As filed with the Securities and Exchange Commission on February 13, 1998
Registration No. 333-____
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
W. R. GRACE & CO.
(To be renamed Sealed Air Corporation)
(Exact name of Registrant as specified in its charter)
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Delaware 3081 65-0654331
(State or Other (Primary Standard Industrial (IRS Employer
Jurisdicition of Classification Code Number) Identification No.)
Incorporation or One Town Center Road
Organization) Boca Raton, Florida 33486-1010
(561) 362-2000
(Address, including Zip Code, &
Telephone Number, including
Area Code, of Registrant's
Principal Executive Offices)
---------------
Robert B. Lamm, Esq.
Vice President and Secretary
W. R. Grace & Co.
One Town Center Road
Boca Raton, Florida 33486-1010
(561) 362-2000
Name, Address, Including Zip Code,
and Telephone Number,
Including Area Code, of
Agent for Service)
---------------
copies to:
Andrew R. Brownstein, Esq. H. Katherine White, Esq. Christopher Mayer, Esq.
Wachtell, Lipton, Assistant General Counsel Davis Polk & Wardwell
Rosen & Katz and Secretary 450 Lexington Avenue
51 West 52nd Street Sealed Air Corporation New York, New York 10017
New York, New York 10019 Park 80 East (212) 450-4000
(212) 403-1000 Saddle Brook, New Jersey 07663
(201) 791-7600
Approximate Date of Commencement of Proposed Sale to Public: As soon as
practicable after the effectiveness of this Registration Statement and the
effective time (the "Effective Time") of the merger (the "Merger") of a wholly
owned subsidiary of the Registrant with and into Sealed Air Corporation ("Sealed
Air"), as described in the Agreement and Plan of Merger dated as of August 14,
1997.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the
"Securities Act"), check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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CALCULATION OF REGISTRATION FEE
================================================================================================================================
Proposed Maximum Proposed Maximum Amount of
Title of each Class of Amount to be Offering Aggregate Offering Registration
Securities to be Registered Registered(1) Price Per Unit Price(2) Fee(3)
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $0.10 per share................ 83,519,426 $33.57 $2,803,762,031.25 $827,109.80
Convertible Preferred Stock, par value $0.10 per share. 36,000,000 3.81 137,080,434.00 40,438.73
- --------------------------------------------------------------------------------------------------------------------------------
- ------------
(1) Represents the number of shares of common stock and convertible preferred
stock, each par value $0.10 per share, of the Registrant ("New Common Stock"
and "Convertible Preferred Stock," respectively), to be issued (i) in the
Merger to holders of common stock, par value $0.01 per share, of Sealed Air
("Sealed Air Common Stock"), determined according to the terms of the Merger
(one share of New Common Stock for each share of Sealed Air Common Stock)
and the number of shares of Sealed Air Common Stock outstanding on February
11, 1998, and (ii) in the recapitalization ("Recapitalization") of the
Registrant's common stock, par value $0.01 per share ("Old Common Stock"),
determined using the maximum number of shares of New Common Stock
(40,895,000 shares) and the total number of shares of Convertible Preferred
Stock to be issued in the Recapitalization.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) & (2) and Rule 457(c) of the Securities Act,
based on the average of the high and low prices of Sealed Air Common Stock
on February 11, 1998 on the New York Stock Exchange, which was $62.125 , and
the book value of the Old Common Stock to be exchanged in the
Recapitalization, which was $292,800,000.
(3) The registration fee for the securities registered hereby of $867,548.53 is
being paid herewith. This fee has been calculated pursuant to Rule 457(f)
under the Securities Act as 0.000295 times $2,940,842,465.25.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act or until this Registration Statement shall
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
==============================================================================
[SEALED AIR LOGO]
Special Meeting of Stockholders
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
The Board of Directors of Sealed Air Corporation has unanimously approved a
merger agreement under which the worldwide packaging business of W. R. Grace &
Co. would be combined with Sealed Air. The merger would bring together Sealed
Air, a leading manufacturer of a wide range of protective and specialty
packaging materials and systems for industrial and consumer products, and
Grace's packaging business, a leading supplier of high-performance packaging
materials and systems for food and other products. By combining the
complementary operations of these two companies, we believe the merger will
create a preeminent protective and specialty packaging company with strong brand
name recognition, a global marketing network, a commitment to technological
innovation and significant growth opportunities.
The combined company will be named "Sealed Air Corporation". Sealed Air's
existing stockholders will initially own common stock representing 37% of the
combined company, and Grace's existing stockholders will initially own common
and convertible preferred stock representing 63% of the combined company.
As a Sealed Air stockholder, you will receive one share of common stock of the
combined company in exchange for each share of Sealed Air common stock that you
own.
At a special meeting of Sealed Air stockholders, you will be asked to approve
the merger.
Your Board of Directors has unanimously determined that the merger is fair to
you and is in your best interests. The Board therefore recommends that you vote
to approve the merger. The merger cannot be completed unless Sealed Air's
stockholders approve it. YOUR VOTE IS VERY IMPORTANT.
The date, time and place of the special meeting are:
March 23, 1998 11:00 a.m.
Saddle Brook Marriott
Garden State Parkway at I-80
Saddle Brook, New Jersey 07663
This Joint Proxy Statement/Prospectus provides you with detailed information
about the proposed merger. We encourage you to read this entire document
carefully. In addition, you may obtain information about Sealed Air and Grace
from documents filed with the Securities and Exchange Commission.
Whether or not you plan to attend the special meeting, please take the time to
vote by completing and mailing the enclosed proxy card. If you sign and mail
your proxy card without indicating how you wish to vote, your proxy will be
[Ccounted as a vote to approve the merger. If you fail to return your card and
do not vote in person at the special meeting, the effect will be a vote against
the merger.
On behalf of the Board of Directors of Sealed Air, I urge you to vote "FOR"
approval of the merger.
T.J. DERMOT DUNPHY
Chairman of the Board
and Chief Executive Officer
- ---------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
regulators have approved the common stock or convertible preferred stock to be
issued in the merger and related transactions or determined if this Joint Proxy
Statement/Prospectus is accurate or adequate. Any representations to the
contrary is a criminal offense. This Joint Proxy Statement/Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any securities.
- ---------------------------------------------------------------------------
Joint Proxy Statement/Prospectus dated February 13, 1998 and first mailed to
stockholders on February 17, 1998.
[Sealed Air logo]
SEALED AIR CORPORATION
PARK 80 EAST
SADDLE BROOK, NEW JERSEY 07663
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 23, 1998
A Special Meeting of the Stockholders of Sealed Air Corporation, a Delaware
corporation, will be held at 11:00 a.m., Eastern Standard Time, on March 23,
1998 at Saddle Brook Marriott, Garden State Parkway at I-80, Saddle Brook, New
Jersey 07663, for the following purpose:
To consider and vote upon a proposal to approve and adopt an Agreement and
Plan of Merger (the "Merger Agreement") dated as of August 14, 1997 among
Sealed Air Corporation, W. R. Grace & Co., a Delaware corporation
("Grace"), and a wholly owned subsidiary of Grace.
The Merger Agreement and related agreements provide, among other things,
that Grace will spin off its specialty chemicals businesses to its
stockholders; a subsidiary of Grace will merge with Sealed Air; and Grace
will be renamed "Sealed Air Corporation". In the merger, each share of
Sealed Air common stock will be converted into one share of common stock
of the new Sealed Air Corporation.
The Board of Directors has fixed the close of business on February 17, 1998
as the record date for the determination of the holders of Sealed Air common
stock entitled to notice of, and to vote at, the Special Meeting or any
adjournment or postponement.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO
APPROVE AND ADOPT THE MERGER AGREEMENT, WHICH IS DESCRIBED IN DETAIL IN THE
ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS.
You are urged to complete, sign and return the proxy card in the enclosed
envelope, whether or not you expect to attend the Special Meeting. The approval
and adoption of the Merger Agreement requires the affirmative vote of a majority
of the outstanding shares of Sealed Air common stock entitled to vote at the
Special Meeting. You may revoke your proxy at any time prior to its exercise. If
you attend the Special Meeting or any adjournment or postponement, you may
revoke your proxy and vote in person at the meeting. Failure to return a
properly executed proxy card or to vote at the Special Meeting will have the
same effect as a vote against the Merger Agreement.
Dated: February 13, 1998 H. Katherine White
Secretary
[GRACE LOGO]
Special Meeting of Stockholders
REORGANIZATION AND MERGER
PROPOSED -- YOUR VOTE IS VERY IMPORTANT
The Board of Directors of W. R. Grace & Co. has unanimously approved a merger
agreement and related agreements under which Grace will spin off its specialty
chemicals businesses to stockholders. When the spin-off is completed, Grace
will own only its packaging business. Sealed Air Corporation will then
combine with a subsidiary of Grace, and Grace will change its name to "Sealed
Air Corporation."
When these transactions are completed, you will receive the following for each
share of Grace common stock you own:
o one share of common stock of the new specialty chemicals company (New
Grace);
o a fraction of a share of common stock of the combined packaging company (New
Sealed Air); and
o a fraction of a share of convertible preferred stock of New Sealed Air.
We believe these transactions will enhance stockholder value by providing Grace
stockholders, through a tax-free transaction, with a significant premium for
Grace's packaging business, the opportunity to continue to participate in the
future value of a preeminent packaging company, and a continuing ownership
interest in a new, highly focused specialty chemicals company.
At a special meeting of Grace stockholders, you will be asked to approve the
reorganization, merger and related matters.
Your Board of Directors has determined that the proposed transactions are fair
to you and in your best interests. The Board therefore recommends that you vote
to approve the reorganization, merger and related matters. The proposed
transactions cannot be completed unless Grace's stockholders approve them. YOUR
VOTE IS VERY IMPORTANT.
The date, time and place of the special meeting are:
March 20, 1998
10:00 a.m.
W. R. Grace & Co.
One Town Center Road
Boca Raton, Florida 33486
This Joint Proxy Statement/Prospectus provides you with detailed information
about the proposed reorganization, merger and related matters. We have also
mailed to you, together with this Joint Proxy Statement/Prospectus, an
Information Statement that describes New Grace and the proposed spin-off.
Whether or not you plan to attend the special meeting, please take the time to
vote by completing and mailing the enclosed proxy card. If you sign and mail
your proxy card without indicating how you wish to vote, your proxy will be
counted as a vote to approve the reorganization, merger and related matters. If
you fail to return your card and do not vote in person at the special meeting,
the effect will be a vote against the reorganization, merger and related
matters.
On behalf of the Board of Directors of Grace, I urge you to vote "FOR" the
proposals.
ALBERT J. COSTELLO
Chairman, President
and Chief Executive Officer
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Neither the Securities and Exchange Commission nor any state securities
regulators have approved the common stock or convertible preferred stock to be
issued in the merger and related transactions or determined if this Joint Proxy
Statement/Prospectus is accurate or adequate. Any representations to the
contrary is a criminal offense. This Joint Proxy Statement/Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any securities.
- ---------------------------------------------------------------------------
Joint Proxy Statement/Prospectus dated February 13, 1998 and first mailed to
stockholders on February 17, 1998.
[GRACE LOGO]
W. R. GRACE & CO.
ONE TOWN CENTER ROAD
BOCA RATON, FLORIDA 33486
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 20, 1998
A Special Meeting of the Stockholders of W. R. Grace & Co., a Delaware
corporation ("Grace"), will be held at 10:00 a.m., Eastern Standard Time, on
March 20, 1998 at the offices of W. R. Grace & Co., One Town Center Road, Boca
Raton, Florida 33486, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger (the "Merger Agreement") dated as of
August 14, 1997 among Grace, Sealed Air Corporation, a Delaware
corporation ("Sealed Air"), and a wholly owned subsidiary of
Grace. The Merger Agreement and related documents provide for
the reorganization of Grace and the merger of Grace's packaging
business with Sealed Air. A vote to approve and adopt the Merger
Agreement would constitute approval of, among other things:
o the reorganization of Grace, including:
o the spin-off of Grace's specialty chemicals businesses to its
stockholders;
o the amendment and restatement of Grace's certificate of
incorporation (the "Grace Charter") (except for the repeal of
certain provisions described in item 2 below);
o the recapitalization of Grace common stock into new common
and convertible preferred stock; and
o the merger of Sealed Air with a subsidiary of Grace, including the
issuance of common stock to the stockholders of Sealed Air.
2. To consider and vote upon a proposal to approve and adopt an amendment
repealing certain provisions of the Grace Charter (which will become
the New Sealed Air charter) that can only be amended or repealed by a
supermajority stockholder vote.
The Board of Directors has fixed the close of business on February 11, 1998
as the record date for the determination of the holders of Grace common stock
entitled to notice of, and to vote at, the Special Meeting or any adjournment or
postponement.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO APPROVE AND
ADOPT THE MERGER AGREEMENT. IN CONNECTION WITH ITS APPROVAL OF THE MERGER
AGREEMENT, THE BOARD HAS AGREED TO APPROVE THE NEW SEALED AIR CHARTER AND
RECOMMENDS THAT YOU VOTE TO REPEAL THE SUPERMAJORITY PROVISIONS. THE PROPOSALS
ARE DESCRIBED IN DETAIL IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS.
You are urged to complete, sign and return the proxy card in the enclosed
envelope, whether or not you expect to attend the Special Meeting. Approval and
adoption of the Merger Agreement requires the affirmative vote of a majority of
the outstanding shares of Grace common stock entitled to vote at the Special
Meeting. Approval and adoption of the amendment to repeal the supermajority
provisions of the Grace Charter requires the affirmative vote of 80% of the
outstanding shares of Grace common stock entitled to vote at the Special
Meeting. You may revoke your proxy at any time prior to its exercise. If you
attend the Special Meeting or any adjournment or postponement, you may revoke
your proxy and vote in person at the meeting. Failure to return a properly
executed proxy card or to vote at the Special Meeting will have the same effect
as a vote against the Merger Agreement and against the amendment repealing the
supermajority provisions.
Dated: February 13, 1998 Robert B. Lamm
Secretary
TABLE OF CONTENTS
Page
----
QUESTIONS AND ANSWERS ABOUT THE REORGANIZATION AND MERGER........ 1
ADDITIONAL QUESTIONS AND ANSWERS ABOUT THE REORGANIZATION
AND MERGER FOR SEALED AIR AND GRACE EMPLOYEES................ 3
SUMMARY...................................................... 8
SUMMARY SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA......... 14
Sealed Air
Selected Historical Financial Information................ 15
Grace Packaging
Selected Historical Financial Information................ 17
New Sealed Air
Selected Pro Forma Financial Information................. 18
Unaudited Comparative Per Share Data......................... 19
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION...... 20
CERTAIN RISK FACTORS............................................. 21
THE REORGANIZATION AND MERGER.................................... 25
Special Meetings to Vote on the Proposed Transactions............ 25
Structure of the Transactions.................................... 25
Background....................................................... 26
Sealed Air's Reasons for the Merger; Recommendation of the
Sealed Air Board............................................ 28
Grace's Reasons for the Reorganization and Merger;
Recommendation of the Grace Board........................... 30
Accounting Treatment and Considerations.......................... 32
Certain United States Federal Income Tax Consequences............ 32
Regulatory Matters............................................... 35
No Appraisal Rights.............................................. 35
Federal Securities Laws Consequences; Resale Restrictions........ 35
THE NEW SEALED AIR CHARTER....................................... 36
Proposal to Repeal Supermajority Provisions of the Grace
Charter..................................................... 36
Recommendation of the Grace Board................................ 37
ROLE OF FINANCIAL ADVISORS....................................... 38
Opinion of Sealed Air Financial Advisor.......................... 38
Opinions of Grace Financial Advisors............................. 42
BUSINESS OF NEW SEALED AIR....................................... 49
Overview of New Sealed Air....................................... 49
Business of Sealed Air........................................... 49
Business of Grace Packaging...................................... 50
GRACE PACKAGING SELECTED SPECIAL-PURPOSE COMBINED FINANCIAL
DATA........................................................ 52
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR GRACE PACKAGING................... 53
NEW SEALED AIR
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA... 57
THE DISTRIBUTION AND MERGER AGREEMENTS........................... 65
General..................................................... 65
Reorganization of Grace..................................... 65
Merger of Sealed Air and Grace Packaging.................... 68
RELATIONSHIP BETWEEN NEW SEALED AIR AND NEW GRACE
AFTER THE REORGANIZATION AND MERGER......................... 75
Tax Sharing Agreement............................................ 75
Employee Benefits Agreement...................................... 75
Other Agreements................................................. 76
THE NEW CREDIT AGREEMENTS........................................ 77
General Terms.................................................... 77
Interest Rates and Fees.......................................... 77
Covenants and Other Provisions of the New Credit Agreements...... 78
MANAGEMENT OF NEW SEALED AIR..................................... 78
General..................................................... 78
Directors and Executive Officers............................ 78
INTERESTS OF CERTAIN PERSONS..................................... 79
Existing Officers and Directors Who Will Join New Sealed Air
and New Grace at the Effective Time......................... 79
Indemnification of Officers and Directors........................ 79
Sealed Air Officers' and Directors' Interests under Stock Plans.. 80
Grace Officers' Ownership of Grace Stock Options................. 80
THE SPECIAL MEETINGS............................................. 80
Times and Places; Purposes....................................... 80
Record Date; Voting Rights; Votes Required for Approval.......... 81
Proxies.......................................................... 82
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.................. 83
DESCRIPTION OF CAPITAL STOCK OF NEW SEALED AIR................... 86
Authorized Capital Stock......................................... 86
New Sealed Air Common Stock...................................... 86
New Sealed Air Preferred Stock................................... 86
Transfer Agent and Registrar..................................... 90
Stock Exchange Listing; Delisting and Deregistration of
Sealed Air Common Stock..................................... 90
COMPARISON OF STOCKHOLDER RIGHTS................................. 91
General..................................................... 91
Comparison of Current Sealed Air Stockholder Rights and Current
Grace Stockholder Rights with the Rights of New Sealed Air
Stockholders Following the Merger............................ 91
LEGAL MATTERS.................................................... 94
EXPERTS.......................................................... 95
FUTURE STOCKHOLDER PROPOSALS..................................... 95
WHERE YOU CAN FIND MORE INFORMATION.............................. 95
LIST OF DEFINED TERMS............................................ 98
INDEX TO FINANCIAL STATEMENTS.................................... F-1
LIST OF ANNEXES
Annex A - Agreement and Plan of Merger
Annex B - Distribution Agreement
Annex C - Opinion of Sealed Air's
Financial Advisor
Annex D - Opinions of Grace's
Financial Advisors
Annex E - New Sealed Air Charter
QUESTIONS AND ANSWERS ABOUT THE REORGANIZATION AND MERGER
Q: Please briefly describe the proposed transactions.
A: Grace will spin off its specialty chemicals businesses to its
stockholders, and the spun-off company will be renamed "W. R. Grace & Co."
Sealed Air will then merge with and become a new subsidiary of Grace, and Grace
will be renamed "Sealed Air Corporation".
As a part of these transactions, Grace and a packaging subsidiary will borrow
approximately $1.2 billion, and transfer these funds to the specialty chemicals
businesses. The "new" Grace will use some or all of the borrowings to repay
debt, and "new" Sealed Air will be responsible for repaying the $1.2 billion.
In this Joint Proxy Statement/Prospectus, we refer to Grace's packaging
business (which does not include the container sealants and coatings business)
as "Grace Packaging"; we refer to the parent company formed by the combination
of Sealed Air and Grace Packaging as "New Sealed Air"; and we refer to the new
W. R. Grace & Co. as "New Grace".
Grace has sent its stockholders a separate document called the "New Grace
Information Statement". This describes New Grace and the proposed spin-off.
Q: What will I receive in these transactions?
A: If you are a Sealed Air stockholder, you will receive one share of common
stock of New Sealed Air in exchange for each share of Sealed Air common stock
that you own.
If you are a Grace stockholder, you will receive, for each share of Grace common
stock that you own, one share of New Grace common stock and fractions of a share
of New Sealed Air common stock and convertible preferred stock.
Grace stockholders will receive only whole shares of New Grace and New Sealed
Air stock. Grace stockholders will receive cash instead of any fractional shares
they would otherwise receive.
We will notify Grace stockholders of the actual amount each will receive as
promptly as possible after the merger.
Grace stockholders may call (800) 354-8917 to get updated information on the
estimated number of shares of New Sealed Air common and convertible preferred
stock that they will receive.
Q: What dividends will I receive in the future?
A: Sealed Air does not currently pay dividends on its common stock, and we do
not expect New Sealed Air to do so. Although Grace has paid quarterly cash
dividends on its common stock, we do not expect New Grace to do so. However, the
Board of either company may change its policy based on business conditions, the
company's financial condition, its earnings and other factors.
New Sealed Air will pay quarterly cash dividends of $0.50 per share on the
convertible preferred stock.
Q: What are the tax consequences to stockholders of these transactions?
A: We believe these transactions will be tax-free for U.S. federal income
tax purposes to the stockholders of Grace and Sealed Air, except for cash
received instead of fractional shares.
To review the federal income tax consequences of the transactions in more
detail, see pages 34 - 36.
Q: When do you expect these transactions to be completed?
A: We expect that the transactions will close promptly after the special
meetings, late in the first quarter of 1998.
Q: What do I need to do now?
A: After reading this document carefully, you should complete and sign your
proxy card and mail it in the enclosed return envelope as soon as possible, so
that your shares may be represented at the stockholder meeting.
