          1997           1996   
-------------------------------------------------------------------------------------------------------- 
                                                                                                         
Sales and revenues, excluding divested businesses...  $833.1        $803.5       $2,435.9       $2,347.4 
Sales and revenues of divested businesses(1)........      --          17.8           24.8          255.8 
                                                      ------        ------       --------       -------- 
     Sales and revenues.............................  $833.1        $821.3       $2,460.7       $2,603.2 
                                                      ------        ------       --------       -------- 
Operating income before divested businesses.........  $108.0        $106.5       $  404.7       $  567.5 
Operating income of divested businesses(1)..........      --            .8            3.8            4.9 
                                                      ------        ------       --------       -------- 
     Operating income(2)............................  $108.0        $107.3       $  408.5       $  572.4 
Other (expense)/income:                                                                                  
  Interest expense and related financing costs......   (19.2)        (18.2)         (58.6)         (54.9)
  Other income, net.................................     4.4            .8            6.7            8.4 
                                                      ------        ------       --------       -------- 
     Income from continuing operations..............  $ 93.2        $ 89.9       $  356.6       $  525.9 
                                                      ------        ------       --------       -------- 

--------------------------------------------------------------------------------
(1) Primarily reflects Grace's specialty polymers business, divested in May     
  1997, and Grace's water treatment and process chemicals business, divested
in June 1996.                                                           

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF                                         
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)                       

 A reconciliation of operating income to operating income before special
items is as follows:                                                  

                                                        [Enlarge/Download Table]
                                                                                        
Operating income..................................... $108.0  $107.3  $ 408.5   $ 572.4 
Special items:                                                                          
Gain on sales of businesses..........................     --      --   (103.1)   (326.4)
Restructuring costs..................................     --      --     12.4      53.7 
                                                      ------  ------  -------   ------- 
  Operating income before special items.............. $108.0  $107.3  $ 317.8   $ 299.7 
                                                      ======  ======  ========  ========

(2) Although "Operating income before special items" is a measure not recognized
   under generally accepted accounting principles and may be inconsistent with
similar measures presented by other companies, Grace management believes
   that the presentation of this measure enhances the comparability of Grace's
operating results from period to period.                                

The following discussion includes projections and/or other "forward-looking"    
information. Grace is subject to risks and other uncertainties that could cause 
its actual results to differ materially from any such projections or that could 
cause other forward-looking information to prove incorrect. For a discussion of 
such risks and uncertainties, see "Introduction and Overview -- Projections and 
Other Forward-Looking Information" in Item 1 of the 1996 Form 10-K.             

SALES AND REVENUES                                                              

                                                        [Enlarge/Download Table]

-------------------------------------------------------------------------------------------------------
                                   Three Months Ended September 30,                                    
SALES AND REVENUES (excluding divested businesses)                                         % OF CHANGE 
(In millions)                                                1997           1996          1997 VS. 1996
-------------------------------------------------------------------------------------------------------
                                                                                                       
Grace Packaging...........................................  $528.2         $506.1               4.4%   
Grace Davison.............................................   175.9          177.7              (1.0)   
Grace Construction Products...............................   128.9          119.1               8.2    
Other.....................................................      .1             .6             (83.3)   
                                                            ------         ------                      
  Sales and revenues......................................  $833.1         $803.5               3.7%   
                                                            ------         ------                      
-------------------------------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

--------------------------------------------------------------------------------------------------------
                                    Nine Months Ended September 30,                                     
SALES AND REVENUES (excluding divested businesses)                                          % OF CHANGE 
(In millions)                                              1997             1996           1997 VS. 1996
--------------------------------------------------------------------------------------------------------
                                                                                                        
Grace Packaging......................................    $1,548.8         $1,474.5               5.0%   
Grace Davison........................................       526.0            553.5              (5.0)   
Grace Construction Products..........................       359.7            317.6              13.3    
Other................................................         1.4              1.8             (22.2)   
                                                         --------         --------                      
  Sales and revenues.................................    $2,435.9         $2,347.4               3.8%   
                                                         --------         --------                      
--------------------------------------------------------------------------------------------------------

As noted above, sales and revenues (excluding divested businesses) increased    
3.7% for the three months and 3.8% for the nine months ended September 30, 1997 
over the same periods in 1996. Excluding unfavorable currency translation       
variances estimated at 4.9% for the three months and 3.7% for the nine months   
ended September 30, 1997, sales and revenues increased by an estimated 8.6% and 
7.5%, respectively, over the comparable 1996 periods. The following is a        
discussion of the sales and revenues of Grace's product lines.                  