The Sealed Air Board recommends voting for approval of the merger agreement.
The Grace Board recommends voting for approval of the merger agreement. Approval
of the merger agreement will constitute approval of the reorganization, the
merger and the related transactions. As agreed with Sealed Air, the Grace Board
also recommends approval of a proposal to repeal the "supermajority" provisions
in the Grace charter (see pages 11 and 36).
Q: What do I do if I want to change my vote?
A: Just deliver a later-dated, signed proxy card to your company's Secretary
before your meeting or attend your meeting in person and vote.
Q: Should I send my stock certificates now?
A: No. After the merger is completed, we will send Grace stockholders
instructions for exchanging their shares for New Sealed Air common stock and
convertible preferred stock. New Grace common stock certificates will be
mailed to Grace stockholders without the need for any action on their part.
We will send Sealed Air stockholders instructions for exchanging their shares
for New Sealed Air common stock, although Sealed Air stockholders will not be
required to surrender their old Sealed Air stock certificates.
Q. Whom should I call with questions?
A: If you have any questions about the merger or the related transactions,
please call Sealed Air at (800) 350-9512 or (201) 703-4167, or call Grace at
(800) 354-8917.
If you would like copies of any of the documents we refer to or that we
incorporate by reference in this Joint Proxy Statement/Prospectus, you should
call (800) 350-9512 or (201) 703-4167 if the documents relate to Sealed Air or
call Grace at (800) 354-8917 if the documents relate to Grace.
ADDITIONAL QUESTIONS AND ANSWERS ABOUT THE REORGANIZATION
AND MERGER FOR SEALED AIR AND GRACE EMPLOYEES
Sealed Air Employees
--------------------
Q: What will happen in the merger to Sealed Air common stock that remains
subject to the company's repurchase option (i.e., "unvested" shares) under
Sealed Air's Contingent Stock Plan?
A: Unvested shares issued under Sealed Air's Contingent Stock Plan will be
exchanged for unvested shares of New Sealed Air common stock and will remain
subject to the repurchase option, based on the original vesting period.
Q: What will happen in the merger to Sealed Air common stock held in Sealed
Air's Profit-Sharing Plan?
A: The shares of Sealed Air common stock held in Sealed Air's Profit-Sharing
Plan will be exchanged in the merger for shares of common stock of New Sealed
Air, just like any other shares of Sealed Air common stock.
Q: How will shares of Sealed Air common stock held in Sealed Air's
Profit-Sharing Plan be voted?
A: Shares held in Sealed Air's Profit-Sharing Plan will be voted by the plan
trustee as the participants direct. If you are a participant with Sealed Air
common stock allocated to your account, you will receive a voting instruction
card enabling you to direct the voting of those shares. If you do not direct how
to vote your shares, they will be voted in the same proportion for and against
the proposal as shares in the plan are voted by participants who do provide
voting instructions.
Grace Employees
---------------
Q: What will happen in the reorganization and merger to employee stock
options held by Grace's employees?
A: The outstanding options to purchase Grace common stock that are held by
employees of Grace Packaging will become options to purchase common stock of New
Sealed Air. All other Grace options will become options to purchase common stock
of New Grace. The number of shares of New Sealed Air or New Grace that can be
purchased when the stock options are exercised, and the exercise price, will be
adjusted using formulas that are designed to maintain the approximate economic
value of the options at the time of the reorganization and merger. See page 71
for more information.
Q: May I exercise stock options and sell Grace common stock between now
and the completion of the reorganization and merger?
A: Yes, subject to limitations on trading by persons defined as Grace
"affiliates", which are summarized beginning on page 37, and other restrictions
on "insider trading" under securities laws.
Q: What will happen in the reorganization and merger to Grace common stock
held in Grace's Savings and Investment Plans?
A: When the Grace common stock is recapitalized, the shares of Grace common
stock held in Grace's Savings and Investment Plans will be exchanged for shares
of New Sealed Air common and convertible preferred stock, just like any other
shares of Grace common stock. In addition, shares of New Grace common stock will
be allocated to accounts that hold Grace common stock under Grace's Savings and
Investment Plans. You will receive additional information at a later date
regarding the New Sealed Air stock that will be held in your account.
Q: How will shares of Grace common stock held in Grace's Savings and
Investment Plans be voted?
A: Shares held in Grace's Savings and Investment Plans will be voted by the plan
trustee as the participants direct. If you are a participant with Grace common
stock allocated to your account, you will receive a proxy card enabling you to
direct the voting of those shares. If you do not direct how to vote your shares,
they will be voted in the same proportion for and against the proposals as all
other shares in the plans are voted.
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 Reorganization and Merger" on Page 24 and "The
Distribution and Merger Agreements" on page 65.
[GRAPHIC OMITTED]
Diagram showing the current structure of Sealed Air and Grace: (1) Sealed
Air, which owns U.S. and foreign subsidiaries engaged in the packaging business,
is owned by the existing Sealed Air stockholders and (2) Grace, which owns U.S.
and foreign subsidiaries engaged in the packaging and specialty chemicals
businesses, is owned by the existing Grace stockholders.
[GRAPHIC OMITTED]
Diagram showing (1) the separation of Grace's packaging business and
specialty chemicals businesses, (2) the $1.2 borrowing by Grace and a packaging
subsidiary of Grace and (3) the $1.2 billion cash transfer to New Grace or a
subsidiary of New Grace.
[GRAPHIC OMITTED]
Diagram showing the spinoff of New Grace to the Grace stockholders.
[GRAPHIC OMITTED]
Diagram showing the recapitalization of Grace, indicating that after the
spin-off, the Grace stockholders will own common and convertible preferred stock
of Grace (which will own Grace's packaging business) and common stock of New
Grace (which will own Grace's specialty chemicals businesses).
[GRAPHIC OMITTED]
Diagram showing the merger of a subsidiary of Grace (to be renamed Sealed
Air Corporation) into Sealed Air.
[GRAPHIC OMITTED]
Diagram showing the post-transaction structure of New Sealed Air and New
Grace: (1) New Sealed Air, which will own "old" Sealed Air and Grace's packaging
business, will be owned 37% by the existing Sealed Air stockholders (in common
stock) and 63% by the existing Grace stockholders (in common and convertible
preferred stock) and (2) New Grace, which will own Grace's specialty chemicals
businesses, will be owned 100% by the existing Grace stockholders.
SUMMARY
This summary highlights selected information from this Joint Proxy
Statement/Prospectus and may not contain all of the information that is
important to you. To understand the reorganization and merger more fully, you
should carefully read this entire document and the documents we refer to. See
"Where You Can Find More Information" on page 100.
The Companies
Sealed Air Corporation
Park 80 East
Saddle Brook, New Jersey 07663
(201) 791-7600
Sealed Air is a leading global manufacturer of a wide range of protective
and specialty packaging materials and systems that are used to protect a variety
of products from damage during manufacture, shipment, storage and handling.
Sealed Air's principal classes of products include protective packaging
products, primarily engineered products and surface protection and other
cushioning products, and specialty packaging products, primarily certain food
packaging products. Sealed Air conducts its operations primarily in the U.S. and
in 26 other countries in North America, Europe, the Asia/Pacific region and
Latin America and distributes its products in these areas as well as in other
parts of the world.
W. R. Grace & Co.
One Town Center Road
Boca Raton, Florida 33486
(561) 362-2000
Grace is one of the world's leading packaging and specialty chemicals
companies. Its principal businesses are packaging, catalysts and silica-based
products, construction chemicals and specialty building materials, and container
sealants and coatings.
Grace Packaging is a leading supplier of high- performance packaging
materials and systems for food and other products. Its principal packaging
products and services are divided into three product groups: specialty
packaging, marketed extensively under the Cryovac[Registered] registered
trademark, Formpac[Trademark] foam trays and Omicron[Trademark] rigid plastic
containers. Grace Packaging conducts its operations primarily in the U.S. and in
45 other countries worldwide, and distributes its products in these areas as
well as in many other countries.
For further information on Sealed Air and Grace Packaging, see "Business of
New Sealed Air" on page 51.
The Proposed Merger and Related Transactions (See page 26)
The merger agreement and form of distribution agreement that together
provide for the reorganization and merger are attached as Annexes A and B to
this Joint Proxy Statement/Prospectus. We encourage you to read these documents
carefully.
Here is some additional detail about the proposed transactions.
Sealed Air and Grace are proposing a combination of Sealed Air and Grace
Packaging. Because Grace is engaged not only in the packaging business but also
in various specialty chemicals businesses, it will take the following steps to
reorganize itself before the proposed merger:
o Grace will separate its packaging business and its specialty chemicals
businesses into separate groups of subsidiaries.
o The specialty chemicals businesses will be spun off to Grace's
stockholders as a new public company that will be renamed "W.R. Grace &
Co." The management of the "new" Grace will be substantially the same
as that of "old" Grace.
o Prior to the spin-off, Grace and a packaging subsidiary will borrow
approximately $1.2 billion and transfer these funds to the specialty
chemicals businesses. New Grace will use some or all of the borrowings
to repay debt, and New Sealed Air will be responsible for repaying the
$1.2 billion.
o The outstanding common stock of old Grace will be exchanged for new
common and convertible preferred stock.
A wholly owned subsidiary of old Grace will then merge with Sealed Air. Old
Grace will be renamed "Sealed Air Corporation", and Sealed Air's existing
stockholders will receive common stock of New Sealed Air.
New Sealed Air After the Merger
The proposed merger of Sealed Air and Grace Packaging to form New Sealed
Air will create a leading worldwide protective and specialty packaging company
that should be well positioned for further growth. New Sealed Air will enjoy
strong brand name recognition, a commitment to technological innovation and a
global marketing network.
Here are a few points that highlight how New Sealed Air would have looked
in 1996:
o New Sealed Air would have had annual net sales of more than $2.5
billion.
o Approximately 60% of New Sealed Air's net sales would have come from
specialty (primarily food) packaging products and 40% from protective
packaging and other products.
o New Sealed Air would have had operations in 46 countries, with 51% of
its revenues generated in the U.S. and 49% outside the U.S.
Following these transactions, New Sealed Air will:
o be an independent company, initially owned 37% by the existing Sealed
Air stockholders and 63% by the existing Grace stockholders;
o own and operate the businesses of Sealed Air and Grace
Packaging; and
o be obligated to repay the approximately $1.2 billion that will be
borrowed and transferred to Grace's specialty chemicals businesses.
New Grace After the Merger
After the spin-off, New Grace will be a highly focused specialty chemicals
company. Grace stockholders should review the New Grace Information Statement.
New Grace will:
o initially be owned 100% by the existing Grace stockholders;
o own and operate Grace's specialty chemicals businesses; and
o be essentially debt-free following the approximately $1.2 billion cash
transfer from Grace, which will be used to repay borrowings.
------------------------------
Considerations for Sealed Air Stockholders
The Sealed Air stockholders will be asked to approve the merger agreement.
The favorable vote of a majority of the outstanding shares of Sealed Air common
stock is required to approve the merger.
Recommendation to Sealed Air Stockholders
The Board of Directors of Sealed Air believes the merger is fair to you and
in your best interests and recommends that you vote "FOR" the merger proposal.
In reaching its recommendation in favor of the merger, the Sealed Air Board
considered the challenges and risks associated with combining the companies and
achieving the benefits anticipated from the merger, as discussed in "Certain
Risk Factors" beginning on page 22.
What Sealed Air Stockholders Will Receive
If these transactions are completed, Sealed Air stockholders will receive
one share of New Sealed Air common stock for each share of Sealed Air common
stock that they own.
Sealed Air's Reasons for the Proposed Merger (See page 29 and 31)
Sealed Air believes the merger will:
o offer a strategic business opportunity to bring together two leading
packaging companies with Sealed Air's entrepreneurial management team;
o combine complementary product lines to create marketing
opportunities;
o bring together innovative technologies and worldwide marketing
networks and distribution channels; and
o create opportunities for efficiencies through the integration of the
two companies' operations.
Opinion of Financial Advisor (See page 39)
In deciding to approve the merger, the Sealed Air Board received and
considered the opinion of Donaldson, Lufkin & Jenrette Securities Corporation,
its financial advisor, as to the fairness of the consideration to be received by
its stockholders from a financial point of view. The opinion is attached as
Annex C to this Joint Proxy Statement/Prospectus.
We encourage you to read the opinion.
------------------------------
Considerations for Grace Stockholders
The Grace stockholders will be asked:
o to approve the merger agreement (which will constitute approval of the
spin-off, certain charter amendments, the recapitalization of the Grace
common stock and the issuance of shares in the merger); and
o to approve a charter amendment to repeal certain provisions requiring
supermajority stockholder approval (see below).
The favorable vote of a majority of the outstanding shares of Grace common stock
is required to approve the reorganization and merger. The favorable vote of 80%
of the outstanding shares of Grace common stock is required to approve the
repeal of the charter provisions requiring supermajority approval.
Recommendation to Grace Stockholders
The Board of Directors of Grace believes the reorganization and merger are
fair to you and in your best interests and recommends that you vote "FOR" the
proposal to approve the reorganization and merger. As agreed with Sealed Air,
the Board recommends that you vote "FOR" the proposal to repeal the charter
provisions requiring supermajority approval.
In reaching its recommendation in favor of the proposed transactions, the
Grace Board considered the challenges and risks associated with combining the
companies and achieving the benefits anticipated from the reorganization and
merger, as discussed in "Certain Risk Factors" beginning on page 22.
Grace's Reasons for the Proposed Merger and Related Transactions (See
page 31)
Grace believes the reorganization and merger will:
o enhance stockholder value by giving its stockholders, through a
tax-free transaction, a significant premium for Grace Packaging and
participation in the ownership of both New Sealed Air and New Grace;
o create a preeminent packaging company with complementary packaging
products; and
o create New Grace, a highly focused specialty chemicals company.
What Grace Stockholders Will Receive (See page 70)
If these transactions are completed, Grace stockholders will receive, for
each share of Grace common stock that they own:
o one share of New Grace common stock, and
o an estimated .53 to .54 of a share of New Sealed Air common stock and
an estimated .46 to .48 of a share of New Sealed Air convertible
preferred stock.
These estimates are based upon information as of February 11, 1998. The
actual amount of New Sealed Air stock that Grace stockholders will receive will
be determined shortly after the merger based on the formulas described on page
70.
Grace stockholders will receive only whole shares of New Grace and New
Sealed Air stock. Grace stockholders will receive cash instead of any fractional
shares they would otherwise receive.
Opinions of Financial Advisors (See page 44)
In deciding to approve the proposed transactions, the Grace Board
considered opinions from Merrill Lynch & Co. and Credit Suisse First Boston
Corporation, its financial advisors, as to the fairness of the consideration to
be received by its stockholders from a financial point of view. These opinions
are attached as Annex D to this Joint Proxy Statement/Prospectus. We encourage
you to read these opinions.
Proposal to Repeal Supermajority Provisions of the Grace
Charter (See page ?)
As part of the merger, the Grace charter will be amended and restated in
its entirety so that the New Sealed Air charter will be substantially identical
to the existing Sealed Air charter. Except for the repeal of certain provisions
described below, Grace stockholders will vote on the necessary charter
amendments as part of the proposal to approve the reorganization and merger.
In a separate proposal, Grace's stockholders will be asked to approve the
repeal of three provisions in the Grace charter, which will become the charter
of New Sealed Air, for which supermajority approval is needed. These provisions
relate to stockholder amendments to the by-laws, actions by written consent of
stockholders, and the classification of the board of directors into staggered
terms. Repeal of these provisions is necessary to adopt the New Sealed Air
charter in its entirety.
The favorable vote of 80% of the outstanding shares of Grace common stock
is required to approve the repeal of these provisions. If they are not repealed,
we intend to proceed with the reorganization and merger (assuming that the other
conditions to the transactions are satisfied or waived), and the New Sealed Air
charter would include the supermajority provisions.
------------------------------
Additional Considerations for Sealed Air and Grace Stockholders
Board of Directors and Management of New Sealed Air after the Merger
(See page 81)
The directors of New Sealed Air will consist of the seven current directors
of Sealed Air plus four current outside directors of Grace -- Hank Brown,
Christopher Cheng, Virginia A. Kamsky and John E. Phipps -- none of whom will be
directors of New Grace. New Sealed Air will be managed by the current management
of Sealed Air, including Dunphy, Chairman of the Board and Chief
Executive Officer, and William V. Hickey, President and Chief Operating Officer.
In addition, J. Gary Kaenzig, Jr., a Senior Vice President of Grace and
President of Grace Packaging, and Leonard R. Byrne and Alan S. Weinberg,
executives of Grace Packaging, will become officers of New Sealed Air.
Following the merger, New Sealed Air and New Grace will have no officers or
directors in common.
Interests of Officers and Directors in the Reorganization and Merger
(See page 82)
When considering the recommendations of the Sealed Air Board and the Grace
Board, you should be aware that officers and directors of Sealed Air and Grace
have interests and arrangements that may be different from your interests as
stockholders:
o The directors and officers of Sealed Air and four directors of Grace
and certain executives of Grace Packaging are expected to become
directors and officers of New Sealed Air.
o The directors and officers of Grace, except for those joining New
Sealed Air, are expected to become directors and officers of New Grace.
o Officers and directors of Sealed Air and Grace will be indemnified if
the proposed transactions give rise to certain liabilities.
o Officers of Grace own options to purchase Grace common stock. Each of
these options will be converted into options to purchase New Sealed Air
or New Grace common stock, depending on which company the option holder
joins after the merger, unless the options are exercised earlier. The
treatment of options gives officers more choices than stockholders
have.
Conditions to the Reorganization and Merger (See page 74)
The reorganization and merger will be completed only if certain conditions,
including the following, are satisfied (or waived in certain cases):
o the approval of the Sealed Air and Grace stockholders;
o the absence of legal restrictions that prevent the completion of
the transactions;
o the receipt of all material governmental and other consents and
approvals required;
o the receipt of legal opinions that the reorganization and
merger will qualify as tax-free reorganizations for U.S. federal
income tax purposes; and
o the accuracy of representations and warranties and performance of
covenants in the merger agreement.
Termination of the Merger Agreement (See page 75)
Sealed Air and Grace may mutually agree to terminate the merger agreement
without completing the merger.
The merger agreement may also be terminated in certain other circumstances,
as follows:
o Either company may terminate the merger agreement if:
the merger is not completed by April 30, 1998 (but neither company may
terminate the agreement if its own breach is the reason the merger is
not completed by then);
the stockholders of Sealed Air or Grace do not approve the
transactions; or
Sealed Air or Grace enters into an agreement with a third party on
terms that its board believes in good faith to be better for its
stockholders than the merger agreement.
o Sealed Air may terminate the merger agreement if:
Grace fails to comply materially with its obligations in certain
circumstances;
the average closing price of Grace common stock for the 20 trading days
preceding the merger is less than $45 3/8 per share; or
the Grace Board fails to recommend that Grace stockholders approve the
merger, or changes its recommendation in a manner materially adverse to
Sealed Air;
o Grace may terminate the merger agreement if:
Sealed Air fails to comply materially with its obligations in
certain circumstances;
the average closing price of Sealed Air common stock for the 20 trading
days preceding the merger is less than $37 per share; or
the Sealed Air Board fails to recommend that Sealed Air stockholders
approve the merger, or changes its recommendation in a manner
materially adverse to Grace.
Termination Fees and Expenses (See page 76)
If the merger agreement is terminated for certain reasons, as explained on
page 76, Grace must pay Sealed Air a termination fee of either $25 million or
$150 million, depending on the circumstances, plus out-of-pocket expenses in
certain cases.
If the merger agreement is terminated for certain other reasons, as
explained on page 76, Sealed Air must pay Grace a termination fee of either $25
million or $75 million, depending on the circumstances, plus out-of-pocket
expenses in certain cases.
Regulatory Approvals (See page 36)
Sealed Air and Grace have made certain filings and taken other actions
necessary to obtain approvals from certain U.S. and foreign regulatory
authorities in connection with the reorganization and merger, including U.S. and
certain foreign antitrust authorities. The waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act expired on December 18, 1997. It is
expected that Sealed Air and Grace will obtain all material required regulatory
approvals before the special meetings. However, it is not certain that Sealed
Air and Grace will obtain all required regulatory approvals by then, and
approvals may include conditions that would be detrimental to Sealed Air or
Grace.
Accounting Treatment and Considerations (See page 33)
The merger will be accounted for under the purchase method of accounting,
with Grace treated as the acquirer. As a result, New Sealed Air will record the
assets and liabilities of Sealed Air at their estimated fair values and will
record as goodwill the excess of the purchase price (i.e., the market
capitalization of Sealed Air for a period before and after the merger was
announced, plus certain merger-related costs) over such estimated fair values.
As required by accounting rules, New Sealed Air's net earnings will be
reduced by the dividends to be paid on the convertible preferred stock before
calculating basic earnings per share. Diluted earnings per share cannot
initially be presented because treating the convertible preferred stock as if it
had been converted would be antidilutive (i.e. would increase earnings per
share).
Certain Federal Income Tax Consequences (See page 34)
We have structured the proposed transactions so that our legal counsel will
be able to deliver opinions that neither Sealed Air, Grace nor our stockholders
will recognize any gain or loss for U.S. federal income tax purposes as a result
of the reorganization and merger (except for the cash received by Grace's
stockholders instead of fractional shares). Completion of the merger is
conditioned on the receipt of these legal opinions, and such condition may not
be waived.