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF                                         
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)                       

GRACE PACKAGING                                                                 

Sales and revenues of $528.2 million and $1,548.8 million for the three and nine
months ended September 30, 1997, respectively, increased 4.4% and 5.0%,         
respectively, over the comparable 1996 periods. The sales increases resulted    
from favorable volume variances and, to a lesser degree, favorable price/product
mix variances. The increases were partially offset by the effect of a           
strengthening dollar against foreign currencies, estimated at 5.1% and 4.0%,    
respectively. Grace Packaging sales volume in 1997 was positively affected by   
the July 1996 acquisition of Cypress, a leading supplier of plastic packaging   
materials for the retail pre-cut produce market segment, the August 1996        
acquisition of Bayem, a Mexican producer of can coatings and closure sealants   
for the rigid container industry, and the April 1997 acquisition of Schurpack, a
U.S. manufacturer of plastic laminate packaging materials for the institutional 
and retail cook-in market segment. These acquisitions accounted for             
approximately 33% and 34% of the overall sales increases for the 1997 third     
quarter and first nine months, respectively. 1997 third quarter and year-to-date
sales also increased due to the consolidation in January 1997 of a flexible     
packaging joint venture accounted for under the equity method in 1996. In       
addition to these acquisitions, Grace Packaging experienced sales growth within 
its product groups, as described below (in all cases excluding the effects of   
currency translation).                                                          

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF                                         
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)                       

Bag sales increased across all geographic regions for the three and nine months 
ended September 30, 1997 over the comparable prior-year periods. Volumes        
increased in North America as a result of sales of fresh red meat (FRM) bags to 
new customers and the continued penetration of TBG(TM) boneguard packaging      
products into the fresh beef segment. Third quarter 1997 FRM bag sales also were
favorably impacted within the boneless beef segment by market share gains       
resulting from patent litigation among Grace's competitors (however, Grace      
cannot predict whether or to what extent these market share gains are           
permanent). In addition to the volume increases noted above, 1997 third quarter 
and year-to-date sales increased as a result of price increases in North America
that went into effect during the latter part of the second quarter. The         
year-to-date increases were moderately offset by softness in the North American 
pork market, reflecting reduced slaughter rates stemming from 1996 livestock    
reductions caused by higher prices for corn and other feeds; in the third       
quarter of 1997, slaughter rates improved as corn prices stabilized and         
livestock numbers returned to more normal levels. European bag sales for the    
three and nine months ended September 30, 1997 increased over the comparable    
periods of 1996, as FRM sales (primarily in the U.K. and France) recovered due  
to the abatement of consumer fears associated with publicity surrounding bovine 
spongiform encephalopathy - commonly referred to as "mad cow disease." Strong   
sales in the cheese and processed meat segments in northeastern Europe          
(primarily Poland and Russia) continued through the 1997 third quarter. The     
increase in cheese sales was primarily due to a milk shortage that negatively   
impacted 1996 sales. Additionally, substantial growth in Russian domestic sales,
due to an improving economy, drove large exports of cheese from Poland to the   
Russian market. The processed meat increase was primarily due to the continued  
modernization of food distribution infrastructures in northeastern Europe.      
Volumes in Latin America increased due to the growing acceptance of boxed beef  
packaging (primarily in Brazil), and cheese sales increased as a mild winter    
allowed more milk production. Additionally, pork bag sales to Mexican producers 
for export to Asia Pacific increased in the 1997 third quarter as a result of an
outbreak of foot and mouth disease in Taiwanese and other Asia Pacific pork     
herds. Bag sales volumes in Asia Pacific increased as a result of continued     
strong demand in the Australian beef and lamb markets. These increases were     
partially offset by volume decreases in Japan due to a decline in beef          
consumption, price decreases in Japan as a result of competition, and a decrease
in chilled pork bag sales in Taiwan due to the outbreak of foot and mouth       
disease, as discussed above.                                                    

Laminate sales increased 15.3% for the three months and 10.8% for the nine      
months ended September 30, 1997 compared to the 1996 periods, primarily due to  
increases in North America and Latin America. In North America, volumes improved
as a result of increased customer acceptance of flexible packaging for liquid   
products, as well as the Schurpack acquisition discussed above. Additionally,   
the 1997 third quarter benefited from increased sales to an existing customer.  
Further, vacuum skin packaging (VSP) sales grew over the third quarter of 1996, 
primarily due to an increased number of VSP machines being placed in service and
an increase in VSP marketing efforts. Sales growth in Latin America resulted    
from increased demand for cook-in and food service packaging for processed and  
prepared foods.                                                                 

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF                                         
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)                       

Film sales for the three and nine months ended September 30, 1997 increased in  
all regions as compared to the 1996 periods. In North America, film sales       
increased as a result of the introduction of thinner gauge, high-performance    
films for industrial and consumer goods applications, as well as a price        
increase that took effect during the second quarter of 1997. In Latin America,  
film sales increased, primarily due to strong volumes resulting from a          
strengthening of distribution channels. In Europe, film sales increased during  
the nine-month period due to the continued success of central packaging programs
for FRM, poultry and fish (primarily in Italy and the U.K.), partially offset by
a decline in bakery market sales due to pricing competition.                    