Tax matters are very complicated, and the tax consequences of the proposed
transactions to you will depend on the facts of your own situation. Consult your
tax advisors for a full understanding of the tax consequences to you of the
spin-off, the recapitalization and the merger.
No Appraisal Rights (See page 36)
Under Delaware law, neither Sealed Air stockholders nor Grace stockholders
have any right to an appraisal of the value of their shares in connection with
the reorganization or merger.
Comparative Per Share Market Price Information (See page 21)
Sealed Air common stock and Grace common stock are both listed on the New
York Stock Exchange. On August 13, 1997, the last full trading day prior to the
public announcement of the proposed merger, Sealed Air common stock closed at
$47 5/8 and Grace common stock closed at $66 1/2. On February 12, 1998, Sealed
Air common stock closed at $61(1)/(16) and Grace common stock closed at $77 7/8.
Listing of New Sealed Air and New Grace Stock (See page 94)
New Sealed Air will list its common stock under the ticker symbol "SEE" and
its convertible preferred stock under the ticker symbol "SEEprA" on the New York
Stock Exchange. New Grace will list its common stock on the New York Stock
Exchange under the ticker symbol "GRA".
SUMMARY SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
Sources of Information
We are providing the following selected financial information concerning
Sealed Air, Grace Packaging and New Sealed Air to help you in your analysis of
the financial aspects of the proposed reorganization and merger. This
information was derived from the audited and unaudited financial statements for
Sealed Air and Grace Packaging for the periods presented. The information is
only a summary and you should read it in conjunction with the financial
information included or incorporated by reference in this Joint Proxy
Statement/Prospectus. See "Where You Can Find More Information" on page 100,
"Grace Packaging Special-Purpose Combined Financial Statements" on page F-1, and
"New Sealed Air Unaudited Pro Forma Condensed Consolidated Financial Data" on
page 59.
For financial information concerning New Grace, Grace stockholders should
also read the financial information in the New Grace Information Statement.
How the Unaudited Pro Forma Consolidated Financial Information Was Prepared
The unaudited pro forma consolidated financial information is presented to
show you how Sealed Air and Grace Packaging might have looked if Grace Packaging
had been an independent company and Grace Packaging and Sealed Air had been
combined for the periods presented. The pro forma financial information was
prepared using the purchase method of accounting, with Grace treated as the
acquirer. See "The Reorganization and Merger-- Accounting Treatment" on page 33.
Certain assets and liabilities shown on the financial statements for Grace
Packaging will be transferred to New Grace in the reorganization, so the pro
forma financial information for New Sealed Air has been adjusted accordingly. We
did not adjust the pro forma amounts for certain operating efficiencies that may
be realized as a result of the merger.
If the companies had been combined in the past, they might have performed
differently. You should not rely on the pro forma financial information as an
indication of the results that would have been achieved if the reorganization
and merger had taken place earlier or the future results that New Sealed Air
will experience after the merger. See "New Sealed Air Unaudited Pro Forma
Condensed Consolidated Financial Data."
Reorganization and Merger-Related Expenses
Sealed Air and Grace estimate that the reorganization and merger will
result in fees and expenses totaling approximately $180.1 million, of which
approximately $65.1 million will be borne by New Sealed Air and $115.0 million
by New Grace. After the merger, New Sealed Air may incur certain charges and
expenses relating to restructuring and integrating the operations of Sealed Air
and Grace Packaging. We did not adjust the pro forma information for certain of
these charges and expenses or for certain operating efficiencies that may be
realized as a result of the merger.
Sealed Air
Selected Historical Financial Information
(In thousands, except per share data)
Nine Months
Ended September 30, Years Ended December 31,
--------------------- -----------------------------------------------------------
1997 1996 1996 1995(1) 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
Consolidated Statement of
Earnings Data:
Net sales...................... $620,769 $575,578 $789,612 $723,120 $519,186 $451,694 $446,058
Gross profit................... 233,405 214,528 294,427 256,168 191,763 169,547 167,631
Operating profit............... 105,988 94,607 130,072 108,880 83,909 74,113 72,190
Other expense, net............. 2,837 10,958 15,477 21,726 22,706 28,652 33,372
Earnings before income taxes... 103,151 83,649 114,595 87,154 61,203 45,461 38,818
Earnings....................... 62,509 50,604 69,329 52,728 37,216 (2) 25,914 (3) 20,768
Earnings per share(4).......... 1.47 1.19 1.63 1.25 0.94 (2) 0.66 (3) 0.54
Consolidated Balance Sheet Data
(at period end):
Working capital................ $84,104 $61,296 $58,910 $41,945 $15,767 $33,828 $29,417
Total assets................... 483,228 484,220 467,119 443,545 331,117 279,818 268,264
Notes payable and current
installments of long-term debt 24,599 26,310 15,565 36,840 30,508 15,618 18,724
Long-term debt, less
current installments.......... 48,718 128,781 99,900 149,808 155,293 190,058 225,278
Shareholders' equity
(deficit)(5).................. 247,626 165,380 186,649 106,338 11,012 (29,419) (66,311)
Other Data:
EBIT(6)........................ 108,765 93,911 127,531 105,973 80,044 71,677 67,243
Depreciation and
amortization.................. 33,658 29,427 39,897 35,280 23,520 24,544 23,607
Non-cash compensation.......... -- -- 3,242 3,556 3,256 2,293 1,836
EBITDA(7)...................... 142,423 123,338 170,670 144,809 106,820 98,514 92,686
EBITDA as % of net sales....... 22.9% 21.4% 21.6% 20.0% 20.6% 21.8% 20.8%
Ratio of earnings to fixed
charges(8).................... 13.1x 7.2x 7.7x 4.9x 3.8x 2.4x 2.2x
- -----------------------
(1) Includes the operations of Trigon Industries Limited from the date of its
acquisition in January 1995.
(2) Does not reflect an after-tax charge to earnings ($5.6 million or $0.14 per
share) arising from the early redemption in 1994 of subordinated notes.
(3) Does not reflect cumulative credit to earnings ($1.5 million or $0.04 per
share) from the implementation as of January 1, 1993 of Financial Accounting
Standard No. 109, "Accounting for Income Taxes".
(4) Per share data has been adjusted for periods prior to 1995 to reflect the
effect of a two-for-one stock split in the form of a 100% stock dividend
distributed in 1995.
(5) The deficits in shareholders' equity in 1993 and 1992 resulted from a
special dividend of approximately $329 million paid to stockholders in 1989.
(6) EBIT is defined as earnings before interest expense (including the non-cash
amortization of deferred financing fees) and provision for income taxes.
(7) EBITDA is defined as EBIT plus depreciation, goodwill amortization,
amortization of other intangible assets and non-cash compensation. This
definition may differ from that used by other companies (including Grace
Packaging) since it includes non-cash compensation. EBITDA is a frequently
used measure of a company's ability to generate cash to service its
obligations, including debt service obligations, and to finance capital and
other expenditures. EBITDA does not purport to represent net income or net
cash provided by operating activities, as those terms are defined under
generally accepted accounting principles, and should not be considered as an
alternative to such measurements as an indicator of the company's
performance.
(8) For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" represents earnings before income taxes plus fixed charges.
"Fixed charges" consist of interest on all indebtedness, amortization of
deferred financing costs and the portion (approximately one-third) of rental
expense that management believes is representative of the interest component
of rental expense.
Recent Results of Sealed Air
Sealed Air recently reported record net sales, operating profit and net
earnings for the year and quarter ended December 31, 1997.
Net sales increased 7% to $842.8 million for 1997, compared with $789.6
million for 1996, and to $222.1 million for the fourth quarter of 1997, 4% above
their level of $214.0 million for the fourth quarter of 1996. Excluding the
negative effect of foreign currency translation, the increase in net sales would
have been 10% for the year and 8% for the fourth quarter compared to the
respective 1996 periods.
The increase in net sales in 1997 was due primarily to increased unit
volume in Sealed Air's major classes of products, partially offset by the
negative effect of foreign currency translation as the U.S. dollar strengthened
against most foreign currencies. Net sales also benefited modestly from
additional net sales from recent acquisitions. The recent Asian currency
problems have not had a significant effect on Sealed Air's operating results.
Before giving effect to $8.4 million of transaction expenses that were
incurred in 1997, primarily relating to the Merger, Sealed Air's operating
profit for 1997 would have increased 13% to $146.5 million compared with 1996
operating profit of $130.1 million. Net earnings would have increased 24% to
$86.0 million, or $2.02 per share, compared with net earnings of $69.3 million,
or $1.63 per share, in 1996. After such transaction expenses, operating profit
was $138.1 million and net earnings were $79.9 million, or $1.88 per share, in
1997.
For the fourth quarter of 1997, before giving effect to $7.6 million of
transaction expenses mentioned above, Sealed Air's operating profit would have
increased 12% to $39.7 million compared with $35.5 million for the fourth
quarter of 1996. Net earnings for the fourth quarter of 1997 would have
increased 23% to $23.0 million, or $0.54 per share, compared with 1996 net
earnings of $18.7 million, or $0.44 per share, for the fourth quarter of 1996.
After such transaction expenses, operating profit was $32.1 million and net
earnings were $17.4 million, or $0.41 per share, for the fourth quarter of 1997.
Grace Packaging
Selected Historical Financial Information
(In thousands)
Nine Months
Ended September 30, Years Ended December 31,
-------------------------- -----------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- ----------- ---------- ---------- ---------- --------- -----------
Statement of Earnings Data:
Net sales.............. $1,347,739 $1,271,612 $1,741,602 $1,705,642 $1,428,459 $1,256,132 $1,236,659
Gross profit........... 473,883 431,278 590,596 627,542 545,313 492,911 483,803
Operating profit....... 191,918 139,106 173,500 248,062 237,349 219,474 218,863
Other expense, net..... 2,215 5,036 3,678 12,589 9,597 12,949 9,101
Earnings before income
taxes................. 189,703 134,070 169,822 235,473 227,752 206,525 209,762
Net earnings........... 111,545 78,813 99,830 140,892 139,511 125,980 127,955
Combined Balance Sheet Data
(at period end):
Working capital........ $323,510 $277,583 $289,605 $224,815 $194,284 $176,502
Total assets........... 1,683,432 1,702,888 1,477,360 1,179,937 914,669 839,310
Total liabilities...... 301,614 321,098 303,398 282,176 214,950 219,787
Total equity .......... 1,381,818 1,381,790 1,173,962 897,761 699,719 619,523
Other Data:
EBIT(1)................ 189,703 134,070 169,822 235,473 227,752 206,525 209,762
Depreciation and
amortization.......... 78,701 69,586 94,380 80,357 61,924 51,508 52,641
EBITDA(2).............. 268,404 203,656 264,202 315,830 289,676 258,033 262,403
EBITDA as % of net
sales................. 19.9% 16.0% 15.2% 18.5% 20.3% 20.5% 21.2%
- -------------------
(1) EBIT is defined as earnings before interest expense and provision for income
taxes.
(2) EBITDA is defined as EBIT plus depreciation, goodwill amortization and
amortization of other intangible assets. EBITDA is a frequently used measure
of a company's ability to generate cash to service its obligations,
including debt service obligations, and to finance capital and other
expenditures. EBITDA does not purport to represent net income or net cash
provided by operating activities, as those terms are defined under generally
accepted accounting principles, and should not be considered as an
alternative to such measurements as an indicator of the company's
performance.
Recent Results of Grace Packaging
Grace Packaging's net sales for the year ended December 31, 1997 increased
more than 5% to approximately $1.8 billion compared to 1996. For the fourth
quarter of 1997, net sales increased by about 4% to approximately $486 million
compared to the fourth quarter of 1996. Excluding the negative effect of foreign
currency translation, the increase in net sales would have been approximately
10% for the year and approximately 9% for the fourth quarter.
The increase in net sales was due primarily to increased unit volume of
Grace Packaging's major products, partially offset by the negative effect of
foreign currency translation. In the fourth quarter of 1997, the currency
translation effect of the recent currency problems in Asia more than offset
higher unit volume in the Asia/Pacific region.
New Sealed Air
Selected Pro Forma Financial Information
(In thousands, except per share data)
Nine months ended Year ended
September 30, 1997 December 31, 1996
------------------ -----------------
Unaudited Pro Forma Consolidated Statement of Earnings Data:
Net sales............................................................. $1,967,529 $2,529,645
Gross profit.......................................................... 699,563 874,723
Operating profit...................................................... 286,335 268,655
Other expense, net.................................................... 61,539 93,355
Earnings before income taxes.......................................... 224,796 175,300
Net earnings.......................................................... 121,129 88,178
Earnings available to common stockholders............................. 67,129 16,178
Earnings per common share(1).......................................... 0.80 0.19
Shares used in computing earnings per common share(1)................. 83,595 83,595
Unaudited Pro Forma Consolidated Balance Sheet Data: September 30, 1997
------------------
Working capital....................................................... $160,331
Total assets.......................................................... 4,095,651
Notes payable and current installments of long-term debt.............. 265,399
Long-term debt, less current installments............................. 1,048,718
Total liabilities..................................................... 1,822,761
Convertible preferred stock........................................... 1,800,000
Stockholders' equity.................................................. 472,890
Other Pro Forma Data:
EBIT(2)............................................................... 286,897 262,436
Depreciation and amortization......................................... 146,244 179,036
Non-cash compensation................................................. -- 11,242
EBITDA(3)............................................................. 433,141 452,714
EBITDA as % of net sales.............................................. 22.0% 17.9%
Ratio of earnings to fixed charges and preferred dividends(4)......... 1.8x 1.2x
- ----------------
(1) Pro forma earnings per common share is calculated based upon 83,595 shares
of New Sealed Air common stock, which is the estimated weighted average
number of common shares that will be outstanding upon the consummation of
the merger (excluding shares of common stock into which the preferred stock
is convertible because the effect of conversion is antidilutive).
(2) See footnote (6) on page 15.
(3) See footnote (7) on page 16.
(4) For the purpose of calculating the ratio of earnings to fixed charges and
preferred dividends, "earnings" represents earnings before income taxes plus
fixed charges. "Fixed charges" consist of interest on all indebtedness,
amortization of deferred financing costs and the portion (approximately
one-third) of rental expense that management believes is representative of
the interest component of rental expense.
Unaudited Comparative Per Share Data
The following table (1) compares certain historical Sealed Air per share
information with New Sealed Air pro forma equivalent per share information and
(2) compares certain historical Grace per share information with New Sealed Air
and New Grace pro forma equivalent per share information. The table should be
read in conjunction with the financial information for Sealed Air, Grace, Grace
Packaging, New Sealed Air and New Grace that is included or incorporated by
reference in this Joint Proxy Statement/Prospectus and the New Grace Information
Statement. You should not rely on the pro forma financial information as an
indication of the results that would have been achieved if the reorganization
and merger had taken place earlier or of the results of New Sealed Air and New
Grace after the merger. New Sealed Air and New Grace are not expected to pay
dividends on their common stock.
Sealed Air Stockholders Grace Stockholders
--------------------------------- -------------------------------------------------
Pro Forma Pro forma Equivalent Per Share(1)
Equivalent Per ----------------------------------------
Sealed Air Share-New Grace
Historical Sealed Air (1) Historical New Sealed Air New Grace Total
---------- -------------- ---------- -------------- --------- -----
Earnings per share from continuing
operations (2)(3):
Year ended December 31, 1996.......... $1.63 $0.19 $2.26 $0.10 $1.53 $1.63
Nine months ended September 30, 1997.. 1.47 0.80 2.91 0.44 1.77 2.21
Dividends per share (2)(4):
Year ended December 31, 1996.......... -- -- 0.50 0.96 -- 0.96
Nine months ended September 30, 1997.. -- -- 0.42 0.72 -- 0.72
Book value per share at period end (2):
September 30, 1997.................... 5.81 5.66 6.48 3.11 2.53 5.64
- ---------------------------------
(1) The pro forma equivalent per share information for Sealed Air stockholders
was calculated using the exchange ratio of one share of New Sealed Air
common stock for each share of Sealed Air common stock. The pro forma
equivalent per share information for Grace stockholders was calculated using
the exchange ratio in the spin-off (one share of New Grace common stock for
each share of Grace common stock) and the estimated exchange ratios in the
recapitalization ( .55 shares of New Sealed Air common stock and .48 shares
of New Sealed Air convertible preferred stock for each share of Grace common
stock).
(2) The pro forma earnings per share, dividends per share and book value per
share were calculated using only the number of common shares expected to be
outstanding immediately after the merger, assuming that none of the
convertible preferred stock was converted.
(3) As discussed in Note G to the "New Sealed Air Unaudited Pro Forma Condensed
Consolidated Financial Data" on page 59, the conversion of New Sealed Air
convertible preferred stock into New Sealed Air common stock would have an
antidilutive effect (i.e., would increase earnings per common share).
Accordingly, the table above presents only basic pro forma earnings per
share, which were calculated by subtracting the dividends on the convertible
preferred stock from net earnings and dividing this amount by the number of
common shares expected to be outstanding immediately after the merger,
assuming that none of the convertible preferred stock was converted.
If earnings per share were calculated assuming that all the convertible
preferred stock had been converted, the unaudited earnings per share data in
the table above would instead be as follows:
Pro Forma Equivalent
Per Share (assuming conversion)
----------------------------------
Sealed Air Grace - Total
-------------- ---------------
Earnings per share from continuing operations:
Year ended December 31, 1996.......................... $0.76 $1.95
Nine months ended September 30, 1997.................. 1.05 2.35
(4)The historical Grace dividends per share were paid on Grace common stock.
The pro forma dividends per share are the annual dividends of $2.00 to be
paid on New Sealed Air convertible preferred stock.
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
Sealed Air common stock and Grace common stock are listed on the New York
Stock Exchange. The Sealed Air ticker symbol is SEE, and the Grace ticker symbol
is GRA.
The following table sets forth the high and low sale prices for a share of
Sealed Air common stock and Grace common stock and the dividends declared on
such stock. The prices are as reported on the New York Stock Exchange Composite
Transaction Tape and are based on published financial sources.
Grace Common Stock Sealed Air Common Stock (1)
---------------------------------------- --------------------------------
Market Price(2) Cash Market Price(3)
----------------------- Dividends --------------------------------
High Low Declared High Low
------------ --------- ----------- ------------ ----------------
1995
First Quarter......................... $55 1/4 $38 1/4 $0.35 $22 3/4 $17 15/16
Second Quarter........................ 65 1/4 51 0.35 22 7/8 20 1/8
Third Quarter......................... 71 5/8 61 0.35 28 1/4 22 1/8
Fourth Quarter........................ 66 7/8 53 0.125 30 3/4 24 1/4
1996
First Quarter......................... $81 3/4 $53 5/8 $0.125 $35 1/4 $26
Second Quarter........................ 83 70 0.125 38 1/4 32 3/8
Third Quarter......................... 76 1/2 60 1/2 0.125 39 30 1/8
Fourth Quarter........................ 56 3/4 45 5/8 0.125 44 1/8 37
1997
First Quarter......................... $57 1/2 $46 1/2 $0.125 $48 $39 3/4
Second Quarter........................ 60 1/8 44 3/8 0.145 49 5/8 41 1/4
Third Quarter......................... 74 54 7/8 0.145 55 3/8 45 15/16
Fourth Quarter........................ 81 1/8 63 1/2 0.145 63 49 3/4
1998
First Quarter (through February 12) .. 80 5/8 70 5/8 -- 64 1/2 55 3/16
- --------------------
(1) Sealed Air paid no cash dividends during the periods presented.
(2) On September 28, 1996, W. R. Grace & Co., a New York corporation
subsequently renamed Fresenius Medical Care Holdings, Inc. ("Grace New
York"), spun off Grace (including its packaging and specialty chemicals
businesses) to its stockholders as part of a reorganization. The spun-off
company retained the name "W. R. Grace & Co." The historical share prices
listed above have not been adjusted to account for such reorganization and,
for periods prior to such spin-off, are the share prices of Grace New York.
(3) Adjusted for two-for-one stock split which occurred on September 29, 1995.
On August 13, 1997, the last full trading day before the public
announcement of the proposed merger, the closing prices on the New York Stock
Exchange Composite Transaction Tape were $47 5/8 per share of Sealed Air common
stock and $66 1/2 per share of Grace common stock. On February 12, 1998, the
most recent practicable date before the printing of this Joint Proxy
Statement/Prospectus, the closing prices on the New York Stock Exchange
Composite Transaction Tape were $61(1)/(16) per share of Sealed Air common stock
and $77(7)/(8) per share of Grace common stock. Stockholders are urged to obtain
current market quotations prior to making any decision with respect to the
reorganization and merger.
Sealed Air does not pay dividends on its common stock, and New Sealed Air
is not expected to do so. Although Grace has paid quarterly cash dividends on
its common stock, New Grace is not expected to do so. However, after the merger,
the Board of either company may change its policy based on business conditions,
the company's financial condition, its earnings and other factors. Holders of
New Sealed Air convertible preferred stock will receive quarterly cash dividends
of $0.50 per share, as declared by the Board of New Sealed Air.
CERTAIN RISK FACTORS
In addition to the other information included in this Joint Proxy
Statement/Prospectus, you should carefully consider the following risk factors
in determining whether to vote in favor of the reorganization, merger and
related proposals. Grace stockholders should also carefully read "Certain Risk
Factors" in the New Grace Information Statement.