Container sealants and coatings sales increased 2.0% for the three months and   
3.4% for the nine months ended September 30, 1997 compared to the same periods  
in 1996. In Latin America, volumes increased as a result of improved market     
penetration of can coating products, primarily due to the Bayem acquisition     
discussed above. In Asia Pacific, third quarter volumes increased as a result of
higher volumes in can sealants in the Philippines (due to increased market      
demand for canned fish and meat) and higher volumes in China (due to market     
share gains, as a customer began using Grace coatings). However, Asia Pacific   
volumes for the nine months ended September 30, 1997 were unfavorable to the    
comparable 1996 period, primarily due to the depletion of customers' excess     
inventory in China, weather conditions that adversely impacted beverage         
consumption, a decline in market demand due to the depressed Japanese economy   
and the increased penetration of alternative forms of packaging, such as plastic
and glass. The overall 1997 third quarter and year-to-date increases for        
container sealants and coatings sales were limited by unfavorable volume        
variances in Europe, primarily due to an unseasonably cool spring and summer,   
which resulted in decreased beverage consumption. Additionally, two European    
customers reverted to manufacturing their own closure sealants during 1997.     
These decreases were partially offset by increased shipments of new products    
using oxygen scavenging technology; the oxygen scavenging sealants market for   
bottled beer continues to gain momentum, although sales are still at a moderate 
level.                                                                          

GRACE DAVISON                                                                   
--------------------                                                            

Sales and revenues of catalysts and silica-based products declined 1.0% for the 
three months and 5.0% for the nine months ended September 30, 1997, compared to 
the same periods in 1996. Excluding unfavorable currency translation variances  
estimated at 6.5% for the three months and 4.6% for the nine months ended       
September 30, 1997, sales and revenues increased 5.5% and decreased .4%,        
respectively, versus the 1996 periods. Volume variances favorably impacted sales
and revenues by an estimated 12.7% for the three months and 7.1% for the nine   
months ended September 30, 1997, offset by unfavorable price/mix variances      
estimated at 7.2% for the three months and 7.5% for the nine months. A          
discussion of product group results follows (in all cases excluding the effect  
of currency translation).                                                       

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF                                         
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)                       

Fluid cracking catalyst (FCC) sales increased 2.2% for the three months ended   
September 30, 1997 compared to the same period in 1996, and increased 10.2% over
the second quarter of 1997, due to increases in volumes in both North America   
and Europe, partially offset by the pricing pressures discussed below. Volumes  
in North America rose due to record refinery utilization, while increased       
volumes in Europe were due to the addition of two new customers in September.   
Volumes in Asia Pacific were below the comparable 1996 periods, but are expected
to increase in the final quarter of 1997 due to the addition of a new customer  
late in the third quarter.                                                      

FCC sales decreased 8.0% for the nine months ended September 30, 1997 compared  
to the same period in 1996. The factors contributing to the decrease were price 
reductions in all geographic areas and volume reductions in Europe and Asia     
Pacific. Competitive pricing pressures, which began in the third quarter of     
1996, appear to have begun to lessen in 1997 in North America and Europe, but   
continue in Asia Pacific. Volume reductions were primarily caused by a large    
number of refinery turnarounds in the first quarter of 1997, a large order to   
the Middle East in the second quarter of 1996, the refining of increased amounts
of "sweet" crude oil (which requires less fluid cracking catalysts) in the first
six months of 1997, and the loss of two customers in Asia Pacific. These        
decreases were partially offset by volume increases in North America compared to
the same period in 1996, primarily due to the record refinery utilization rates 
discussed above.                                                                

Silica/adsorbent sales increased 9.4% for the three months and 6.9% for the nine
months ended September 30, 1997 compared to the same periods in 1996 due to     
volume increases in all geographic regions. North America experienced volume    
increases in adsorbents as a result of large orders placed by two customers;    
Europe experienced increased sales of coatings and gels for paint and plastics; 
and Asia Pacific was favorably impacted by sales generated by Grace's new silica
plant in Kuantan, Malaysia (reflecting the plant's status as an approved        
supplier for an increasing number of Grace's customers). Increased volumes were 
partially offset by unfavorable price/mix variances in North America, Europe and
Asia Pacific.                                                                   

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF                                         
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)                       

Polyolefin catalyst sales increased 4.0% for the three months and 10.5% for the 
nine months ended September 30, 1997 compared to the same periods of 1996. The  
increase in the three months was due to favorable price/mix variances; the      
increase in the nine months was due to favorable price/mix and volume variances.
The volume increase was primarily due to the addition of two new customers in   
the second quarter and the start-up of another customer's new petrochemical     
refinery in Asia Pacific in September; the start-up of this refinery is expected
to have a positive impact on sales and revenues during the remainder of 1997 as 
compared to the same period in 1996. The strength of the plastics industry      
continues to benefit the polyolefin catalyst business.                          

GRACE CONSTRUCTION PRODUCTS                                                     

Grace Construction Products continued to perform exceptionally well, achieving  
record sales for the 1997 third quarter of $128.9 million, an 8.2% increase over
the prior-year third quarter. Sales for the first nine months of 1997 reached   
$359.7 million, a 13.3% increase over the prior-year period. For the third      
quarter and first nine months of 1997, each region and global product line grew 
in sales, driven by volume increases. Higher volumes of construction chemicals  
accounted for approximately half of the increase, with increased volumes of     
specialty building materials contributing significantly to the remainder of the 
growth. New value-added products, primarily water-reducing and anti-corrosion   
concrete admixtures and waterproofing products, showed strong sales growth      
mainly as a result of increasing market acceptance.                             