We also caution you that this Joint Proxy Statement/Prospectus
contains forward-looking statements, which include all statements regarding
Grace's, Sealed Air's, New Sealed Air's and New Grace's expected financial
position, results of operations, cash flows, dividends, financing plans,
business strategies, operating efficiencies or synergies, 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 Sealed Air and Grace believe their 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 foreign laws and
regulations, costs or difficulties relating to the reorganization, the merger
and related transactions and increased competitive and/or customer pressures.
Potential Difficulties in Combining the Operations of the
Companies
Sealed Air and Grace Packaging have previously operated
separately. New Sealed Air may not be able to integrate the operations of Sealed
Air and Grace Packaging without a loss of key employees, customers or suppliers,
loss of revenues, increases in operating or other costs or other difficulties.
In addition, New Sealed Air may not be able to realize the operating
efficiencies and other benefits that are sought from the merger. See "The
Reorganization and Merger--Sealed Air's Reasons for the Merger; Recommendation
of the Sealed Air Board" on page 29.
Different Factors Affecting New Sealed Air's Business
New Sealed Air's range of products, geographic scope of
operations, customers, competitors and suppliers will differ from those of
Sealed Air, Grace and Grace Packaging. As a result, the results of operations
and prospects for New Sealed Air, as well as its stock price, may be affected by
factors that are different from those that have affected either Sealed Air or
Grace in the past.
Restrictions on New Sealed Air and New Grace to Protect
Tax-free Treatment
To protect the tax-free treatment of the reorganization and
merger under U.S. federal income tax laws, Sealed Air and Grace have agreed to
certain restrictions on New Sealed Air. For two years after the merger:
o New Sealed Air and its affiliates may not repurchase 20% or more of New
Sealed Air's equity securities (subject to certain additional
limitations).
o New Sealed Air and its affiliates may not issue or sell equity securities
of New Sealed Air or Grace Packaging, and they may not solicit, support or
participate in any tender offer for New Sealed Air 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 Sealed Air.
o New Sealed Air must continue to operate Grace Packaging's business and may
not sell or otherwise dispose of more than 60% of Grace Packaging's assets
except in the ordinary course of business.
o The subsidiaries engaged in Grace Packaging's business may not voluntarily
dissolve, liquidate, merge, consolidate or reorganize, subject to certain
exceptions.
New Grace will be subject to similar restrictions.
These restrictions may limit the ability of New Sealed Air and
New Grace to engage in certain business transactions that otherwise might be
advantageous for the companies and their stockholders, and could deter potential
acquisitions of control of New Grace or New Sealed Air. The restrictions are
designed to protect the tax-free treatment of the reorganization for U.S.
federal income tax purposes. Accordingly, New Sealed Air or 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 reorganization and (ii)
indemnifies the other party against adverse tax consequences arising from the
transaction. See "Certain United States Federal Income Tax Consequences"
beginning on page 34 and "Relationship Between New Sealed Air and New Grace
After the Reorganization and Merger--Tax Sharing Agreement" beginning on page
78, 78.
Liabilities of New Grace, Fraudulent Transfer and Related
Considerations
Grace's primary U.S. operating subsidiary has significant
liabilities relating to previously sold asbestos-containing products. As a
result, Grace and the subsidiary are currently defendants in numerous
asbestos-related lawsuits and are likely to be named as defendants in additional
lawsuits in the future. 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. Grace and its subsidiaries also have substantial environmental and other
liabilities.
After the merger and related transactions, New Grace will be
responsible for all of the asbestos-related liabilities, substantially all of
the environmental liabilities (other than certain liabilities relating to Grace
Packaging) and other liabilities of Grace and its subsidiaries that are
unrelated to Grace Packaging. Based on currently available information and
advice provided by their respective financial, legal and other advisors, Sealed
Air and Grace believe that New Grace will be able to satisfy its liabilities as
they become due. Nevertheless, claimants might seek to hold New Sealed Air
liable for obligations of New Grace. New Grace has agreed to indemnify New
Sealed Air for liabilities and costs that New Sealed Air may incur relating to
New Grace's liabilities; however, New Grace may not be able to fulfill its
indemnity obligations to New Sealed Air.
Claimants may also bring suit seeking recovery from New Sealed
Air or its subsidiaries by claiming that the transfers of assets and liabilities
in connection with the reorganization of Grace, including the separation of
Grace's packaging and specialty chemicals businesses and the cash transfer to
and spin-off of New Grace, were "fraudulent transfers". A transfer would be a
fraudulent transfer if the transferor received less than reasonably equivalent
value and the transferor was insolvent at the time of the transfer, was rendered
insolvent by the transfer or was left with unreasonably small capital to engage
in its business. A transfer may also be a fraudulent transfer if it was made to
hinder, delay or defraud creditors. If any transfers in connection with the
reorganization of Grace are found to be fraudulent transfers, the recipient
(including New Sealed Air and its subsidiaries) might be required to return the
property to the transferor. Similar consequences would result if a court were to
find that any transfers were made in violation of laws restricting dividends.
Sealed Air and Grace believe that Grace, New Grace and their
subsidiaries are adequately capitalized and will be adequately capitalized after
the reorganization, and that none of the transfers contemplated to occur in the
reorganization is a fraudulent transfer. Sealed Air and Grace also believe that
the reorganization of Grace and the spin-off of New Grace will comply with
applicable dividend laws. However, a court applying the relevant legal standards
may not reach the same conclusions.
More information regarding Grace's asbestos and other liabilities
is included in Grace's filings with the Securities and Exchange Commission
("SEC"). See "Where You Can Find More Information" on page 100 and the New Grace
Information Statement.
No Prior Market for New Sealed Air Stock
There is no current public trading market for New Sealed Air
common and convertible preferred stock. New Sealed Air will apply to list its
common and convertible preferred stock on the New York Stock Exchange, and we
expect "when-issued" trading in New Sealed Air common and convertible preferred
stock to develop before the merger is consummated. This means that shares can be
traded before the share certificates are issued, and before the actual numbers
of shares to be issued in the reorganization and merger are determined.
We cannot predict the prices at which New Sealed Air common and
convertible preferred stock may trade, either before the merger on a
"when-issued" basis or after the merger. Such trading prices 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 Sealed
Air and the industries in which it participates, New Sealed Air's dividend
policy and general economic and market conditions. Until an orderly market
develops, the trading prices for these shares may fluctuate significantly.
The New Sealed Air common and convertible preferred stock will be
freely transferable, except for shares received by Sealed Air or Grace
"affiliates", as that term is defined under the Securities Act of 1933, as
amended (the "Securities Act"). See "The Reorganization and Merger--Federal
Securities Laws Consequences; Resale Restrictions" on page 37.
Shares Issued to Stockholders Will Not Be Adjusted for Changes in the Price
of Sealed Air or Grace Stock
Stockholders of Sealed Air and Grace will receive shares
initially representing 37% and 63%, respectively, of New Sealed Air, measured on
an as-converted basis. These percentages will not change even if the price of
Sealed Air common stock or Grace common stock changes relative to the price of
the other company's common stock. On the other hand, Sealed Air or Grace may
terminate the merger agreement if the other company's stock price drops below
certain levels before the merger. See "The Distribution and Merger
Agreements--Termination of the Merger Agreement and Distribution Agreement" on
page 75.
U.S. Federal Income Tax Consequences if Reorganization and Merger Do Not
Qualify for Tax-Free Treatment
Sealed Air and Grace believe that, for U.S. federal income tax
purposes, the reorganization and merger will be tax-free to Sealed Air, Grace
and their stockholders (except for cash received by Grace stockholders instead
of fractional shares). Sealed Air and Grace must receive opinions of tax counsel
to that effect before the merger is completed. Despite such opinions, the
transactions may not qualify for tax-free treatment at the time of the merger or
thereafter.
In general, if the reorganization of Grace (including the
spin-off of New Grace) is not tax-free, New Sealed Air would recognize a taxable
gain equal to (i) the amount by which the fair market value of the New Grace
common stock exceeds Grace's tax basis in the New Grace common stock and (ii)
the amount by which the fair market value of Grace Packaging exceeds the tax
basis of a subsidiary of Grace in Grace Packaging. New Grace has agreed to
indemnify New Sealed Air for any adverse corporate-level income tax consequences
resulting from the failure of the reorganization to qualify for tax-free
treatment, although New Sealed Air would be liable to the extent that the
failure is attributable to actions of New Sealed Air.
In addition, if the spin-off of New Grace is not tax-free, and if
(as expected) New Sealed Air's earnings and profits at the end of 1998 exceed
the fair market value of the New Grace common stock, each Grace stockholder
would be treated as having received a taxable dividend equal to the fair market
value of the New Grace common stock that the stockholder receives.
An acquisition of New Grace or New Sealed Air after the
reorganization and merger could give rise to the corporate-level taxes described
above. Such an acquisition of New Grace or New Sealed Air, if taxable, could
also cause the spin-off to fail to qualify for tax-free status and, if so, would
give rise to the corporate-level and stockholder-level taxes described above.
In general, if the merger between Sealed Air and Grace Packaging
is not tax-free, each Sealed Air stockholder would be treated as having sold its
Sealed Air shares at a price equal to the fair market value of the New Sealed
Air common stock that it receives. This would require the stockholder to
recognize a taxable gain or loss based on the difference between the fair market
value of the stockholder's New Sealed Air common stock and the tax basis of the
stockholder's Sealed Air common stock.
See "The Reorganization and Merger--Certain United States
Federal Income Tax Consequences" for a more complete discussion of the tax
aspects of the reorganization and merger.
Year 2000 Issues
Like most other companies, New Sealed Air will have to ensure
that its information systems are able to recognize and process date-sensitive
information properly as the year 2000 approaches. Systems that do not properly
recognize and process this information could generate erroneous data or even
fail.
Sealed Air and Grace Packaging have conducted comprehensive
reviews of their key computer systems and have identified a number of systems
that could be affected by the "year 2000" issue. Both companies have undertaken
steps to ensure that these systems will function properly, including installing
vendor-supplied upgrades or new software or modifying existing software. Sealed
Air and Grace Packaging believe that these steps will be substantially completed
by the end of 1998 and that the year 2000 issue will not pose significant
problems for New Sealed Air. Nevertheless, if these steps are not completed
successfully in a timely manner, New Sealed Air's operations and financial
performance could be adversely affected. Also, both companies are contacting key
suppliers, banks, customers and other unaffiliated companies that will be
important to New Sealed Air to assess their year 2000 compliance programs, since
New Sealed Air could be adversely affected by the failure of these unaffiliated
companies to address adequately the year 2000 issue.
New Sealed Air Will Guarantee Certain Outstanding Public Debt
Grace currently is the guarantor of certain debt, including
approximately $644 million in outstanding public debt of a subsidiary that will
be a subsidiary of New Grace after the spin-off. Although the subsidiary intends
to repurchase this public debt, some or all of it may remain outstanding after
the merger. Because Grace will become New Sealed Air, New Sealed Air will remain
the guarantor of any such debt remaining outstanding. As a result, a holder of
public debt may seek to recover from New Sealed Air if New Grace's subsidiary
fails to pay this public debt, and New Sealed Air may have to make payments
under its guarantee. New Grace will indemnify New Sealed Air against any
liability arising from the guarantee. In addition, if more than $50 million of
this public debt remains outstanding after the merger, New Sealed Air will
receive a letter of credit (in the amount of the public debt in excess of $50
million) to cover any payments it must make under its guarantee, up to the
amount of the letter of credit. Sealed Air and Grace believe that New Grace will
be able to meet its public debt obligations and, if it fails to do so, that the
letter of credit will prove sufficient to protect New Sealed Air. Nevertheless,
New Sealed Air may have to make payments for amounts not covered by the letter
of credit.
THE REORGANIZATION AND MERGER
The discussion in this Joint Proxy Statement/Prospectus of the
reorganization and merger and the principal terms of the distribution agreement
(the "Distribution Agreement"), merger agreement (the "Merger Agreement") and
certain related agreements (the Distribution and Merger Agreements and related
agreements, collectively, the "Transaction Agreements") is subject to, and
qualified in its entirety by reference to, the Merger Agreement and the
Distribution Agreement, copies of which are attached to this Joint Proxy
Statement/ Prospectus as Annexes A and B, respectively, and are incorporated
herein by reference.
Special Meetings to Vote on the Proposed Transactions
Sealed Air and Grace are furnishing this Joint Proxy
Statement/Prospectus to their stockholders in connection with the solicitation
of proxies by Sealed Air for use at a special meeting of its stockholders and
the solicitation of proxies by Grace for use at a special meeting of its
stockholders.
The Sealed Air special meeting will be held at Saddle Brook
Marriott, Garden State Parkway at I-80, Saddle Brook, New Jersey 07633, on March
23, 1998, at 11:00 a.m. At the Sealed Air special meeting, Sealed Air
stockholders will be asked to vote upon a proposal to approve and adopt the
Merger Agreement.
The Grace special meeting will be held at Grace's offices,
located at One Town Center Road, Boca Raton, Florida 33486, on March 20, 1998,
at 10:00 a.m. At the Grace special meeting, Grace stockholders will be asked to
vote upon:
(1) a proposal to approve and adopt the Merger Agreement (which will
constitute approval of the reorganization, merger and other
transactions contemplated thereby, including the spin-off of New
Grace, certain charter amendments, the recapitalization of Grace
common stock and the issuance of New Sealed Air common stock to Sealed
Air stockholders in the merger); and
(2) a proposal to repeal certain provisions contained in Grace's existing
charter, which are described under "The New Sealed Air
Charter--Proposal to Repeal Supermajority Provisions
of the Grace Charter" on page 37.
Structure of the Transactions
Stockholder approval is needed to enable Sealed Air and Grace to
proceed with the proposed merger of Sealed Air and Grace Packaging, which will
require a series of related transactions:
o Separation. Grace's worldwide packaging business will be separated from
Grace's specialty chemicals businesses. Grace and a packaging subsidiary
will then borrow $1.2 billion, subject to adjustment, and transfer these
funds to the specialty chemicals group of subsidiaries (the "Cash
Transfer").
o Spin-off. Grace will spin off its specialty chemicals businesses to the
Grace stockholders in the form of a new public company that will be named
"W.R. Grace & Co." (the "Spin-off").
o Recapitalization. The Grace common stock will be recapitalized (the
"Recapitalization"), with Grace stockholders receiving a total of 40.895
million newly issued shares of common stock, subject to adjustment, and 36
million newly issued shares of convertible preferred stock, each on a pro
rata basis based on the number of shares of Grace common stock owned as of
the record date set by the Grace Board.
o Merger. A wholly owned subsidiary of Grace will then merge with Sealed Air
(the "Merger"), and Grace will change its name to "Sealed Air Corporation"
and amend its charter to be substantially identical to Sealed Air's
charter. In connection with the Merger, Sealed Air stockholders will
receive one share of New Sealed Air common stock for each share of Sealed
Air common stock owned immediately prior to the Merger.
The Merger will become effective when a certificate of merger is
filed with the Secretary of State of Delaware or at such other time as will be
specified in the certificate of merger (the "Effective Time"). The Effective
Time will occur as soon as practicable after the last of the conditions in the
Merger Agreement has been satisfied or waived. We expect the Merger to occur
promptly after the Special Meetings, late in the first quarter of 1998.
Following the Merger:
o Sealed Air's stockholders will initially own shares of common stock
representing 37% of New Sealed Air, on an as-converted basis; and
o Grace's stockholders will initially own 100% of the outstanding common
stock of New Grace and shares of common stock and convertible
preferred stock representing 63% of New Sealed Air, on an as-converted
basis.
For ease of reference, we will refer to the Cash Transfer,
Spin-off and Recapitalization and other transactions contemplated in the
reorganization of Grace (other than the Merger) as the "Reorganization". For a
more complete description and understanding of the principal terms and
conditions of the Reorganization and Merger, please refer to "The Distribution
and Merger Agreements" beginning on page 68 and the copies of the agreements
attached as Annexes A and B.
Background
In pursuing their strategies for enhancing stockholder value,
Sealed Air and Grace each regularly consider opportunities for acquisitions,
joint ventures and other strategic alliances.
Sealed Air and Grace initially discussed the possibility of a
combination of Sealed Air and Grace Packaging from mid-1994 until early 1995.
These discussions were discontinued in early 1995, without resulting in any
agreement.
Beginning in early 1997, Grace and Sealed Air began to pursue
discussions about a possible combination of Sealed Air and Grace Packaging.
After retaining legal and financial advisors, Sealed Air and Grace executed a
confidentiality agreement and began exchanging certain information on or about
May 12, 1997. The parties agreed that, to avoid market speculation, business
disruption and similar market events, it was essential to maintain the
confidentiality of the discussions and to limit the participation in these
discussions to those executives and advisors who were necessary to complete the
negotiations.
In May and early June 1997, Sealed Air, Grace and their
respective legal and financial advisors held various conference calls and
meetings to discuss a possible transaction that would involve a spin-off of
Grace's specialty chemicals businesses to its stockholders and a merger of
Sealed Air and Grace Packaging. In early June 1997, Sealed Air, through its
financial advisor, proposed that Sealed Air stockholders would own 40% of the
combined company and Grace stockholders would own 60% of the combined company.
On June 10, 1997, Grace, through its financial advisors,
responded with a proposal in which Sealed Air stockholders would own 35% of the
combined company and Grace stockholders would own 65% of the combined company.
Over the following weeks, Sealed Air, Grace and their respective financial and
legal advisors conducted due diligence and proceeded to discuss alternative
terms for a merger between Sealed Air and Grace Packaging.
By early July, the management teams of Sealed Air and Grace had
reached a consensus on some of the principal terms of the transaction and
certain aspects of the proposed transaction structure, including that Grace
would be reorganized to separate Grace Packaging from Grace's specialty
chemicals businesses; to the extent practicable, the spin-off of New Grace and
the merger of Sealed Air and Grace Packaging should be tax-free to both
companies and their stockholders; after the proposed merger Sealed Air
stockholders would initially own common stock representing 37% of New Sealed Air
and Grace stockholders would initially own common stock and convertible
preferred stock representing 63% of New Sealed Air, measured on an as-converted
basis; and Grace and a packaging subsidiary would borrow approximately $1.2
billion to make a cash transfer to New Grace and its subsidiaries prior to the
proposed merger.
On July 10, 1997, the Sealed Air Board held a special meeting. At
the meeting, Sealed Air management reviewed with the Board the status of
negotiations, due diligence, potential synergies and remaining open issues,
including Grace's contingent and other liabilities. Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ") discussed their preliminary financial analysis of
the proposed Merger with the Board. After discussion, the Board unanimously
authorized the officers of Sealed Air to continue negotiations.
On July 10, 1997, the Grace Board held a regular meeting. At that
meeting, Grace management presented detailed background information on the
business and financial performance of Sealed Air, Grace Packaging and Grace's
specialty chemicals businesses, as well as the background and proposed structure
of the transactions and the status of negotiations. Credit Suisse First Boston
Corporation ("Credit Suisse First Boston") and Merrill Lynch & Co. ("Merrill
Lynch") discussed a preliminary financial analysis of the proposed
reorganization and merger. In addition, Wachtell, Lipton, Rosen & Katz reviewed
various legal issues with the Board. After discussion, the Board unanimously
authorized management to continue negotiations.
On July 24, 1997, the principal terms and conditions of the
proposed transactions negotiated as of that date were presented to the Sealed
Air Board by its management and financial and legal advisors. The Board
authorized management to proceed to negotiate definitive agreements for the
proposed transactions.
Following their respective board meetings, Sealed Air and Grace,
advised by their respective legal and financial advisors, negotiated the terms
and conditions of the Transaction Agreements. Among the subjects of negotiation
were the allocation of Grace's assets and liabilities between Grace Packaging
and New Grace, arrangements for sharing various transaction expenses (including
the costs of separating Grace Packaging from New Grace, certain severance costs
and the expenses associated with retiring Grace's outstanding debt), the
allocation of employees between Grace Packaging and New Grace and the
responsibilities for benefits for employees of Grace Packaging.
On August 14, 1997, the Sealed Air Board held a special meeting.
At that meeting, Sealed Air's management reviewed the status of negotiations
(including the resolution of previously open issues), the principal terms of the
proposed transactions and results of due diligence. Davis Polk & Wardwell
reviewed the Merger Agreement, the Distribution Agreement and the other
Transaction Agreements. KPMG Peat Marwick LLP then reviewed certain tax aspects
of the transaction and the terms of the tax sharing arrangements between New
Sealed Air and New Grace. DLJ made a presentation that included a discussion of
the valuation methodologies and analyses used in arriving at DLJ's fairness
opinion (the "DLJ Opinion"). DLJ gave its opinion to the Sealed Air Board that,
as of such date, and based upon and subject to the assumptions, limitations and
qualifications in such opinion, the exchange ratio pursuant to which Sealed
Air's stockholders would receive one share of New Sealed Air common stock for
each share of Sealed Air common stock (the "Exchange Ratio"), was fair to Sealed
Air stockholders from a financial point of view. See "Role of Financial
Advisors--Opinion of Sealed Air Financial Advisor" beginning on page 39. After
concluding that the Merger and related transactions were fair and in the best
interests of Sealed Air and its stockholders, the Sealed Air Board voted to
approve the Merger, to authorize the execution of the Merger Agreement and to
recommend that Sealed Air's stockholders approve the Merger Agreement.
On August 14, 1997, the Grace Board held a special meeting. At
that meeting, Grace's management reviewed the status of negotiations (including
the resolution of previously open issues), the principal terms of the proposed
transactions and results of due diligence, and Wachtell, Lipton, Rosen & Katz
reviewed the Merger Agreement, the Distribution Agreement and the other
Transaction Agreements. Credit Suisse First Boston and Merrill Lynch made a
presentation that included a discussion of their valuation methodologies and
analyses used in arriving at their fairness opinions. Credit Suisse First Boston
and Merrill Lynch gave their opinions to the Grace Board that, as of such date,
and based upon and subject to the assumptions, limitations and qualifications in
such opinions, the terms of the Spin-off, the Recapitalization and Merger, taken
as a whole, were fair, from a financial point of view, to the holders of Grace
common stock. See "Role of Financial Advisors--Opinions of Grace Financial
Advisors" beginning on page 44. After concluding that the Reorganization, Merger
and related transactions were fair and in the best interests of the Grace
stockholders, the Grace Board voted to approve the Reorganization, Merger and
related transactions, to authorize the execution of the Merger Agreement and to
recommend that Grace's stockholders approve the Reorganization, Merger and
related transactions.
Shortly after the Board meetings concluded, the parties executed
the Merger Agreement, and Sealed Air and Grace issued a joint press release
announcing the execution of the Merger Agreement.
Since the commencement of discussions in early 1997, neither
Sealed Air nor Grace has considered any merger, acquisition or joint venture
opportunities with others in the packaging industry as an alternative to the
Merger.
Sealed Air's Reasons for the Merger; Recommendation of the Sealed Air Board
The following briefly describes the material reasons, factors and
information taken into account by the Sealed Air Board in deciding to approve
the Merger and to recommend that Sealed Air stockholders approve the Merger
Agreement.
Sealed Air's Reasons for the Merger
o Strategic Business Opportunity. Sealed Air believes the Merger offers
a strategic business opportunity to combine Sealed Air's strengths in
protective and specialty packaging and its entrepreneurial management
team, with its proven record of increasing shareholder value, with
Grace's superior position in the food packaging industry,
technological strengths and extensive international presence.
o Complementary Product Lines. Sealed Air believes that
advantages will be gained by combining companies with
complementary packaging products. Sealed Air is a leading
global manufacturer of a wide range of protective and specialty
packaging materials and systems primarily for industrial and
consumer products. Grace Packaging is a leading global supplier
of high-performance materials and systems used primarily for
packaging food. Sealed Air believes that the Merger offers new
marketing and cross-selling opportunities that may expand the
customer base for the products of both companies.
o Combined Marketing Networks, Distribution Channels and Technologies.
Sealed Air believes that a consolidation of the marketing
networks, distribution channels and technologies of the two
companies is an important element of the Merger. New Sealed Air
will have operations in approximately 45 countries and a global
marketing and distribution network. Sealed Air believes the
Merger will accelerate its expansion into new international
markets and enhance distribution of the products of both
companies through the combined marketing and distribution
network. Sealed Air also believes the Merger will offer
opportunities for cross-fertilization of technologies. The
companies expect to share and combine technologies relating to
films, coextrusion, food science, chemical formulations,
systems, package design and printing.
o Shared Priorities. Sealed Air and Grace Packaging have many shared
priorities. Both emphasize putting the customer first and working
with their customers to find solutions to their packaging needs. Both
companies also stress technological innovations to maintain market
leadership. Each manufactures high-quality products to world-class
standards, while maintaining a focus on improving cash flow and
earnings.
o Efficiencies. Sealed Air believes the integration of the two
companies' operations will result in certain efficiencies, including
in the areas of purchasing, distribution, marketing, administration,
financing and treasury.
Information and Factors Considered by the Sealed Air Board
In connection with its approval of the merger and recommendation
that stockholders approve the Merger Agreement, the Sealed Air Board considered
the following factors:
(i) the reasons described above under "Sealed Air's Reasons for the
Merger";
(ii) the terms and conditions of the proposed transactions and related
agreements, including, among other things, the proportion of New Sealed Air to
be owned by Sealed Air's stockholders, the requirement for approval by Sealed
Air's stockholders, the other conditions to consummation of the Merger and the
circumstances under which the agreements could be terminated;
(iii) the tax treatment of the Reorganization and Merger for U.S. federal
income tax purposes;
(iv) the accounting treatment of the Merger, including the goodwill that
will be recorded on the financial statements of New Sealed Air;
(v) the business rationale for the transactions, including the strategic
fit between Sealed Air and Grace Packaging, the belief that the combination of
Sealed Air and Grace Packaging has the potential to enhance stockholder value
through additional opportunities for global expansion and operating efficiencies
(although such opportunities may not be achieved);
(vi) the anticipated operating and financial condition of New Sealed Air;
(vii) the potential for appreciation in the value of New Sealed Air, and the
ability of Sealed Air's stockholders to have a significant participation in any
such appreciation through their initial ownership of approximately 37% of New
Sealed Air (measured on an as-converted basis);
(viii) the challenges and potential costs of combining the businesses of two
major companies of this size and the attendant risks of not achieving the
expected operating efficiencies or improvements in earnings, and of diverting
management focus and resources from other strategic opportunities and from
operational matters for an extended period of time;
(ix) the risk that the Merger will not be consummated;
(x) the presentations by Sealed Air's management and its financial, legal,
accounting and other advisors regarding the Reorganization and Merger;
(xi) the opinion of DLJ that, as of August 14, 1997, the Exchange Ratio was
fair to the stockholders of Sealed Air from a financial point of view (a copy of
the DLJ Opinion, setting forth the assumptions, limitations and qualifications
to such opinion, is attached as Annex C, and the DLJ Opinion is described under
"Role of Financial Advisors--Opinion of Sealed Air Financial Advisor" beginning
on page 39);
(xii) the familiarity of the Board with the business, properties and
prospects of Sealed Air, including the opportunities and alternatives available
to Sealed Air if the Merger were not to be undertaken;
(xiii) information obtained during the due diligence process concerning the
business, properties and prospects of Grace Packaging;
(xiv) information obtained during the due diligence process concerning the
business, properties and prospects of New Grace, including an analysis of its
liabilities (including existing asbestos, environmental and other significant
liabilities) and New Grace's ability to satisfy those liabilities;
(xv) the interests of the officers and directors of Sealed Air and Grace in
the Reorganization and Merger, including the matters described under "Interests
of Certain Persons" beginning on page 82, and the impact of the Merger on the
customers and employees of each company; and
(xvi) the various factors enumerated under "Certain Risk Factors" beginning
on page 22.
The foregoing discussion of the information and factors
considered and given weight by the Sealed Air Board is not intended to be
exhaustive but includes the material factors considered by the Sealed Air Board.
In view of the wide variety of factors considered in connection with its
evaluation of the Merger and the complexity of these matters, the Sealed Air
Board did not find it practicable to and did not attempt to quantify, rank or
otherwise assign relative weights to these factors. The Sealed Air Board relied
on the experience and expertise of DLJ for a quantitative analysis of the
financial terms of the Merger. See "Role of Financial Advisors--Opinion of
Sealed Air Financial Advisor" beginning on page 39. In addition, the Sealed Air
Board did not undertake to make any specific determination as to whether any
particular factor (or any aspect of any particular factor) was favorable or
unfavorable to Sealed Air, but rather conducted an overall analysis of the
factors described above, including thorough discussions with and questioning of
Sealed Air's management and legal, financial and accounting advisors. In
considering the factors described above, individual members of the Sealed Air
Board may have given different weight to different factors. However, discussions
among the Sealed Air Board members evidenced that factors (iv), (ix), (xii),
(xiii) and (xv) were considered as part of the general mix of available
information without being clearly favorable or unfavorable, factors (viii),
(xiv) and (xvi) were considered uncertainties or negative factors relating to
the transaction, and the other reasons and factors described above were
generally considered favorable. The full Sealed Air Board considered all these
factors as a whole, and overall considered the factors to be favorable to and to
support its determination.
Recommendation of the Sealed Air Board
The Sealed Air Board recommends that Sealed Air's stockholders
vote "FOR" the approval and adoption of the Merger Agreement.
Grace's Reasons for the Reorganization and Merger; Recommendation of the Grace
Board
The following briefly describes the material reasons, factors and
information taken into account by the Grace Board in deciding to approve the
Reorganization and Merger and to recommend that Grace stockholders approve and
adopt the Merger Agreement.
Grace's Reasons for the Reorganization and Merger
o Enhanced Stockholder Value. Grace believes that the combination of
the Spin-off of New Grace and the Merger of Sealed Air and Grace
Packaging will enhance stockholder value by providing Grace
stockholders, through a transaction that will be tax-free for
U.S. federal income tax purposes to both Grace and its
stockholders, with a premium valuation for Grace Packaging, the
opportunity to continue to participate in the future value of a
preeminent packaging company and a continuing ownership interest
in what will be a highly focused New Grace.
o Opportunity to Merge Complementary Packaging Businesses.
Grace believes the Merger offers a strategic business opportunity
to bring together complementary product lines. Grace Packaging
is a leading global supplier of high-performance materials and
systems used in packaging food and other products. Sealed Air is
a leading global manufacturer of a wide range of protective and
specialty packaging materials and systems, primarily for
industrial and consumer products. This combination will bring
together Grace's superior position in the food packaging
industry, technological strengths and extensive international
presence and Sealed Air's strengths in protective and specialty
packaging.
o Benefits of the Spin-off of New Grace. After the Spin-off,
New Grace will be a focused specialty chemicals company; its
businesses will be catalysts and silica-based products,
construction chemicals and specialty building materials, and
container sealants and coatings. Furthermore, New Grace's
financial position will give it flexibility to invest in new
product development, geographic expansion and strategic
acquisitions.
Information and Factors Considered by the Grace Board
In connection with its approval of the Reorganization and Merger
and its recommendation that Grace stockholders approve and adopt the Merger
Agreement, the Grace Board considered, among other things, the following
factors:
(i) the reasons described above under "Grace's Reasons for the
Reorganization and Merger";
(ii) the terms and conditions of the proposed transactions and related
agreements, including, among other things, the proportion of New Sealed Air to
be owned by Grace's stockholders, the severance plan and other benefit plans to
be afforded to Grace's employees who will become employees of New Sealed Air,
the requirement for approval by Grace stockholders, the other conditions to
consummation of the Merger and the circumstances under which the agreements
could be terminated;
(iii) the accounting treatment of the Reorganization and Merger and related
transactions, including the goodwill that will be recorded on the financial
statements of New Sealed Air;
(iv) the business rationales for the transactions, including the strategic
fit between Sealed Air and Grace Packaging, the belief that the combination of
Grace Packaging and Sealed Air has the potential to enhance stockholder value
through operating efficiencies as an integrated packaging company, Sealed Air's
lack of interest in combining with Grace's specialty chemicals businesses, and
the fact that the Cash Transfer would enable New Grace to reduce debt and
enhance New Grace's ability to become a highly focused specialty chemicals
company (although such operating efficiencies may not be achieved);
(v) the anticipated operating and financial position of New Sealed Air and
New Grace;
(vi) the potential for appreciation in the value of New Sealed Air common
stock and convertible preferred stock as a result of the Merger and the ability
of Grace's stockholders to have a significant equity participation in any such
appreciation through their initial ownership of 63% of New Sealed Air (measured
on an as-converted basis);
(vii) the convertible preferred stock is approximately 43% of the
consideration to be received by Grace's stockholders in the Recapitalization (on
an as-converted basis) and has a higher dividend yield per share than the
historic dividend yield per share on Grace common stock and also has the benefit
of a liquidation preference;
(viii) the potential for appreciation in the value of New Grace common stock,
which will initially be owned 100% by Grace stockholders;
(ix) the likelihood of obtaining required regulatory approvals, the
possibility that regulatory authorities may impose conditions to the grant of
such approvals and the extent of the commitment of the parties to take actions
necessary to obtain required regulatory approvals;
(x) the presentations of Grace's management and its advisors with respect
to the assets and liabilities of Grace;
(xi) the presentations by representatives of Credit Suisse First Boston and
Merrill Lynch, including valuation analyses with respect to Sealed Air and Grace
and each firm's opinion that, as of the date of such opinion, the terms of the
Spin-off, the Recapitalization and the Merger, taken as a whole, were fair, from
a financial point of view, to holders of Grace common stock, such opinions and
presentations being based on certain assumptions and subject to certain
conditions (a copy of the written opinions, dated August 14, 1997, of Merrill
Lynch and Credit Suisse First Boston are attached as Annex D, and the opinions
are described under "Role of Financial Advisors--Opinions of Grace Financial
Advisors" on page 44);
(xii) the familiarity of the Grace Board with the business and properties of
Grace, Grace Packaging and Grace's other businesses;
(xiii) the interests of the officers and directors of Sealed Air and Grace in
the Reorganization and Merger, including the matters described under "Interests
of Certain Persons" beginning on page 82, and the impact of the Reorganization
and Merger on the customers and employees of each company; and
(xiv) the various factors enumerated under "Certain Risk Factors" beginning
on page 22 and under "Risk Factors" in the New Grace Information Statement.
The foregoing discussion of the information and factors
considered and given weight by the Grace Board is not intended to be exhaustive
but includes the material factors considered by the Grace Board. In view of the
wide variety of factors considered in connection with the evaluation of the
Reorganization and Merger and the complexity of these matters, the Grace Board
did not assign any relative or specific weights to these factors. The Grace
Board relied on the experience and expertise of Merrill Lynch and Credit Suisse
First Boston for quantitative analyses of the financial terms of the
Reorganization and Merger. See "Role of Financial Advisors--Opinions of Grace
Financial Advisors" beginning on page 44. In addition, the Grace Board did not
undertake to make any specific determination as to whether any particular factor
(or any aspect of any particular factor) was favorable or unfavorable to Grace,
but rather conducted an overall analysis of the factors described above,
including thorough discussions with and questioning of Grace's management and
legal, financial and accounting advisors. In considering the factors described
above, individual members of the Grace Board may have given different weight to
different factors. However, the full Grace Board considered all these factors as
a whole, and overall considered the factors to be favorable to and to support
its determination.
Recommendation of the Grace Board
The Grace Board recommends that Grace's stockholders vote "FOR"
the approval and adoption of the Merger Agreement (which will constitute
approval of the Reorganization, Merger and other transactions contemplated
thereby, including the Spin-off, certain amendments to its charter, the
Recapitalization and the issuance of shares in the Merger).
Accounting Treatment and Considerations
The Merger will be accounted for under the purchase method of
accounting, with Grace treated as the acquirer. As a result, New Sealed Air will
record the assets and liabilities of Sealed Air at their estimated fair values
and will record as goodwill the excess of the purchase price (i.e., the market
capitalization of Sealed Air, based on an average trading price for a period
before and after the announcement of the Merger, plus certain Merger-related
costs) over such estimated fair values. The operating results of Sealed Air will
be combined with the results of Grace Packaging from the date of the Merger. As
a result, New Sealed Air's earnings for 1998 will not include Sealed Air's 1998
earnings prior to the Merger. See "New Sealed Air Unaudited Pro Forma Condensed
Consolidated Financial Data" beginning on page 59 for a description of the
adjustments expected to be recorded to the financial statements of New Sealed
Air.
As required by generally accepted accounting principles, New
Sealed Air will not initially report diluted earnings per share (which are
calculated by treating the New Sealed Air convertible preferred stock as the
common stock into which it is convertible and eliminating the preferred stock
dividend), because such treatment would be antidilutive to earnings per common
share (i.e., would increase earnings per common share). New Sealed Air will
initially report only basic earnings per share, calculated by subtracting the
dividends on the convertible preferred stock from net earnings, and dividing
this amount by the weighted average number of outstanding shares of common stock
(not including the shares issuable upon convertible preferred stock). Generally
accepted accounting principles will permit the reporting of diluted earnings per
share when treating the convertible preferred stock as the common stock into
which it is convertible would have a dilutive effect on earnings per share. In
addition, because the convertible preferred stock is subject to mandatory
redemption after 20 years, it will be recorded in New Sealed Air's balance sheet
as an item between debt and stockholders' equity.
The "Unaudited Comparative Per Share Data" on page 20 and the
"New Sealed Air Unaudited Pro Forma Condensed Consolidated Financial Data" on
page 59 show the dilutive effect on earnings per common share of the convertible
preferred stock on a pro forma basis for 1996 and part of 1997.
Certain United States Federal Income Tax Consequences
Tax Opinions. As conditions (that may not be waived) to the
Reorganization and Merger (i) Grace must receive an opinion of Wachtell, Lipton,
Rosen & Katz, special counsel to Grace, to the effect that the transfers in the
U.S. of Grace's packaging and specialty chemicals businesses to separate groups
of subsidiaries, the distribution of the packaging group of subsidiaries to
Grace, the Spin-off and the Recapitalization will be tax free to Grace and its
stockholders (except to the extent that cash is paid instead of fractional
shares) under the Internal Revenue Code of 1986, as amended (the "Code"), and
(ii) Sealed Air must receive an opinion of Davis Polk & Wardwell, special
counsel to Sealed Air, to the effect that the Merger will be tax-free to Sealed
Air and its stockholders under the Code.
In rendering these opinions, Wachtell, Lipton, Rosen & Katz and
Davis Polk & Wardwell will rely upon representations contained in letters from
Sealed Air and Grace delivered for purposes of the opinions. The opinions will
also be based on the assumption that the Reorganization and Merger will be
consummated in accordance with the provisions of the Transaction Agreements.
Certain Consequences of the Spin-off. Assuming that the transfers
of Grace's packaging and specialty chemicals businesses to separate groups of
subsidiaries, the distribution of the packaging group of subsidiaries to Grace
and the Spin-off each qualify for tax-free treatment under the Code:
(a) No gain or loss will be recognized by Grace, New Sealed Air or New
Grace as a result of the transfers in the U.S. of Grace's packaging and
specialty chemicals businesses to separate groups of subsidiaries, the
distribution of the packaging group of subsidiaries to Grace and the Spin-off.
(b) Except as described in (c) below, Grace stockholders will not
recognize any income, gain or loss as a result of the Spin-off.
(c) Cash received by a Grace stockholder instead of a fractional share of
New Grace common stock will be treated as received in exchange for such
fractional share and the holder will recognize gain or loss for federal income
tax purposes measured by the difference between the amount of cash received and
the holder's basis in the fractional share. Such gain or loss will be capital
gain or loss to the holder, provided that the Grace common stock to which the
fractional share pertains is held as a capital asset by such stockholder at the
time of the Spin-off.
(d) A Grace stockholder's holding period for the New Grace common stock
received in the Spin-off will include the holding period for the Grace common
stock with respect to which he or she receives shares in the Spin-off, provided
that the Grace common stock is held as a capital asset by such stockholder as of
the time of the Spin-off.
(e) The earnings and profits of Grace will be allocated between New Sealed
Air and New Grace.
Current U.S. Treasury regulations require each Grace stockholder
who receives New Grace common stock in the Spin-off to attach to his or her
federal income tax return for the year in which the Spin-off occurs a detailed
statement setting forth such data as may be appropriate in order to show the
applicability of Section 355 of the Code to the Spin-off. New Grace will provide
the appropriate information to Grace's stockholders after the Spin-off.
Certain Consequences of the Recapitalization. Assuming that the
issuance of New Sealed Air common and convertible preferred stock by Grace
pursuant to the Recapitalization qualifies as a tax-free transaction under the
Code to Grace and its stockholders (except for the cash received by Grace's
stockholders instead of fractional shares):
(a) No gain or loss will be recognized by Grace or New Sealed Air as a
result of the issuance of New Sealed Air common and convertible preferred stock
in the Recapitalization.
(b) Except as described in (c) below, no gain or loss will be recognized
by Grace's stockholders upon the receipt of New Sealed Air common and
convertible preferred stock.
(c) Cash received by a stockholder of Grace instead of a fractional share
of New Sealed Air common or convertible preferred stock will be treated as
received in exchange for such fractional share and the holder will recognize
gain or loss measured by the difference between the amount of cash received and
the holder's basis in the fractional share. Such gain or loss will be capital
gain or loss to the holder, provided that the Grace common stock to which the
fractional share pertains is held as a capital asset by such stockholder at the
time of the Recapitalization.
(d) A Grace stockholder's holding period for New Sealed Air common and
convertible preferred stock received in the Recapitalization will include the
period during which such stockholder held the shares of Grace common stock
exchanged in the Recapitalization, provided that such Grace common stock is held
as a capital asset by the stockholder at the time of the Recapitalization.
(e) Under certain circumstances, Section 305(c) of the Code requires that
any excess of the redemption price of preferred stock over its fair market value
on the date of issuance be included in income, prior to receipt on a constant
yield basis, by holders of such stock as a constructive dividend to the extent
of the issuing corporation's earnings and profits. Grace believes that it is
unlikely that holders of the convertible preferred stock will be required to
include any portion of the redemption price of such stock in income as a
constructive dividend. If, however, the fair market value of a share of the
convertible preferred stock on the date of the Recapitalization is $47.50 or
less, then holders will be required to include amounts in income prior to
receipt, as described above in this paragraph (e), reflecting the excess of $50
over the fair market value of the convertible preferred stock on the date of the
Recapitalization.