Sales in North America increased by 9.8% for the three months and 16.2% for the 
nine months ended September 30, 1997 over the 1996 periods, contributing        
approximately 75% of the overall sales increase in the 1997 third quarter and   
first nine months. A mild winter in the northeastern U.S., which allowed greater
than normal construction activity, drove the increase in the first four months  
of the year, while market penetration of new value-added products (discussed    
above), the overall strength of the U.S. economy, and market share gains        
contributed to the sales increase throughout the nine-month period. Sales in    
Asia Pacific increased by 6.7% in the 1997 third quarter and 8.0% in the nine   
months over the 1996 periods, despite unfavorable currency translation variances
in the third quarter estimated at 5.4%. In the 1997 third quarter, sales        
increases slowed due to currency devaluations and economic sluggishness in      
certain developing countries in Southeast Asia. However, strong sales in other  
Asia Pacific countries produced a sales increase over the prior-year third      
quarter, and strong sales growth in all of Asia Pacific earlier in the year     
contributed to the year-to-date increase. In the 1997 third quarter, Europe also
experienced unfavorable currency translation variances, estimated at 3%, but    
sales still increased by 3.8% in the 1997 third quarter and 6.3% in the nine    
months over the comparable 1996 periods. Volume increases in specialty building 
materials drove sales in Europe after construction activity rebounded from      
weather-related delays at the beginning of the year.                            

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF                                         
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)                       

OPERATING RESULTS                                                               

                                                        [Enlarge/Download Table]

-------------------------------------------------------------------------------------------------------
                                   Three Months Ended September 30,                                    
              OPERATING INCOME (In millions)                                                % CHANGE   
    (excluding special items and divested businesses)        1997           1996          1997 VS. 1996
-------------------------------------------------------------------------------------------------------
                                                                                                       
Grace Packaging...........................................  $ 75.0         $ 70.3               6.7%   
Grace Davison.............................................    19.6           22.8             (14.0)   
Grace Construction Products...............................    14.4           13.4               7.5    
Other.....................................................    (1.0)            --              N.D.    
                                                            ------         ------                      
  Operating income........................................  $108.0         $106.5               1.4%   
                                                            ------         ------                      

--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                   Nine Months Ended September 30,                                    
             OPERATING INCOME (In millions)                                                % CHANGE   
    (excluding special items and divested businesses)       1997           1996          1997 VS. 1996
------------------------------------------------------------------------------------------------------
                                                                                                      
Grace Packaging..........................................  $220.8         $194.4              13.6%   
Grace Davison............................................    58.6           75.1             (22.0)   
Grace Construction Products..............................    33.5           21.7              54.4    
Other....................................................     1.1            3.6             (69.4)   
                                                           ------         ------                      
  Operating income.......................................  $314.0         $294.8               6.5%   
                                                           ------         ------                      
------------------------------------------------------------------------------------------------------

Cost management programs initially implemented in 1995 continued to favorably   
impact pretax operating income across all geographic regions and product lines. 
Grace has implemented, and expects to further implement, additional cost        
reductions and efficiency improvements, as it further evaluates and reengineers 
its manufacturing processes and operations. Significantly offsetting the        
favorable impact of the cost management programs was a 1997 third quarter       
accrual relating to Grace's long-term incentive compensation program (LTIP).    
Grace's stock price as of the close of each quarter is one of the primary       
factors used in calculating the LTIP accrual. Since Grace's stock appreciated by
34% during the third quarter (which management believes is an indication of     
favorable market receptivity to the proposed transaction with Sealed Air        
described in Note 3 to the interim consolidated financial statements in this    
Report), a significant additional charge was required. The following is a       
discussion of the operating results of Grace's product lines, which include the 
adverse effects of the additional LTIP charge.                                  

GRACE PACKAGING                                                                 

Grace Packaging pretax operating income increased 6.7% for the three months and 
13.6% for the nine months ended September 30, 1997 compared to the three and    
nine months ended September 30, 1996, principally reflecting improved operating 
results in North America. The favorable variances were primarily due to the     
volume and price increases discussed above, favorable manufacturing rates, and a
shift toward sales of higher margin products. 1997 year-to-date operating income
was adversely affected by increased prices for resins, although resin prices    
declined in the 1997 third quarter as compared to the first half of the year. It
is expected that resin prices will further stabilize through the end of 1997.   

Grace's ongoing cost containment efforts have contributed favorably to pretax   
operating income for the three and nine months ended September 30, 1997.        
However, these improvements have been partially offset by increased expenses    
(primarily depreciation and amortization expenses) associated with the new      
packaging plant in Kuantan, Malaysia that began operations in the fourth quarter
of 1996 and an increase in research and development expenses as a result of the 
continued emphasis on new product development.                                  