Tax Basis of Grace Stockholders in New Grace and New Sealed Air
Stock. A Grace stockholder's aggregate tax basis in the shares of New Grace
common stock received in the Spin-off and the shares of New Sealed Air common
and convertible preferred stock received immediately thereafter in the
Recapitalization will be the same as the stockholder's aggregate tax basis in
the stockholder's Grace common stock. The stockholder's tax basis in each share
of New Grace common stock and New Sealed Air common and convertible preferred
stock will equal a percentage of such aggregate tax basis based on the relative
fair market values of the stockholder's shares of New Grace common stock and New
Sealed Air common and convertible preferred stock at the Effective Time. New
Grace will provide the appropriate information to Grace's stockholders after the
Merger.
Certain Consequences of the Merger. Assuming that the Merger
constitutes a reorganization within the meaning of Section 368(a) of the Code:
(a) No gain or loss will be recognized by Sealed Air, Grace or New Sealed
Air as a result of the Merger.
(b) No gain or loss will be recognized by the stockholders of Sealed Air
upon their exchange of Sealed Air common stock for New Sealed Air common stock
in the Merger.
(c) The aggregate adjusted tax basis of the shares of New Sealed Air
common stock to be received by a stockholder of Sealed Air in the Merger will be
the same as the aggregate adjusted tax basis of the shares of Sealed Air common
stock surrendered in exchange therefor.
(d) The holding period for the New Sealed Air common stock received in the
Merger by a Sealed Air stockholder will include the holding period for the
stockholder's Sealed Air common stock, provided that such Sealed Air common
stock is held as a capital asset at the Effective Time.
The foregoing discussion is intended only as a summary of the
material U.S. federal income tax consequences of the Reorganization and Merger
and does not purport to be a complete analysis or description of all potential
tax effects of these transactions. In addition, the discussion does not address
all of the tax consequences that may be relevant to particular taxpayers in
light of their personal circumstances or to taxpayers subject to special
treatment under the Code (for example, insurance companies, financial
institutions, dealers in securities, tax-exempt organizations, foreign
corporations, foreign partnerships or other foreign entities and individuals who
are not citizens or residents of the U.S.).
No information is provided herein with respect to the tax
consequences, if any, of the Reorganization and Merger under applicable foreign,
state, local and other tax laws. The foregoing discussion is based upon the
provisions of the Code, applicable Treasury regulations thereunder, IRS rulings
and judicial decisions in effect as of the date of this Joint Proxy
Statement/Prospectus. Future legislative, administrative or judicial changes or
interpretations could affect the accuracy of the statements or conclusions set
forth herein. Any such change could apply retroactively and could affect the
accuracy of such discussion. No rulings have been or will be sought from the IRS
concerning the tax consequences of the Reorganization and Merger. Each
stockholder of Grace and Sealed Air is urged to consult such stockholder's own
tax advisor as to the specific tax consequences to such stockholder of the
Reorganization and Merger under U.S. federal, state, local or any other
applicable tax laws.
Regulatory Matters
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations promulgated thereunder (the "HSR
Act"), the Merger may not be consummated until notifications have been given and
certain information has been furnished to the Federal Trade Commission (the
"FTC") and the Antitrust Division of the United States Department of Justice
(the "Antitrust Division") and specified waiting period requirements have been
satisfied. Sealed Air and Grace have filed the required notification and report
forms under the HSR Act with the FTC and the Antitrust Division, and the
applicable waiting period expired at midnight on December 18, 1997.
Notwithstanding expiration of the waiting period, the FTC, the Antitrust
Division and others could take action under the antitrust laws to challenge the
Merger, including seeking to enjoin the consummation of the Merger, or to
require a divestiture of assets of Sealed Air, Grace Packaging or New Sealed
Air, before or after the Merger is completed.
Each state in which Sealed Air or Grace has operations may also
review the Merger under state antitrust laws. In addition, regulatory approvals
or filings will be required with the appropriate regulatory authorities in
certain other countries where Sealed Air or Grace conducts business.
Sealed Air and Grace believe that they will obtain all material
required regulatory approvals prior to the Special Meetings. However, it is not
certain that all such approvals will be received by such time, and governmental
authorities may impose unfavorable conditions for granting the required
approvals.
No Appraisal Rights
Sealed Air is a Delaware corporation. Section 262 of the Delaware
General Corporation Law ("Delaware Law") provides appraisal rights (sometimes
referred to as "dissenters' rights") to stockholders of a Delaware corporation
that is involved in a merger under certain circumstances. However, Section 262
appraisal rights are not available to stockholders of a corporation whose
securities are listed on a national securities exchange and whose stockholders
are not required to accept in exchange for their stock anything other than stock
of another corporation listed on a national securities exchange and cash in lieu
of fractional shares. Because Sealed Air common stock is traded on the New York
Stock Exchange, and because Sealed Air's stockholders will receive New Sealed
Air common stock in the Merger, which will also be traded on the New York Stock
Exchange, stockholders of Sealed Air will not have appraisal rights with respect
to the Merger.
Because Grace is not a party to the Merger (a wholly owned
subsidiary of Grace will merge with Sealed Air), and because Delaware Law does
not provide appraisal rights in connection with the Reorganization, Grace's
stockholders will not be entitled to appraisal rights under Delaware Law in
connection with the Reorganization and Merger.
Federal Securities Laws Consequences; Resale Restrictions
All shares of New Sealed Air common and convertible preferred
stock that will be distributed to stockholders of Sealed Air and Grace in the
Merger and Recapitalization will be freely transferable, except for certain
restrictions on "affiliates" of Sealed Air or Grace. Shares of New Sealed Air
stock received by persons who are deemed to be affiliates of Sealed Air or Grace
may be resold by them only in transactions permitted by the resale provisions of
Rule 145 (or Rule 144 in the case of such persons who become affiliates of New
Sealed Air) or as otherwise permitted under the Securities Act. Persons who may
be deemed to be affiliates of Sealed Air or Grace generally include certain
officers, directors and significant stockholders of Sealed Air or Grace. The
Merger Agreement requires Sealed Air and Grace to use their reasonable efforts
to cause each of their affiliates to execute a written agreement to the effect
that such persons will not offer or sell or otherwise dispose of any of the
shares of New Sealed Air stock issued to them in the Merger or Recapitalization
in violation of the Securities Act or the rules and regulations promulgated by
the SEC thereunder.
This Joint Proxy Statement/Prospectus does not cover resales of
New Sealed Air common and convertible preferred stock to be received by the
stockholders of Sealed Air and Grace in the Recapitalization and Merger, and no
person is authorized to make any use of this Joint Proxy Statement/Prospectus in
connection with any such resale.
THE NEW SEALED AIR CHARTER
In connection with the Merger, Sealed Air and Grace have agreed
that the certificate of incorporation of New Sealed Air (the "New Sealed Air
Charter") will be substantially identical to the existing certificate of
incorporation of Sealed Air (the "Sealed Air Charter"), with the following
differences (assuming repeal of certain "Supermajority Provisions" that are
currently included in the Grace Charter, as discussed below):
(1) the par value of its common and preferred stock will be
changed to $0.10 per share (from $0.01 and no par value, respectively);
(2) the total number of authorized shares of common stock will be
increased to 400 million (from 125 million) and the total number of
authorized shares of preferred stock will be increased to 50 million (from
one million); and
(3) the provisions regarding the indemnification and exculpation
of officers and directors would be substantially the same as the
provisions in the Grace Charter.
The form of the proposed New Sealed Air Charter, which
incorporates all of the proposed amendments, is attached as Annex E to this
Joint Proxy Statement/Prospectus. Please read the section entitled "Comparison
of Stockholder Rights" beginning on page 95 for a description of the rights that
New Sealed Air stockholders will have under the New Sealed Air Charter and a
comparison to the rights that stockholders have under the Sealed Air Charter and
the Grace Charter.
Approval of the Merger Agreement by Grace stockholders will
constitute approval of the New Sealed Air Charter, other than the repeal of the
Supermajority Provisions discussed below. The proposal to repeal the
Supermajority Provisions has been made as a separate proposal to Grace's
stockholders.
Proposal to Repeal Supermajority Provisions of the Grace Charter
The Grace Charter currently contains three provisions that
conflict with the proposed New Sealed Air Charter and cannot be amended or
repealed without the approval of stockholders owning at least 80% of the
outstanding Grace shares (the "Supermajority Provisions"):
(1) stockholders may alter, amend or repeal the Grace By-laws only if
approved by stockholders with at least 80% of the voting power of the
outstanding shares of Grace stock then entitled to vote;
(2) stockholder action must be taken at an annual or special meeting of
stockholders, and action by written consent in lieu of a meeting is
prohibited; and
(3) the Grace Board is divided into three classes with staggered,
three-year terms; the election of directors need not be by written
ballot; and directors may be removed by stockholders only for cause.
The existing Sealed Air Charter does not include the
Supermajority Provisions, and the existing Sealed Air Board is opposed to
charter provisions that may make it more difficult for stockholders to take
actions. Accordingly, Sealed Air believes the Supermajority Provisions should be
repealed so the New Sealed Air Charter will not include these provisions. As
agreed with Sealed Air, Grace proposes and recommends that Grace stockholders
repeal the Supermajority Provisions for purposes of the New Sealed Air Charter,
and the Grace Board has adopted a resolution proposing the repeal of the
Supermajority Provisions.
For the New Sealed Air Charter to be adopted in its entirety, the
Supermajority Provisions must be repealed. The repeal of the Supermajority
Provisions will require the approval of stockholders owning at least 80% of the
outstanding Grace shares. If repeal of the Supermajority Provisions is not
approved by Grace stockholders but the other conditions to the Reorganization
and Merger are satisfied or waived, Sealed Air and Grace intend to proceed with
the Reorganization and Merger and the New Sealed Air Charter would include the
Supermajority Provisions. The form of the New Sealed Air Charter attached as
Annex E to this Joint Proxy Statement/Prospectus has been marked to show how it
would be different if the Supermajority Provisions are not repealed.
The Grace Charter will not be amended if the Merger is not
completed.
Recommendation of the Grace Board
As agreed with Sealed Air, the Grace Board recommends that
Grace's stockholders vote "FOR" the amendment repealing the Supermajority
Provisions.
ROLE OF FINANCIAL ADVISORS
In connection with the proposed Reorganization and Merger, Sealed
Air and Grace retained financial advisors to assist the respective companies and
their Boards in their evaluation of the transactions contemplated by the
Transaction Agreements. In this regard, Sealed Air retained DLJ as its financial
advisor, and Grace retained Credit Suisse First Boston and Merrill Lynch as its
financial advisors (the "Grace Financial Advisors"). Each of Sealed Air and
Grace entered into engagement agreements with its respective financial advisors
providing for customary fee, expense reimbursement and indemnification terms.
The financial advisors to Sealed Air and Grace assisted in
conducting the due diligence investigation of the other company and advised the
relevant management and board of directors regarding the structure and terms of
the Reorganization and Merger and the negotiation of the Transaction Agreements.
In deciding to approve the Reorganization and Merger, the Sealed
Air and Grace Boards considered opinions from their respective financial
advisors as to the fairness of the Reorganization and Merger to their respective
stockholders from a financial point of view.
Opinion of Sealed Air Financial Advisor
Sealed Air asked DLJ, in its role as financial advisor to Sealed
Air, to render an opinion to the Sealed Air Board as to the fairness to Sealed
Air stockholders, from a financial point of view, of the Exchange Ratio,
pursuant to which Sealed Air stockholders would receive one share of New Sealed
Air common stock for each share of Sealed Air common stock.
On August 14, 1997, DLJ rendered its written opinion to the
effect that, as of such date, based upon and subject to the assumptions,
limitations and qualifications set forth in the DLJ Opinion, the Exchange Ratio
was fair to Sealed Air stockholders from a financial point of view.
The full text of the DLJ Opinion is attached hereto as Annex C.
The summary of the DLJ Opinion set forth in this Joint Proxy
Statement/Prospectus is qualified in its entirety by reference to the full text
of the opinion of DLJ. Sealed Air stockholders are urged to read the DLJ Opinion
carefully and in its entirety for the procedures followed, assumptions made,
other matters considered and limits of the review by DLJ in connection with such
opinion.
The DLJ Opinion was prepared for the Sealed Air Board and was
directed only to the fairness from a financial point of view, as of the date
thereof, of the Exchange Ratio to Sealed Air stockholders. DLJ expressed no
opinion in the DLJ Opinion as to the prices at which New Sealed Air's securities
would actually trade at any time. The DLJ Opinion does not constitute a
recommendation to any stockholder of Sealed Air as to how such holder should
vote on the Merger at the Sealed Air Special Meeting.
Sealed Air selected DLJ to act as its financial advisor because
of DLJ's familiarity with Sealed Air and its qualifications and expertise in
providing advice to companies in the businesses in which Grace and Sealed Air
are engaged, as well as its reputation as a nationally recognized investment
banking firm engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, leveraged buy-outs and
valuations for corporate and other purposes. Sealed Air did not impose any
restrictions or limitations upon DLJ with respect to the investigations made or
the procedures followed by DLJ in rendering the DLJ Opinion.
In arriving at the DLJ Opinion, DLJ reviewed the Merger Agreement
and the Distribution Agreement. DLJ also reviewed financial and other
information that was publicly available or furnished to DLJ by Sealed Air and
Grace, including information provided during discussions with their respective
managements. Included in the information provided during such discussions were
certain financial analyses and projections of Grace Packaging and New Grace
prepared by the management of Grace and certain financial analyses and
projections of Sealed Air and New Sealed Air prepared by the management of
Sealed Air. These projections were substantially similar to then publicly
available estimates of research analysts with respect to the future financial
performance of each company. In addition, DLJ compared certain financial data of
Sealed Air and Grace Packaging, under certain assumptions, with publicly
available information concerning various other companies whose securities are
traded in public markets, reviewed the historical stock prices and trading
volumes of Grace common stock and Sealed Air common stock, reviewed prices and
premiums paid in certain other business combinations and conducted such other
financial studies, analyses and investigations as DLJ deemed appropriate for
purposes of rendering the DLJ Opinion.
In rendering the DLJ Opinion, DLJ relied upon and assumed the
accuracy and completeness of all of the financial and other information that was
available to it from public sources, that was provided to it by Sealed Air,
Grace, their respective managements or other representatives, or that was
otherwise reviewed by DLJ. In particular, DLJ relied upon the estimates of
management of Sealed Air of the operating efficiencies (the "Synergies") that
might be achievable as a result of the Merger (annual increases in EBITDA
ranging from approximately $20 million to $100 million in later years) and upon
DLJ's discussions of such Synergies with the management of Grace. In supplying
information regarding possible operating efficiencies to DLJ, the managements of
Sealed Air and Grace advised DLJ that estimates regarding operating efficiencies
were necessarily based on incomplete information and subject to significant
risks and uncertainties. Accordingly, DLJ performed certain analyses assuming
that Synergies would be realized, and certain other analyses assuming that
Synergies would not be realized. With respect to the financial analyses and
projections supplied to DLJ, DLJ assumed that they were reasonably prepared on a
basis reflecting the best currently available estimates and judgments of the
managements of Sealed Air and Grace as to the future operating and financial
performance of Sealed Air, Grace Packaging and New Sealed Air. DLJ did not
assume responsibility for making any independent evaluation of the assets,
liabilities or contingent liabilities of Sealed Air, New Sealed Air, Grace or
New Grace, or for making any independent verification of the information
reviewed by DLJ. DLJ relied as to certain legal matters on advice of Grace's
special counsel and Sealed Air's special counsel, including that the
transactions contemplated under the Distribution Agreement would qualify as
tax-free transactions under the Code and that the Merger will be tax-free under
the Code to Grace, Sealed Air and their respective stockholders.
The DLJ Opinion was necessarily based on economic, market,
financial and other conditions as they existed on, and on the information made
available to it as of, the date of the DLJ Opinion. The DLJ Opinion states that,
although subsequent developments may affect the DLJ Opinion, DLJ does not have
any obligation to update, revise or reaffirm its opinion. DLJ did not express
any opinion regarding the financial impact of Grace's contingent liabilities on
New Grace or New Sealed Air, and was not requested to and did not express any
opinion in the DLJ Opinion regarding the financial impact of Grace's contingent
liabilities on New Grace and New Sealed Air.
The following is a summary of the presentation made by DLJ to the
Sealed Air Board at its August 14, 1997 meeting in connection with the DLJ
Opinion. For purposes of the presentation and opinion, DLJ analyzed Grace
Packaging as if the Spin-off and Cash Transfer, but not the Merger, had
occurred.
Comparable Company Analyses. DLJ compared selected historical
and projected operating information and financial ratios for Grace Packaging
to selected historical and projected operating information, stock market data
and financial ratios for certain publicly traded specialty packaging and
specialty chemicals companies, the two market segments with which Sealed Air
is usually compared by the investment community. The specialty packaging
companies were Sealed Air, Bemis Company, Inc., Sealright Co., Inc. and Sonoco
Products Company (collectively, the "Specialty Packaging Comparable
Companies"). The specialty chemicals companies were Avery Dennison
Corporation, The Dexter Corporation, Ferro Corporation, H.B. Fuller Company,
Morton International, Inc. and Rohm and Haas Company (collectively, the
"Specialty Chemicals Comparable Companies").
DLJ analyzed the equity value of each of the Specialty Packaging
Comparable Companies and Specialty Chemicals Comparable Companies (using the
stock price around the time of the DLJ Opinion), measured as a multiple of
selected financial data, and the enterprise value of each of the Specialty
Packaging Comparable Companies and Specialty Chemicals Comparable Companies
(with enterprise value defined as equity value plus long-term debt plus the
liquidation value of the preferred stock, if any, minus cash and short-term
investments), measured as a multiple of selected financial data, and compared
these multiples to the implied equity value and enterprise value of Grace
Packaging, measured as a multiple of the same financial data. In this
comparison, DLJ used an implied equity value of Grace Packaging of approximately
$3.7 billion, and an implied enterprise value of approximately $5.0 billion. The
implied equity value was determined by adding the estimated value of the New
Sealed Air common stock to be issued to the Grace stockholders, based on an
estimated 40.9 million shares of New Sealed Air common stock to be issued in the
Recapitalization and an estimated stock price of $46.19 per share of New Sealed
Air common stock (the approximate market price of Sealed Air common stock on the
date of the DLJ Opinion), and the $1.8 billion liquidation value of the New
Sealed Air convertible preferred stock. The implied enterprise value of Grace
Packaging was determined by adding the implied equity value and the $1.2 billion
estimated amount of the Cash Transfer.
For the Specialty Packaging Comparable Companies, DLJ's analysis
of equity value as a multiple of (i) latest twelve month ("LTM") net earnings
yielded a range of 18.0x to 25.5x with a mean of 22.5x, compared to 25.7x for
Grace Packaging, (ii) projected 1997 net earnings for the Specialty Packaging
Comparable Companies yielded a range of 17.5x to 25.3x with a mean of 22.1x,
compared to 24.5x for the implied equity value of Grace Packaging (based on 1997
earnings before interest and taxes ("EBIT"), minus projected pro forma interest
expense and taxes) and (iii) projected 1998 net earnings for the Specialty
Packaging Comparable Companies yielded a range of 15.2x to 20.1x with a mean of
17.5x, compared to 19.7x for Grace Packaging (based on projected 1998 EBIT,
minus projected pro forma interest expense and taxes). The preceding analysis of
multiples of equity value showed that the implied equity value of Grace
Packaging was within the range of multiples for the Specialty Packaging
Comparable Companies in (ii) and (iii), and above the range in (i). DLJ's
analysis of enterprise value for the Specialty Packaging Comparable Companies as
a multiple of (i) LTM revenue yielded a range of 0.8x to 2.5x with a mean of
1.5x , compared to 2.8x for Grace Packaging, (ii) LTM earnings before interest,
taxes, depreciation and amortization ("EBITDA") yielded a range of 8.3x to 11.3x
with a mean of 9.7x, compared to 12.0x for Grace Packaging and (iii) LTM EBIT
yielded a range of 12.0x to 24.4x with a mean of 16.6x, compared to 15.6x for
Grace Packaging. The analysis of multiples of enterprise value showed that the
implied enterprise value of Grace Packaging was within the range of multiples
for the Specialty Packaging Comparable Companies in (iii), and above the range
in (i) and (ii).
For the Specialty Chemicals Comparable Companies, DLJ's analysis
of equity value as a multiple of (i) LTM net earnings yielded a range of 16.4x
to 23.5x with a mean of 19.5x, compared to 25.7x for Grace Packaging, (ii) 1997
projected net earnings yielded a range of 15.8x to 22.7x with a mean of 18.0x,
compared to 24.5x for Grace Packaging (based on projected 1997 EBIT, adjusted as
described above) and (iii) projected 1998 net earnings for the Specialty
Chemicals Comparable Companies yielded a range of 14.5x to 19.4x with a mean of
15.7x, compared to 19.7x for Grace Packaging (based on projected 1998 EBIT,
adjusted as described above). The preceding analysis of multiples of equity
value showed that the implied equity value of Grace Packaging was above the
range of multiples for the Specialty Chemicals Comparable Companies in (i), (ii)
and (iii). DLJ's analysis of enterprise value for the Specialty Chemicals
Comparable Companies as a multiple of (i) LTM revenue yielded a range of 0.7x to
1.8x with a mean of 1.3x, compared to 2.8x for Grace Packaging, (ii) LTM EBITDA
yielded a range of 6.9x to 13.5x with a mean of 8.7x, compared to 12.0x for
Grace Packaging, and (iii) LTM EBIT yielded a range of 9.9x to 18.2x with a mean
of 12.1x, compared to 15.6x for Grace Packaging. The analysis of multiples of
enterprise value showed that the implied enterprise value of Grace Packaging was
within the range of multiples for the Specialty Chemicals Comparable Companies
in (ii) and (iii), and above the range in (i).
Comparable Acquisition Analysis. DLJ reviewed four acquisitions
involving specialty packaging companies during the period from January 1995 to
July 1997: Printpack Inc.'s acquisition of James River Corporation's flexible
packaging division, Tenneco Inc.'s acquisition of Amoco Foam Company, AEP
Industries Inc.'s acquisition of Borden Packaging and Tenneco, Inc.'s
acquisition of Mobil Oil Corporation's plastics division. In examining these
acquisitions, DLJ compared the enterprise value of the acquired company implied
by each of these transactions as a multiple of LTM revenue, LTM EBITDA and LTM
EBIT, to the $5.0 billion implied enterprise value for Grace Packaging as a
multiple of the same financial data. DLJ's analysis of enterprise value as a
multiple of (i) LTM revenue yielded a range of 0.6x to 1.1x with a mean of 0.9x,
compared to 2.8x for Grace Packaging, (ii) LTM EBITDA yielded a range of 8.3x to
13.1x with a mean of 10.1x, compared to 12.0x for Grace Packaging and (iii) LTM
EBIT yielded a range of 11.2x to 19.2x with a mean of 15.1x, compared to 15.6x
for Grace Packaging. The analysis of multiples of enterprise value showed that
the implied enterprise value of Grace Packaging was within the range of
multiples for the comparable acquisitions in (ii) and (iii), and above the range
in (i).
Discounted Cash Flow Analysis. DLJ performed a discounted cash
flow ("DCF") analysis of Grace Packaging using projections and assumptions
provided by Grace and Sealed Air (the "Base Case"), and projections and
assumptions based on more conservative sales growth and margins provided by
Sealed Air's management (the "Conservative Case"), in each case with and without
Synergies. The DCFs for Grace Packaging were estimated using discount rates
ranging from 12.5% to 13.5%, based on estimates of the weighted average costs of
capital of Grace Packaging, and estimated terminal EBITDA multiples in 2002 for
Grace Packaging ranging from 10.0x to 12.0x. The Base Case analysis yielded
total equity values for Grace Packaging ranging from approximately $3.8 billion
to $4.9 billion (with Synergies, net of projected costs to achieve the
Synergies) and from approximately $3.3 billion to $4.3 billion (without
Synergies). The Conservative Case analysis yielded total equity values for Grace
Packaging ranging from approximately $3.5 billion to $4.5 billion (with net
Synergies, as described above) and from approximately $3.0 billion to $3.9
billion (without Synergies).
Contribution Analysis. DLJ analyzed the relative contributions of
Sealed Air and Grace Packaging to New Sealed Air based on selected financial
data, assuming the Base Case without Synergies. In this analysis, DLJ estimated
Sealed Air's stand-alone enterprise value at approximately $2.0 billion, based
on 42.7 million shares of Sealed Air common stock then outstanding and a stock
price of $46.19 per share (the approximate market price of Sealed Air common
stock on the date of the DLJ Opinion). Based on the implied total enterprise
value of New Sealed Air ($2.0 billion estimated enterprise value for Sealed Air
plus the $5.0 billion implied enterprise value for Grace Packaging), DLJ
estimated that Sealed Air would contribute 29.2% and Grace Packaging would
contribute 70.8% of New Sealed Air's total enterprise value.
DLJ compared Sealed Air's 29.2% contribution to New Sealed Air's
total enterprise value with the relative contribution of Sealed Air to certain
financial data for New Sealed Air, including net sales, EBITDA and EBIT for
1996, the LTM ended June 30, 1997, projected 1997 and projected 1998. In each
case, the financial data for New Sealed Air was determined by adding the
financial data for Sealed Air and Grace Packaging. This analysis indicated that
Sealed Air would contribute 31.3%, 31.6%, 32.2% and 32.0%, respectively, of New
Sealed Air's net sales for 1996, the LTM ended June 30, 1997, projected 1997 and
projected 1998, respectively. This analysis also indicated that Sealed Air would
contribute 30.9%, 30.5%, 30.6% and 29.0%, respectively, of New Sealed Air's
EBITDA for 1996, the LTM ended June 30, 1997, projected 1997 and projected 1998,
respectively. This analysis also indicated that Sealed Air would contribute
30.2%, 30.2%, 30.6% and 29.3%, respectively, of New Sealed Air's EBIT for 1996,
the LTM ended June 30, 1997, projected 1997 and projected 1998, respectively.
DLJ also compared the 37% ownership interest that Sealed Air
stockholders will have in New Sealed Air with the relative contribution of
Sealed Air to the estimated net earnings of New Sealed Air (determined by adding
the net earnings of Sealed Air and Grace Packaging, adjusted as described above)
for 1996, the LTM ended June 30, 1997, projected 1997 (using projected 1997
EBIT, adjusted as described above) and projected 1998 (using projected 1998
EBIT, adjusted as described above). This analysis indicated that Sealed Air
would contribute 34.6%, 34.9%, 36.2% and 34.3% of the net earnings of New Sealed
Air for 1996, the LTM ended June 30, 1997, projected 1997 and projected 1998,
respectively.
Earnings per Share Impact Analysis. Using the projected earnings
of Sealed Air for the years 1997 through 2002 provided by Sealed Air's
management and the projected earnings of Grace Packaging for the same years
(using the Base Case and Conservative Case, each with Synergies), DLJ compared
the projected cash and book earnings per share ("EPS") of Sealed Air on a
stand-alone basis (assuming the Merger does not occur) to the projected cash and
book EPS of New Sealed Air. In each case, DLJ's analysis measured cash and book
EPS of New Sealed Air on an as-converted basis (i.e., assuming that all shares
of convertible preferred stock were converted into common stock at the beginning
of the relevant period). Cash earnings per share are earnings per share plus
goodwill amortization per share.
Based on the Base Case with Synergies, the accretive effect of
the Merger on cash EPS to Sealed Air stockholders was an estimated 8.5%, 9.3%,
19.0%, 25.3%, 26.7% and 26.3% in 1997, 1998, 1999, 2000, 2001 and 2002,
respectively. Based on the Conservative Case with Synergies, the accretive
effect of the Merger on cash EPS to Sealed Air stockholders was an estimated
8.3%, 3.9%, 13.2%, 19.3%, 20.9% and 20.8% in 1997, 1998, 1999, 2000, 2001 and
2002, respectively. Based on the Base Case with Synergies, the accretive
(dilutive) effect of the Merger on book EPS to Sealed Air stockholders was an
estimated (1.4)%, 0.6%, 7.5%, 15.3%, 17.8% and 18.3% in 1997, 1998, 1999, 2000,
2001 and 2002, respectively. Based on the Conservative Case with Synergies, the
accretive (dilutive) effect of the Merger on book EPS to Sealed Air stockholders
was an estimated (1.6)%, (5.1)%, 1.5%, 9.2%, 11.9% and 12.6% in 1997, 1998,
1999, 2000, 2001 and 2002, respectively.
The summary set forth above does not purport to be a complete
description of the analyses performed by DLJ but describes, in summary form, the
principal elements of the presentation made by DLJ to the Sealed Air Board on
August 14, 1997. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to summary
description. Each of the analyses conducted by DLJ was carried out in order to
provide a different perspective on the transaction and to add to the total mix
of information available. DLJ did not form a conclusion as to whether any
individual analysis, considered in isolation, supported or failed to support an
opinion as to fairness from a financial point of view. Rather, in reaching its
conclusion, DLJ considered the results of the analyses in light of each other
and ultimately reached its opinion based on the results of all analyses taken as
a whole. Accordingly, notwithstanding the separate factors summarized above, DLJ
has indicated to Sealed Air that it believes that its analyses must be
considered as a whole and that selecting portions of its analyses and the
factors considered by it, without considering all analyses and factors, could
create an incomplete view of the evaluation process underlying its opinion. In
performing its analysis, DLJ made numerous assumptions with respect to industry
performance, business and economic conditions and other matters. The analyses
performed by DLJ are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than suggested by
such analyses.
Pursuant to the terms of an engagement agreement dated August 14,
1997, Sealed Air (i) has paid DLJ a fee of $3,750,000 ($2,000,000 of which was
payable on account of past financial advisory services unrelated to the
Reorganization and Merger rendered by DLJ to Sealed Air) and (ii) will pay an
additional $11,250,000, payable upon consummation of the Merger. Sealed Air has
also agreed that if the Merger or similar transaction is not consummated and
Sealed Air receives a $150 million termination fee, Sealed Air will pay DLJ
$7,500,000 (in addition to the $3,750,000 fee already paid) in cash upon Sealed
Air's receipt of the termination fee, provided that, if the termination fee is
less than $150 million, DLJ's compensation shall be proportionately reduced. In
addition, Sealed Air agreed to reimburse DLJ, upon request by DLJ from time to
time, for all out-of-pocket expenses (including the reasonable fees and expenses
of counsel) incurred by DLJ in connection with its engagement thereunder and to
indemnify DLJ and certain related persons against certain liabilities in
connection with its engagement, including liabilities under U.S. federal
securities laws. DLJ and Sealed Air negotiated the terms of the fee arrangement,
and the Sealed Air Board was aware of such arrangement, including the fact that
a significant portion of the aggregate fee payable to DLJ is contingent upon
consummation of the Merger. DLJ believes that the terms of this fee arrangement
are customary in transactions of this nature.
In the ordinary course of business, DLJ and its affiliates may
own or actively trade the securities of Sealed Air and Grace for their own
accounts and for the accounts of their customers and, accordingly, may at any
time hold a long or short position in Sealed Air or Grace securities. See
"Security Ownership of Certain Beneficial Owners" on page 87 for a description
of the security ownership of The Equitable Companies, an affiliate of DLJ. DLJ,
as part of its investment banking services, is regularly engaged in the
valuation of businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. DLJ has
performed investment banking and other services in the past for Sealed Air
(including delivery of a fairness opinion for Sealed Air in connection with the
$57 million acquisition of Trigon Industries in 1995) and for Grace (including
acting as advisor to Grace in the sale of its remaining interest in The
Restaurant Enterprises Group, Inc. in 1994). In addition, in 1996 DLJ was lead
manager in a $360 million high-yield offering for Fresenius Medical Care AG.
(Fresenius Medical Care AG is the parent company of a predecessor of Grace, but
has always been unrelated to Grace.) DLJ has received usual and customary
compensation for its past services for Sealed Air, Grace, and Fresenius Medical
Care AG.
Opinions of Grace Financial Advisors
Credit Suisse First Boston and Merrill Lynch were retained to act
as the Grace Financial Advisors in connection with the Reorganization and
Merger. The Grace Financial Advisors were selected by Grace because of their
familiarity with Grace and Sealed Air and their respective businesses and their
qualifications and expertise in providing advice to companies in the businesses
in which Grace and Sealed Air are engaged, as well as their reputations as
internationally recognized investment banking firms. Each of the Grace Financial
Advisors has consented to the reprinting of its fairness opinion and the summary
of such firm's activities included herein.
At the request of the Grace Board, each of the Grace Financial
Advisors delivered a written opinion to the Grace Board on August 14, 1997 to
the effect that, as of such date, and based upon the assumptions made, general
procedures followed, factors considered and limitations on the review undertaken
as set forth in such opinions, the terms of the Spin-off, the Recapitalization
and the Merger, taken as a whole, were fair, from a financial point of view, to
the holders of Grace common stock. In preparing these opinions, these firms
performed a variety of financial and comparative analyses and made a detailed
presentation to the Grace Board with respect to the Reorganization and Merger.
The Grace Board, in accepting the opinions of the Grace Financial Advisors, was
aware that the Grace Financial Advisors relied upon certain financial
information, projections and other information provided by Grace's management
and that the opinions of such firms relied, in part, on certain assumptions and
were subject to certain limitations. While the Grace Board did not perform an
independent review of the financial information, projections and other
information provided to the Grace Financial Advisors, the Grace Financial
Advisors and management did review certain financial information and projections
with the Grace Board. The Grace Board relied on the Grace Financial Advisors,
whom it considered to be experts in such matters, to select appropriate
methodologies to determine fairness. No updates of such opinions have been
requested because such opinions were provided solely in connection with the
decisions of the Grace Board taken on August 14, 1997.
The full texts of the written opinions of Credit Suisse First
Boston and Merrill Lynch, which set forth the assumptions made, general
procedures followed, factors considered and limitations on the review undertaken
by Credit Suisse First Boston and Merrill Lynch in rendering their opinions, are
set forth in Annex D to this Joint Proxy Statement/Prospectus and are
incorporated herein by reference. The opinions of Credit Suisse First Boston and
Merrill Lynch are directed only to the fairness from a financial point of view,
as of the date thereof, of the terms of the Spin-off, the Recapitalization and
the Merger, taken as a whole, to the holders of Grace's existing common stock
and do not address the merits of the underlying decision by Grace to engage in
the Reorganization and Merger and do not constitute a recommendation to any
stockholder of Grace as to how such stockholder should vote on any proposal
related to the Reorganization and Merger. The summary of the opinions of Credit
Suisse First Boston and Merrill Lynch set forth in this Joint Proxy
Statement/Prospectus are qualified in their entirety by reference to the full
text of the opinions of Credit Suisse First Boston and Merrill Lynch. Holders of
shares of Grace common stock are urged to, and should, read the opinions of
Credit Suisse First Boston and Merrill Lynch in their entirety.
Opinion of Credit Suisse First Boston. In arriving at its
opinion, Credit Suisse First Boston reviewed certain publicly available business
and financial information relating to Grace and Sealed Air, as well as the
Merger Agreement, the Distribution Agreement and the forms of related agreements
attached as exhibits thereto. Credit Suisse First Boston also reviewed certain
other information, including financial forecasts and certain information with
respect to potential operating efficiencies which may result from the Merger,
provided to Credit Suisse First Boston by Grace and Sealed Air, and met with the
managements of Grace and Sealed Air to discuss the business and prospects of
Grace, Sealed Air and New Grace. Projections provided by Sealed Air and Grace
concerning Sealed Air, Grace Packaging and New Grace were substantially similar
to then publicly available estimates of research analysts with respect to the
future financial performance of each company. Credit Suisse First Boston also
considered certain financial and stock market data of Grace and Sealed Air and
compared that data with similar data for other publicly held companies in
businesses similar to those of Grace and Sealed Air, and considered the
financial terms of certain other business combinations and other transactions.
Credit Suisse First Boston also considered such other information, financial
studies, analyses and investigations and financial, economic and market criteria
as Credit Suisse First Boston deemed relevant.
In connection with its review, Credit Suisse First Boston did not
assume any responsibility for independent verification of any of the foregoing
information and relied on its being complete and accurate in all material
respects. With respect to the financial forecasts, including the estimates of
any potential future liabilities relating to asbestos, Credit Suisse First
Boston assumed that they were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the managements of Grace and
Sealed Air as to the future financial performance of Grace, Sealed Air and New
Grace. Credit Suisse First Boston also relied upon the views of the managements
of Grace and Sealed Air concerning the business, operational and strategic
benefits and implications of the Merger, including financial forecasts provided
to Credit Suisse First Boston by Grace and Sealed Air relating to benefits from
operating efficiencies. Credit Suisse First Boston did not make an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of Grace or Sealed Air. Credit Suisse First Boston's opinion was necessarily
based upon financial, economic, market and other conditions as they existed and
could be evaluated on the date of its opinion. Credit Suisse First Boston
expressed no opinion as to what the value of New Grace common stock or New
Sealed Air common or convertible preferred stock actually would be following the
consummation of the Reorganization and Merger or the prices at which New Grace
common stock or New Sealed Air common or convertible preferred stock would trade
following the consummation of the Reorganization and Merger. Credit Suisse First
Boston also understood that the financial statements, pro forma financial
statements and registration statement of New Grace had not yet been prepared.
Credit Suisse First Boston was not requested to, and did not, solicit
third-party indications of interest in acquiring all or any part of Grace.
Credit Suisse First Boston was not requested to opine on, and Credit Suisse
First Boston's opinion did not in any manner address, Grace's underlying
business decision to effect the Reorganization and Merger.
Credit Suisse First Boston assumed, with Grace's consent, that
the Reorganization and Merger would comply with applicable foreign, U.S. federal
and state laws, including, without limitation, laws relating to the payment of
dividends, bankruptcy, insolvency, reorganization, fraudulent conveyance,
fraudulent transfer and other similar laws now or hereafter in effect affecting
creditors' rights generally. Credit Suisse First Boston assumed, with Grace's
consent, that the receipt of New Sealed Air common and convertible preferred
stock in connection with the Recapitalization and New Grace common stock in
connection with the Spin-off would be tax-free for U.S. federal income tax
purposes to the stockholders of Grace and that none of Grace, Sealed Air or New
Grace would recognize material income, gain or loss for U.S. federal income tax
purposes as a result of the Reorganization and Merger. In addition, Credit
Suisse First Boston assumed, with Grace's consent, that following the
consummation of the Reorganization and Merger, Grace (i.e., New Sealed Air) and
its subsidiaries and New Grace and its subsidiaries would perform their
respective indemnification obligations that may arise under the Distribution
Agreement (including the forms of related agreements attached as exhibits
thereto) in accordance with their respective terms. Credit Suisse First Boston
further assumed, with Grace's consent, that in the course of obtaining the
necessary regulatory or other consents or approvals (contractual or otherwise)
for the Reorganization and Merger, no restrictions, including any divestiture
requirements or amendments or modifications, would be imposed that would have a
material adverse effect on the contemplated benefits of the Reorganization and
Merger. Credit Suisse First Boston was not requested to opine on, and Credit
Suisse First Boston's opinion did not in any manner address, any matters
relating to the solvency of any entity, and Credit Suisse First Boston assumed
that Grace and New Grace would be solvent following the consummation of the
Reorganization and Merger.
Based upon and subject to the foregoing, Credit Suisse First
Boston gave its written opinion that, as of the date of such opinion, the terms
of the Spin-off, the Recapitalization and the Merger, taken as a whole, were
fair, from a financial point of view, to the holders of Grace common stock.
Merrill Lynch Opinion. In arriving at its opinion, Merrill Lynch,
among other things: (i) reviewed certain publicly available business and
financial information relating to Grace and Sealed Air that it deemed to be
relevant; (ii) reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets, liabilities and prospects
of Grace, Sealed Air and New Grace, as well as the amount and timing of the cost
savings and related expenses and operating efficiencies expected to result from
the Merger (the "Expected Efficiencies") furnished to Merrill Lynch by Grace and
Sealed Air, respectively; (iii) conducted discussions with members of senior
management and representatives of Grace and Sealed Air concerning the matters
described in clauses (i) and (ii) above, as well as the respective businesses
and prospects of Grace, Sealed Air and New Grace before and after giving effect
to the Reorganization and Merger and the Expected Efficiencies; (iv) reviewed
the market prices and valuation multiples for Grace common stock and Sealed Air
common stock and compared them with those of certain publicly traded companies
that Merrill Lynch deemed to be relevant; (v) reviewed the results of operations
of Grace and Sealed Air and compared them with those of certain publicly traded
companies that Merrill Lynch deemed to be relevant; (vi) compared the proposed
financial terms of the Reorganization and Merger with the financial terms of
certain other transactions that Merrill Lynch deemed to be relevant; (vii)
participated in certain discussions and negotiations among representatives of
Grace and Sealed Air and their financial and legal advisors; (viii) reviewed the
potential pro forma impact of the Reorganization and Merger; (ix) reviewed the
Merger Agreement, the Distribution Agreement and the forms of related agreements
attached as exhibits thereto; and (x) reviewed such other financial studies and
analyses and took into account such other matters as Merrill Lynch deemed
necessary, including Merrill Lynch's assessment of general economic, market and
monetary conditions. Projections provided by Sealed Air and Grace concerning
Sealed Air, Grace Packaging and New Grace, mentioned in (ii) above, were
substantially similar to then publicly available estimates of research analysts
with respect to the future financial performance of each company.
In preparing its opinion, Merrill Lynch assumed and relied on the
accuracy and completeness of all information supplied or otherwise made
available to, discussed with or reviewed by or for Merrill Lynch, or publicly
available, and Merrill Lynch did not assume any responsibility for independently
verifying such information or undertake an independent evaluation or appraisal
of any of the assets or liabilities of Grace or Sealed Air, nor was Merrill
Lynch furnished with any such evaluation or appraisal. In addition, Merrill
Lynch did not assume any obligation to conduct, nor did it conduct, any physical
inspection of the properties or facilities of Grace or Sealed Air. With respect
to the financial forecast information, including the estimates of any potential
future liabilities relating to asbestos, and the Expected Efficiencies, in each
case furnished to or discussed with Merrill Lynch by Grace or Sealed Air,
Merrill Lynch assumed that such information was reasonably prepared and
reflected the best currently available estimates and judgment of Grace or Sealed
Air management as to the expected future financial performance of Grace, Sealed
Air and New Grace, as the case may be, and the Expected Efficiencies.
Merrill Lynch's opinion was necessarily based upon market,
economic and other conditions as they existed and could be evaluated, and the
information made available to Merrill Lynch, as of the date of its opinion.