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF                                         
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)                       

GRACE DAVISON                                                                   

Grace Davison pretax operating income decreased 14.0% for the three months and  
22.0% for the nine months ended September 30, 1997 compared to the same periods 
in 1996. A weak FCC market was the primary cause for these decreases; however,  
there appeared to be some recovery in the FCC market, with larger volumes being 
sold in North America and Europe as compared to September 1996, as discussed    
above. Price/mix variances in North America and Europe also had an unfavorable  
effect upon operating income. Further, there were unusual items contributing to 
the decrease in operating income in the first nine months of 1997 versus 1996.  
In particular, the large number of refinery turnarounds decreased sales, and    
harsh winter weather at Grace Davison's Lake Charles, Louisiana facility        
increased repair and maintenance costs. These charges were offset by            
manufacturing efficiencies and ongoing cost reduction efforts. Despite the      
decline in operating income for the first nine months of 1997, results for the  
1997 third quarter improved over results for the 1997 second quarter, and Grace 
Davison expects this trend to continue. Grace Davison has maintained its global 
market position, and continues to implement new manufacturing process           
technologies and introduce new products to improve margins.                     

GRACE CONSTRUCTION PRODUCTS                                                     

Grace Construction Products pretax operating income increased 7.5% for the three
months and 54.4% for the nine months ended September 30, 1997 over the 1996     
comparable periods. The favorable results were primarily due to the record sales
levels achieved in 1997, discussed above. Enhancements to manufacturing         
processes, production rate and material cost improvements, and additional cost  
containment efforts also contributed to earnings growth.                        

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF                                         
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)                       

OTHER ITEMS                                                                     

INTEREST EXPENSE AND RELATED FINANCING COSTS                                    

Interest expense and related financing costs for continuing operations of $19.2 
million for the three months and $58.6 million for the nine months ended        
September 30, 1997 increased 5.5% and 6.7%, respectively, compared to the 1996  
periods. Including amounts allocated to discontinued operations, interest       
expense and related financing costs decreased 55.6% for the three months and    
55.3% for the nine months ended September 30, 1997, versus the 1996 periods. The
decrease was primarily due to lower average debt levels (as a result of debt    
repayments made with the proceeds from the September 1996 separation of Grace's 
principal health care business and other divestments).                          

See "Financial Condition: Liquidity and Capital Resources" below for further    
information on borrowings.                                                      

RESEARCH AND DEVELOPMENT EXPENSES                                               

Research and development (R&D) spending of $23.3 million increased 3.6% for the 
three months ended September 30, 1997 versus the 1996 quarter. The increase was 
primarily due to Grace's continued emphasis on R&D activities, with the goal of 
introducing new value-added products and services and enhanced manufacturing    
processes, especially in Grace Packaging. R&D spending decreased 10.8% for the  
nine months ended September 30, 1997 compared to the nine months ended September
30, 1996. The year-to-date decrease reflects the continued positive impact of   
cost management initiatives implemented during 1996 and 1995, primarily the     
elimination of Grace's corporate research organization, the transfer of core R&D
activities to product lines and the termination of R&D activities not related to
Grace's packaging and specialty chemicals businesses. As a result of these      
initiatives, Grace has been able to increase R&D spending for its principal     
businesses while reducing total R&D expenses. The decrease is also attributable 
to the elimination of R&D spending related to Grace's water treatment and       
process chemicals business and its specialty polymers business, which were      
divested in June 1996 and May 1997, respectively.                               

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF                                         
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)                       

RESTRUCTURING COSTS                                                             

As discussed in Note 4 to the consolidated financial statements in the 1996 Form
10-K, Grace began implementing a worldwide program in 1995 focused on           
streamlining processes and reducing general and administrative expenses, factory
administration costs and noncore corporate research and development expenses. As
previously reported, Grace has continued to implement additional cost reductions
and efficiency improvements beyond those initiated in 1995, as its businesses   
have further evaluated and reengineered their operations. As a result of these  
evaluations, in the first nine months of 1997 and 1996, Grace recorded pretax   
charges of $12.4 million ($8.0 million after-tax) and $53.7 million ($32.4      
million after-tax), respectively, principally related to the restructuring of   
its packaging business. The 1997 charge primarily related to the restructuring  
of the packaging business from a worldwide group of independent regional units  
into an integrated global organization and was primarily comprised of employee  
termination benefits. The 1996 charge primarily related to the restructuring of 
Grace's European packaging operations and consisted of costs related to employee
termination benefits and lease termination costs. Management expects to finalize
a plan and take an additional charge in the fourth quarter of 1997 in connection
with the Sealed Air transaction (see Note 3 to the interim consolidated         
financial statements in this Report) and related corporate restructuring        
activities.                                                                     

INCOME TAXES                                                                    

Grace's effective tax rates were 37.0% for the three months and 37.6% for the   
nine months ended September 30, 1997, compared to 39.5% and 36.7%, for the      
respective 1996 periods. Excluding special items, the effective tax rates were  
37.0% for the three and nine months ended September 30, 1997 and 39.5% and      
38.6%, respectively, for the three and nine months ended September 30, 1996. The
lower effective tax rates for 1997 were due to lower state and foreign income   
taxes.                                                                          

DISCONTINUED OPERATIONS                                                         

In February 1997, Grace sold its cocoa business to ADM for total proceeds of    
$470.0 million (inclusive of debt assumed by the buyer), subject to adjustment. 
The pretax and after-tax effects of the divestment were consistent with prior   
estimates and were charged against previously established reserves. In October  
1997, ADM paid Grace an additional $7.9 million (including $.4 million of       
interest income) in settlement of the purchase price adjustment. In anticipation
of this settlement, in the third quarter of 1997, Grace reversed previously     
recorded provisions of $12.4 million (net of an applicable tax effect of $6.6   
million), in discontinued operations.                                           

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF                                         
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)                       

During 1996, Grace completed the separation of National Medical Care, Inc. (NMC)
and sold its separations science business (Amicon). These health care businesses
had been classified as discontinued operations in 1995. Income from discontinued
operations of $2,465.5 million for the three months and $2,584.4 million for the
nine months ended September 30, 1996, included net losses of $19.3 million      
($17.3 million pretax) and net income of $24.1 million ($59.8 million pretax),  
respectively, from health care operations. Income from discontinued operations  
also included a gain on the separation of NMC of $2,483.7 million for the three 
and nine months ended September 30, 1996.                                       

In 1996, Grace classified TEC Systems as a discontinued operation. Income for   
the nine months ended September 30, 1996 from discontinued operations included a
loss of $3.9 million ($6.4 million pretax) from TEC Systems. In September 1997, 
Grace sold TEC Systems to Sequa Corporation. The loss on the sale and the 1997  
operating losses have been charged against previously established reserves.     

In May 1996, Grace completed the sale of its transgenic plant business for      
$150.0 million in cash, resulting in a pretax gain of $129.0 million ($79.4     
million after-tax), in discontinued operations.                                 

FINANCIAL CONDITION                                                             

LIQUIDITY AND CAPITAL RESOURCES                                                 

Grace's continuing operating activities provided net pretax cash of $232.0      
million for the nine months ended September 30, 1997, as compared to $154.7     
million for the nine months ended September 30, 1996. The increase in cash      
provided by operating activities of continuing operations was primarily due to  
improved earnings and working capital management, partially offset by higher    
payments made for the defense and disposition of asbestos-related litigation,   
net of amounts received from settlements with certain insurance carriers in     
connection with such litigation. Net pretax cash provided by operating          
activities of discontinued operations for the nine months ended September 30,   
1997 decreased by $109.6 million compared to the nine months ended September 30,
1996, primarily due to the disposition of Grace's health care and cocoa         
businesses. After giving effect to the payment of income taxes, the net cash    
provided by operating activities was $136.5 million and $109.5 million for the  
nine months ended September 30, 1997 and 1996, respectively.                    

Investing activities provided $452.9 million of cash for the nine months ended  
September 30, 1997, largely reflecting net cash proceeds of $469.2 million from 
divestments (primarily the sale of Grace's specialty polymers, TEC and cocoa    
businesses) and the receipt of $215.6 million in January 1997 on the 1996       
divestments of Dearborn and Amicon. Grace made capital expenditures of $164.4   
million during the nine months ended September 30, 1997, primarily related to   
the Grace Packaging and Grace Davison businesses. Total Grace capital           
expenditures for 1997 are not expected to exceed $300.0 million.                

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF                                         
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)                       

Net cash used for financing activities for the nine months ended September 30,  
1997 was $587.6 million, primarily reflecting reductions in debt, the repurchase
of stock as discussed below, and the payment of dividends, partially offset by  
proceeds from the exercise of employee stock options. Total debt was $1,104.2   
million at September 30, 1997, a decrease of $284.0 million from December 31,   
1996.                                                                           

During the first quarter of 1997, the Company substantially completed the share 
repurchase program initiated in 1996 by acquiring 6,306,300 additional shares of
its common stock for $335.9 million, or an average price of $53.26 per share.   

Grace is targeting a ratio of debt to earnings before interest, taxes,          
depreciation and amortization (EBITDA) of 1.6 to 2.0. The debt/EBITDA ratio was 
1.7 at September 30, 1997.                                                      

At September 30, 1997, Grace had committed borrowing facilities totaling $1.0   
billion, consisting of $650.0 million under a 364-day facility expiring in May  
1998 (extendible for successive 364-day periods at the discretion of Grace and  
the lenders) and $350.0 million under a long-term facility expiring in May 2002.
As of September 30, 1997, $620.6 million was available under these facilities.  

Grace believes that cash flow generated from future operations and committed    
borrowing facilities will be sufficient to meet its cash requirements for the   
foreseeable future. See Note 3 to the interim consolidated financial statements 
in this Report regarding cash proceeds to be received in connection with the    
proposed transaction with Sealed Air.                                           

ASBESTOS-RELATED MATTERS                                                        

In the nine months ended September 30, 1997, Grace paid $34.9 million for the   
defense and disposition of asbestos-related property damage and personal injury 
litigation, net of amounts received under settlements with certain insurance    
carriers. Although the total amount to be paid in 1997 with respect to          
asbestos-related claims (after giving effect to payments to be received from    
insurance carriers) cannot be precisely estimated, Grace expects that it will be
required to expend approximately $75-$100 million (pretax) in 1997 to defend    
against and dispose of such claims (after giving effect to anticipated insurance
recoveries). The amounts with respect to the probable cost of defending against 
and disposing of asbestos-related claims and probable recoveries from insurance 
carriers represent estimates and are on an undiscounted basis; the outcomes of  
such claims cannot be predicted with certainty.                                 

In May 1997, the Texas legislature adopted legislation that had the effect of   
making it more difficult for out-of-state residents to file claims in Texas     
state courts. Although the rate of filing of asbestos claims in Texas during the
1997 third quarter was lower than that of the first half of 1997, the effect of 
this legislation on Grace's ultimate exposure with respect to its asbestos-     
related cases and claims cannot be predicted with certainty.                    

See Note 2 to the interim consolidated financial statements in this Report for  
further information concerning asbestos-related lawsuits and claims.            

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF                                         
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)                       

ENVIRONMENTAL MATTERS                                                           

There were no significant developments relating to environmental liabilities in 
the nine months ended September 30, 1997. For additional information relating to
environmental liabilities, see Note 11 to the consolidated financial statements 
in the 1996 Form 10-K.                                                          

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                                                                      EXHIBIT 11

W. R. GRACE & CO. AND SUBSIDIARIES
WEIGHTED AVERAGE NUMBER OF SHARES AND EARNINGS USED IN PER SHARE COMPUTATIONS 
For the three and nine months ended September 30, 1997 and 1996 
(Dollars in millions, except per share; shares in thousands)

                                                        [Enlarge/Download Table]

                                                        3 MOS. ENDED          9 MOS. ENDED     
                                                     9/30/97    9/30/96    9/30/97    9/30/96  
                                                     -------------------   ------------------- 
                                                                                               
EARNINGS PER SHARE:                                                                            
Weighted average shares outstanding................   73,662      91,092    73,885      95,188 
                                                     =======    ========   =======    ======== 
Net income.........................................  $  71.1    $2,519.9   $ 234.9    $2,917.4 
Dividends paid on preferred stocks.................        -         (.1)        -         (.4)
                                                     -------    --------   -------    -------- 
Income used in per share computation of earnings...  $  71.1    $2,519.8   $ 234.9    $2,917.0 
                                                     =======    ========   =======    ======== 
Net income per share...............................  $   .97    $  27.66   $  3.18    $  30.64 
PRIMARY:                                                                                       
Weighted average shares outstanding................   73,662      91,092    73,885      95,188 
Dilutive effect (as determined by the application                                              
  of the treasury stock method)....................    2,377       2,262     2,295       1,978 
                                                     -------    --------   -------    -------- 
Weighted average number of shares outstanding -                                                
  primary..........................................   76,039      93,354    76,180      97,166 
                                                     =======    ========   =======    ======== 
Net income.........................................  $  71.1    $2,519.9   $ 234.9    $2,917.4 
Dividends paid on preferred stocks.................        -         (.1)        -         (.4)
                                                     -------    --------   -------    -------- 
Income used in per share computation of earnings                                               
  and in per share computation of earnings assuming                                            
  dilutive effect..................................  $  71.1    $2,519.8   $ 234.9    $2,917.0 
                                                     =======    ========   =======    ======== 
Net income per share - primary.....................  $   .93    $  26.99   $  3.08    $  30.02 
FULLY DILUTED:                                                                                 
Weighted average shares outstanding................   73,662      91,092    73,885      95,188 
Dilutive effect (as determined by the application                                              
  of the treasury stock method)....................    2,686       2,826     2,687       2,826 
                                                     -------    --------   -------    -------- 
Weighted average number of shares                                                              
  outstanding - fully diluted......................   76,348      93,918    76,572      98,014 
                                                     =======    ========   =======    ======== 
Net income.........................................  $  71.1    $2,519.9   $ 234.9    $2,917.4 
Dividends paid on preferred stocks.................        -         (.1)        -         (.4)
                                                     -------    --------   -------    -------- 
Income used in per share computation of earnings                                               
  and in per share computation of earnings assuming                                            
  dilutive effect..................................  $  71.1    $2,519.8   $ 234.9    $2,917.0 
                                                     =======    ========   =======    ======== 
Net income per share - fully diluted...............  $   .93    $  26.83   $  3.07    $  29.76 

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                                                                      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) 

                                                        [Enlarge/Download Table]

                                                                                                         Nine Months Ended   
                                                            Years Ended December 31,(c)                    September 30,     
                                              -------------------------------------------------------  ----------------------
                                              1996(d)     1995(e)     1994(f)     1993(g)     1992(h)  1997(i)     1996(c)(j)
                                              -------     -------     -------     -------     -------  -------     ----------
                                                                                                                             
Net income/(loss) from continuing                                                                                            
  operations................................. $213.8      $(179.6)    $(35.1)     $ 28.1      $  7.7   $222.5        $333.0  
  Add/(deduct):                                                                                                              
  Provision for/(benefit from) income                                                                                        
    taxes....................................  134.8      (104.5)      (42.6)       16.4        84.1    134.1         192.9  
  Income taxes of 50%-owned companies........     --          --          --          .1         2.1       --            --  
  Equity in unremitted losses/(earnings) of                                                                                  
    less than 50%-owned companies............    (.4)         .8         (.6)        (.5)       (2.0)     (.7)          (.4) 
  Interest expense and related financing                                                                                     
    costs, including amortization of                                                                                         
    capitalized interest.....................  160.8       179.8       138.5       122.7       162.7     65.0         139.1  
  Estimated amount of rental expense deemed                                                                                  
    to represent the interest factor.........    8.4         8.5        10.1        11.3        14.0      3.9           8.3  
                                              ------      -------     ------      ------      ------   ------        ------  
Income/(loss) as adjusted.................... $517.4      $(95.0)     $ 70.3      $178.1      $268.6   $424.8        $672.9  
                                              ======      =======     ======      ======      ======   ======        ======  
Combined fixed charges and preferred stock                                                                                   
  dividends:                                                                                                                 
  Interest expense and related financing                                                                                     
    costs, including capitalized interest.... $177.1      $195.5      $143.2      $122.8      $176.3   $ 72.9        $154.2  
  Estimated amount of rental expense deemed                                                                                  
    to represent the interest factor.........    8.4         8.5        10.1        11.3        14.0      3.9           8.3  
                                              ------      -------     ------      ------      ------   ------        ------  
Fixed charges................................  185.5       204.0       153.3       134.1       190.3     76.8         162.5  
Preferred stock dividend requirements(b).....     .6          .5          .5          .8          .8       --            .6  
                                              ------      -------     ------      ------      ------   ------        ------  
Combined fixed charges and preferred stock                                                                                   
  dividends.................................. $186.1      $204.5      $153.8      $134.9      $191.1   $ 76.8        $163.1  
                                              ======      =======     ======      ======      ======   ======        ======  
Ratio of earnings to fixed charges...........   2.79        (k)         (k)         1.33        1.41     5.53          4.14  
                                              ======      =======     ======      ======      ======   ======        ======  
Ratio of earnings to combined fixed charges                                                                                  
  and preferred stock dividends..............   2.78        (k)         (k)         1.32        1.41     5.53          4.13  
                                              ======      =======     ======      ======      ======   ======        ======  

(a) Grace's preferred stocks were retired in 1996; for additional information,
    see Note 1 to the consolidated financial statements in the 1996 Form 10-K.

(b) For each period with an income tax provision, the preferred stock dividend
requirements have been increased to an amount representing the pretax 
  earnings required to cover such requirements using Grace's effective tax
rate.                                                                 

(c) Certain amounts have been restated to conform to the 1997 presentation.   

(d) Includes a pretax gain on sales of businesses of $326.4, offset by pretax 
provisions of $229.1 for asbestos-related liabilities and insurance   
coverage and $107.5 for restructuring costs and asset impairments.    

(e) Includes pretax provisions of $275.0 for asbestos-related liabilities and 
insurance coverage; $209.5 related to restructuring costs, asset      
  impairments and other activities; $77.0 for environmental liabilities at
    former manufacturing sites; and $30.0 for corporate governance activities.

(f) Includes a pretax provision of $316.0 relating to asbestos-related        
liabilities and insurance coverage.                                   

(g) Includes a pretax provision of $159.0 relating to asbestos-related        
liabilities and insurance coverage.                                   

(h) Includes a pretax provision of $140.0 relating to a fumed silica plant in 
Belgium.                                                              

(i) Includes a pretax gain of $103.1 on the sale of Grace's specialty polymers
   business and a pretax provision of $12.4 relating to restructuring costs.

 (j) Includes a pretax gain of $326.4 on the sale of businesses, principally the
   water treatment and process chemicals business, and a pretax provision of
$53.7 relating to restructuring costs.                                

(k) As a result of the losses incurred for the years ended December 31, 1995  
and 1994, Grace was unable to fully cover the indicated fixed charges 

G-27

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘DEFM14A’ Filing		Date		First		Last			Other Filings
		9/1/99		132
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		12/8/98		59
		5/14/98		92		97
		5/8/98		43		51
		4/24/98		119
Filed on:		2/13/98		2					S-4,  SC 13G
		2/11/98		20		48
		2/3/98		14					8-K
		1/5/98		44
		1/1/98		45
		12/31/97		14		147			10-K,  10-K/A
		12/17/97		37
		10/11/97		44
		9/30/97		9		162			10-Q
		8/14/97		20					8-K,  8-K/A
		8/8/97		47
		8/6/97		61
		7/1/97		100
		5/31/97		100
		5/16/97		119
		5/1/97		143					8-K
		4/28/97		47
		4/7/97		44					DEF 14A
		3/11/97		102
		3/4/97		132					8-K
		2/3/97		104		134
		1/31/97		102
		1/1/97		96		124
		12/31/96		9		160			10-K405,  11-K
		10/10/96		97		99			8-K
		9/30/96		14		162			10-Q
		9/29/96		109
		9/28/96		109		121			8-K
		9/27/96		109		132
		8/2/96		38		109			S-1
		6/30/96		113		143
		6/14/96		91
		5/10/96		101
		3/31/96		98
		1/1/96		16		27
		12/31/95		25		163
		10/17/95		38
		6/30/95		97
		5/1/95		91
		3/31/95		100
		3/13/95		38
		12/31/94		25		163
		1/1/94		25		124
		12/31/92		14		100
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