Merrill Lynch assumed, with Grace's consent, that in the course of obtaining the
necessary regulatory or other consents or approvals (contractual or otherwise)
for the Reorganization and Merger, no restrictions, including any divestiture
requirements or amendments or modifications, would be imposed that would have a
material adverse effect on the contemplated benefits of the Reorganization and
Merger. Merrill Lynch assumed, with Grace's consent, that the Reorganization and
Merger would comply with applicable foreign, U.S. federal and state laws,
including, without limitation, laws relating to the payment of dividends,
bankruptcy, insolvency, reorganization, fraudulent conveyance, fraudulent
transfer and other similar laws then or thereafter in effect affecting
creditors' rights generally. Merrill Lynch also assumed, with Grace's consent,
that receipt of New Sealed Air common and convertible preferred stock in
connection with the Recapitalization and New Grace common in connection with the
Spin-off would be tax-free for U.S. federal income tax purposes to the
stockholders of Grace and that none of Grace, Sealed Air or New Grace would
recognize material income, gain or loss for U.S. federal income tax purposes as
a result of the Reorganization and Merger. In addition, Merrill Lynch assumed,
with Grace's consent, that following the consummation of the Reorganization and
Merger, New Sealed Air and its subsidiaries and New Grace and its subsidiaries
would perform their respective indemnification obligations which may arise under
the Distribution Agreement (including the forms of related agreements attached
as exhibits thereto) in accordance with their respective terms. Merrill Lynch
was not requested to opine on, and its opinion does not in any manner address,
any matters relating to the solvency of any entity, and Merrill Lynch assumed
that Grace and New Grace would be solvent following the consummation of the
Reorganization and Merger.
Merrill Lynch did not express any opinion as to the prices at
which New Sealed Air common or convertible preferred stock or New Grace common
stock would trade following the announcement or consummation of the
Reorganization and Merger. Merrill Lynch was not authorized by Grace or the
Grace Board to solicit, nor did it solicit, third-party indications of interest
for the acquisition of all or any part of Grace. Merrill Lynch was not requested
to and did not express any opinion as to the underlying decision by Grace to
engage in the Reorganization and Merger.
Based upon and subject to the foregoing, Merrill Lynch gave its
written opinion that, as of the date of such opinion, the terms of the Spin-off,
the Recapitalization and the Merger, taken as a whole, were fair, from a
financial point of view, to holders of Grace common stock.
In preparing their opinions for the Grace Board, the Grace
Financial Advisors performed a variety of financial and comparative analyses,
including those described below performed in connection with their presentation
to the Grace Board on August 14, 1997. The summary of the Grace Financial
Advisors' analyses set forth below does not purport to be a complete description
of the analyses underlying the Grace Financial Advisors' opinions. The
preparation of a fairness opinion is a complex analytic process involving
various determinations as to the most appropriate and relevant methods of
financial analyses and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. In arriving at their opinions, the Grace Financial Advisors
made qualitative judgments as to the significance and relevance of each analysis
and factor considered by each of them. Accordingly, the Grace Financial Advisors
believe that their analyses must be considered as a whole and that selecting
portions of their analyses and factors, without considering all of their
analyses and factors as a whole, could create a misleading or incomplete view of
the processes underlying such analyses and their respective opinions. In their
analyses, the Grace Financial Advisors made numerous assumptions with respect to
Grace, Sealed Air, industry performance, regulatory, general business, economic,
market and financial conditions and other matters, many of which are beyond the
control of Grace and Sealed Air. No company, transaction or business used in
such analyses as a comparison is identical to Grace, Sealed Air or the
Reorganization and Merger, nor is an evaluation of the results of such analyses
entirely mathematical; rather, it involves complex considerations and judgments
concerning financial and operating characteristics and other factors that could
affect the acquisition, public trading or other values of the companies,
business segments or transactions being analyzed. The estimates contained in
such analyses and the valuations resulting from any particular analysis are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than those suggested
by such analyses. In addition, analyses relating to the value of businesses or
securities do not purport to be appraisals or to reflect the prices at which
businesses or securities actually may be sold. Accordingly, because such
estimates are inherently subject to substantial uncertainty, none of Grace,
Sealed Air, the Grace Financial Advisors or any other person assumes
responsibility for their accuracy. As described above, the Grace Financial
Advisors' opinions and financial analyses were only one of a number of factors
considered by the Grace Board in its evaluation of the Reorganization and Merger
and should not be viewed as determinative of the views of the Grace Board or
management with respect to the Spin-off, the Recapitalization and the Merger,
taken as a whole.
Presentation by Grace Financial Advisors
At the meeting of the Grace Board on August 14, 1997, the Grace
Financial Advisors made a presentation of their analyses as of such date
delivered in connection with their opinions, a summary of which appears below.
Comparable Company Analysis--New Sealed Air. The Grace Financial
Advisors compared certain financial and market information for two selected
publicly traded packaging companies that the Grace Financial Advisors deemed to
be comparable to New Sealed Air for purposes of their analysis: Sealed Air and
Bemis Company Inc. ("Bemis", and collectively, the "Comparable Companies"). The
Grace Financial Advisors compared (based upon management estimates for New
Sealed Air and research analysts' and Institutional Broker's Estimate Service
("IBES") estimates for the Comparable Companies) (i) estimated 1998 revenues;
(ii) estimated 1998 EBITDA margins; and (iii) long-term earnings growth figures.
The Grace Financial Advisors also compared the following credit statistics for
New Sealed Air and the Comparable Companies: (i) ratios of net debt to book
capitalization, which were 29.7%, 25.1% and 34.4% for New Sealed Air, Sealed Air
and Bemis, respectively, and (ii) estimated net debt to EBITDA multiples, which
were 1.3x, 0.4x and 1.0x, respectively. The Grace Financial Advisors analyzed
the current market valuations of the Comparable Companies, comparing estimated
1998 price to earnings multiples ("P/E Multiples") and estimated 1998 EBITDA
multiples for the Comparable Companies. The P/E Multiples for Sealed Air and
Bemis were 20.4x and 19.3x, respectively. Based upon this information and other
relevant factors, the Grace Financial Advisors derived an estimated 1998 P/E
Multiple range for New Sealed Air of 20.0x to 22.0x. This P/E Multiple range
implies EBITDA multiples for New Sealed Air of 8.6x to 9.3x as compared to
EBITDA multiples for Sealed Air and Bemis of 10.0x and 9.1x, respectively.
Comparable Company Analysis--New Grace. The Grace Financial
Advisors compared certain financial and market information for selected publicly
traded specialty chemicals companies that the Grace Financial Advisors deemed to
be comparable to New Grace for purposes of their analysis: Engelhard Corporation
("Engelhard") and a specialty chemicals index consisting of the following
companies: Air Products and Chemicals, Inc., Albermarle Corporation,
BetzDearborn Inc., Crompton & Knowles Corporation, Nalco Chemical Company, Great
Lakes Chemical Corporation, Praxair, Inc. and Witco Corporation (collectively,
the "Index Companies"). The Grace Financial Advisors compared (based upon
management estimates for New Grace and research analysts and IBES estimates for
Engelhard and the Index Companies) (i) estimated 1998 revenues (not including
the Index Companies); (ii) estimated 1998 EBITDA margins; and (iii) estimated
long-term earnings growth figures. The Grace Financial Advisors also compared
the following credit statistics for New Grace (based on the low point of the
value for New Grace derived below), Engelhard and the Index Companies: (i)
ratios of net debt to total market capitalization for New Grace, Engelhard and
the Index Companies, which were 0.7%, 18.0% and 20.9%, respectively; (ii) ratios
of debt to book capitalization for New Grace, Engelhard and the Index Companies,
which were 1.9%, 44.9% and 47.4%, respectively; and (iii) net debt to EBITDA
multiples for New Grace, Engelhard and the Index Companies, which were not
meaningful, 1.7x and 1.7x, respectively. The Grace Financial Advisors analyzed
the current market valuation of Engelhard and the Index Companies, comparing
estimated 1998 P/E Multiples and estimated 1998 EBITDA multiples. The P/E
Multiples for Engelhard and the Index Companies were 15.2x and 17.2x,
respectively. Based upon this information and other relevant factors, the Grace
Financial Advisors derived an estimated 1998 P/E multiple range for New Grace of
14.0x to 16.0x. This P/E Multiple range implies EBITDA multiples for New Grace
(treating estimated asbestos liabilities as debt) of 7.6x to 8.5x as compared to
EBITDA multiples for Engelhard and the Index Companies of 9.3x and 7.6x,
respectively.
No company in the comparable company analysis was identical to
either Grace, New Sealed Air or New Grace. Accordingly, an analysis of the
results of such a comparison is not purely mathematical but instead involves
complex considerations and judgments concerning differences in historical and
projected financial and operating characteristics of the comparable companies
and other factors that could affect the public trading values of the comparable
companies or the company to which they are being compared.
Valuation of New Sealed Air Common and Convertible Preferred
Stock. The Grace Financial Advisors performed an analysis to determine the
estimated value per share of the consideration to be received by the holders of
Grace common stock in connection with the Reorganization and Merger using the
1998 P/E multiple range for New Sealed Air derived in the comparable company
analysis above. The Grace Financial Advisors analyzed the projected trading
values per share of New Sealed Air common and convertible preferred stock based
upon assumed multiples of 20x, 21x and 22x estimated 1998 New Sealed Air EPS,
and an assumed 76.476 million shares of Grace common stock outstanding
immediately before the Recapitalization. Based upon the foregoing assumptions
and analyses, the trading values per share of New Sealed Air common stock would
be $49.80, $52.29 and $54.78, respectively, and assuming an exchange ratio of
0.532, the value of the fraction of a share of New Sealed Air common stock to be
received for each Grace share would be $26.49, $27.81 and $29.14, respectively.
Additionally, the trading values of convertible preferred stock to be received
for each share of Grace common stock at multiples of 20x, 21x, and 22x New
Sealed Air 1998 EPS were estimated to be $24.00, $24.75 and $25.75,
respectively. Accordingly, based upon the foregoing assumptions and analyses,
the value received in New Sealed Air common and convertible preferred stock per
share of Grace common stock at multiples of 20x, 21x and 22x New Sealed Air 1998
EPS would total an estimated $50.49, $52.56 and $54.89, respectively.
Valuation of New Grace Common Stock. The Grace Financial Advisors
performed an analysis to determine the estimated trading value of New Grace
common stock to be received by holders of Grace common stock after giving effect
to the Recapitalization, the Spin-off and the Cash Transfer using trading
multiples of 14x, 15x and 16x New Grace estimated 1998 EPS. Based upon the
foregoing assumptions and analyses, the Grace Financial Advisors estimated the
projected trading values per share of New Grace common stock to be $24.50,
$26.25 and $28.00, respectively.
Sensitivity Analysis. The Grace Financial Advisors analyzed the
estimated fully distributed value to be received per share of Grace common stock
in connection with the Reorganization and Merger using the 1998 P/E Multiple
ranges for New Sealed Air and New Grace derived in the comparable company
analysis above. The Grace Financial Advisors analyzed the projected trading
values per share of New Grace common stock based upon a range of three trading
multiples of estimated 1998 EPS and based upon an assumed 76.476 million shares
of Grace common stock outstanding immediately before the Recapitalization. Based
upon estimated trading multiples of 1998 EPS of 14x, 15x and 16x and the
foregoing assumptions, the Grace Financial Advisors estimated the projected
trading values per share of New Grace common stock. Based upon the Grace
Financial Advisors' analysis of the estimated value of New Sealed Air common and
convertible preferred stock to be received per Grace share, and the assumptions
relating to such analysis, all set forth above, the Grace Financial Advisors
estimated the aggregate trading values of the New Sealed Air common stock,
convertible preferred stock and New Grace common stock to be received per Grace
share to be $74.99, $77.06 and $79.39 (using a 14x EPS trading multiple for New
Grace and 20x, 21x and 22x EPS trading multiples for New Sealed Air); $76.74,
$78.81 and $81.14 (using a 15x EPS trading multiple for New Grace and 20x, 21x
and 22x EPS trading multiples for New Sealed Air); and $78.49, $80.56 and $82.89
(using a 16x EPS trading multiple for New Grace and 20x, 21x and 22x EPS trading
multiples for New Sealed Air).
Credit Analysis of New Grace. The Grace Financial Advisors also
analyzed certain credit statistics for New Grace, based upon certain forecasted
financial information and certain information with regard to possible operating
efficiencies resulting from the Reorganization and Merger provided by management
of Grace. Such analyses were based upon management estimates of New Grace's
total debt, asbestos liability and shareholders' equity for 1998, 1999 and 2000.
Based upon the foregoing management estimates, the Grace Financial Advisors
analyzed certain credit statistics for New Grace involving ratios of estimated
debt and asbestos liability to book capitalization for the years 1998, 1999 and
2000 of 46.5%, 38.5% and 32.4%, respectively, and ratios of debt and asbestos
liability to EBITDA for the years 1998, 1999 and 2000 of 1.6x, 1.3x and 1.2x,
respectively.
The foregoing is a summary of the material terms of the
presentation by the Grace Financial Advisors to the Grace Board on August 14,
1997, and does not purport to be a complete description of such presentation.
The analyses by the Grace Financial Advisors in connection with such
presentation do not purport to be appraisals or necessarily to reflect the
prices at which businesses or securities may be sold. As described above, the
opinions of the Grace Financial Advisors and their presentation to the Grace
Board were one of a number of factors considered by the Grace Board in
connection with its approval of the Reorganization and Merger.
Each of Credit Suisse First Boston and Merrill Lynch, as part of
its investment banking business, is continually engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes. Grace selected Credit Suisse First Boston and
Merrill Lynch as its financial advisors because they are nationally recognized
investment banking firms that have substantial experience in transactions
similar to the Reorganization and Merger.
Each of Credit Suisse First Boston and Merrill Lynch provides a
full range of financial, advisory and brokerage services and in the course of
its normal trading activities may from time to time effect transactions and hold
positions in securities or options on securities of Grace, Sealed Air, New
Sealed Air or New Grace for its own account and for the account of customers.
Each of Credit Suisse First Boston and Merrill Lynch is familiar with Grace from
having acted as its financial advisors in connection with, and having
participated in certain of the negotiations leading to, the Merger Agreement and
the Distribution Agreement, and certain other previous transactions entered into
by Grace. Each of Credit Suisse First Boston and Merrill Lynch has also provided
certain investment banking services to Grace from time to time, and may provide
investment banking services to Grace and New Grace in the future.
Pursuant to separate engagement agreements dated July 9, 1997
(the "Financial Advisors Engagement Letters"), Grace engaged Credit Suisse First
Boston and Merrill Lynch to act as its financial advisors in connection with the
Reorganization and Merger. Pursuant to the terms of the Financial Advisors
Engagement Letters, Grace agreed to pay each of Credit Suisse First Boston and
Merrill Lynch (i) a fee of $2,500,000, payable upon execution of a definitive
agreement with respect to the Reorganization and Merger, creditable (to the
extent paid) against the Transaction Fee (as defined below); (ii) a transaction
fee of $5,000,000 upon consummation of the Reorganization and Merger (the
"Transaction Fee"); and (iii) in addition, an incentive fee based upon the
market value of the consideration received by Grace stockholders in connection
with the Reorganization and Merger in an amount up to, but not exceeding,
$10,000,000. Grace has also agreed to reimburse each of Credit Suisse First
Boston and Merrill Lynch for its reasonable out-of-pocket expenses, including
attorneys' fees, and to indemnify each of the Grace Financial Advisors against
certain liabilities, including certain liabilities under U.S. federal securities
laws.
BUSINESS OF NEW SEALED AIR
Overview of New Sealed Air
The combination of Sealed Air and Grace Packaging to create New
Sealed Air will join two leaders in the manufacture and sale of protective and
specialty packaging materials and systems. Here are a few points that highlight
how New Sealed Air would have looked in 1996, on a pro forma basis (assuming
that Sealed Air and Grace Packaging had been combined before 1996):
o New Sealed Air would have had annual net sales of more than $2.5 billion.
o Approximately 60% of New Sealed Air's net sales would have come from
specialty (primarily food) packaging products and 40% from protective
packaging and other products.
o New Sealed Air would have had operations in 46 countries, with 51% of its
revenues generated in the U.S. and 49% outside the U.S.
New Sealed Air is expected to continue to pursue the following
corporate priorities--putting its customers' needs first, carefully managing its
financial resources, implementing principles of World Class Manufacturing (which
emphasize employee involvement, product quality and efficient manufacturing),
and introducing innovative new products. New Sealed Air will seek to provide
worldwide leadership in protective and specialty packaging by producing and
selling differentiated, proprietary packaging materials and systems designed to
provide cost-effective solutions to the packaging needs of a wide variety of
products and customers throughout the world. New Sealed Air will seek to
emphasize materials and systems that will enable its customers to provide a high
degree of protection in packaging their products, while reducing shipping,
storage, labor and materials costs and minimizing the amount of packaging waste.
New Sealed Air's strategy for growth is expected to be directed
toward the following four areas:
o New product development, both internally and through acquisitions and
strategic alliances.
o Global expansion to meet the worldwide protective and specialty packaging
needs of its customers and to benefit from opportunities presented by
economic growth and emerging markets outside the U.S. and the other
countries in which it will operate.
o Identifying and pursuing opportunities in protective and specialty
packaging that offer economic characteristics similar to its products and
that offer synergies with its marketing expertise, distribution channels
and technological capabilities.
o Exploiting its core technologies in extrusion, chemical formulation, food
science, packaging systems and packaging design and evaluation for both
packaging and non-packaging applications.
Business of Sealed Air
Sealed Air is a leading global manufacturer of a wide range of
protective and specialty packaging materials and systems. The company's
operations are conducted primarily in the U.S. and in 26 other countries in
North America, Europe, the Asia/Pacific region and Latin America. During 1996,
1995 and 1994, approximately 39%, 38% and 29%, respectively, of Sealed Air's
total net sales were generated outside the U.S.
Sealed Air's principal classes of products include engineered
products, surface protection and other cushioning products, and food packaging
products.
o Engineered products, which accounted for approximately 36% of 1996 net
sales, include Sealed Air's Instapak[Registered] polyurethane foam
packaging systems, specialty polyethylene foams for packaging and
non-packaging uses and Korrvu[Registered] suspension and retention
packaging products.
o Surface protection and other cushioning products, which accounted for
approximately 47% of 1996 net sales, are a complementary line of materials
that include BubbleWrap[Registered] air cellular cushioning materials,
Cell-Aire[Registered] polyethylene foam sheeting, various paper protective
packaging materials and a comprehensive line of protective and durable
mailers and bags, including products sold under the Jiffy[Trademark]
trademark and other related trade names.
o Food packaging products, which accounted for approximately 13% of 1996 net
sales, consist primarily of Dri-Loc[Registered] absorbent pads, which are
used in the pre-packaging of meat, fish and poultry to absorb excess
fluids, and a complementary line of flexible films, bags, pouches and
related equipment that are used to package a broad range of food products.
Sealed Air's other products include specialty adhesive products, loose-fill
polystyrene packaging, paper products, products that control static electricity,
and recreation and energy conservation products.
Sealed Air believes it has achieved a leadership position in
protective and specialty packaging by putting its customers' needs first, by
providing products with measurable economic benefits, by pursuing innovation and
new product development and by growing to meet the needs of customers around the
world. In pursuing global growth, the company has emphasized consistent
strategic principles, including seeking market leadership through differentiated
proprietary products because market leadership optimizes profits, fostering
technological innovation because innovation is the only long-term guarantee of
market leadership, exploiting the greater market potential of global operations,
and emphasizing products with high margins, low capital intensity and low labor
intensity.
Further information concerning the business of Sealed Air is set
forth in Sealed Air's 1996 Annual Report on Form 10-K (the "Sealed Air 10-K").
See "Where You Can Find More Information" on page 100.
Business of Grace Packaging
Grace Packaging is a leading global supplier of high-performance
materials and systems used in packaging food, industrial and consumer products.
Grace Packaging operates in the U.S. and in 45 other countries in North America,
Europe, the Asia/Pacific region, Latin America and Africa. During 1996, 1995 and
1994, approximately 54%, 53% and 51%, respectively, of Grace Packaging's total
net sales were generated outside the U.S.
Grace Packaging's principal products are various food packaging
products and shrink and non-shrink films for industrial and consumer products.
o Approximately 80% of Grace Packaging's net sales in 1996 were of food
packaging products. These products include (i) shrink bags, shrink
films, laminated films and other specialty packaging systems (including
material, equipment and services) marketed under the Cryovac[Registered]
registered trademark for a broad range of perishable foods such as
fresh, smoked and processed meat products, cheese, poultry, prepared
foods (including soups and sauces for restaurants and institutions),
baked goods and produce; (ii) polystyrene foam prepackaging trays for
supermarkets and poultry and other food processors, marketed under the
Formpac[Trademark] trademark; and (iii) rigid plastic containers for
dairy and other food and nonfood products, marketed under the
Omicron[Trademark] trademark.
o Approximately 20% of Grace Packaging's net sales in 1996 were of shrink
films and other films used in packaging a variety of non-food industrial
and consumer products, such as housewares, toys, electronics and medical
products.
Grace Packaging has maintained a leading position in specialty
packaging, principally by emphasizing technological innovation combined with
superior customer service. Grace Packaging seeks to maintain technological
leadership through continuous and innovative research and development. Grace
Packaging's core technologies include coextrusion technology, which permits the
production of packaging materials suited to specific customer needs, and food
science expertise, which provides a better understanding of the interaction
between packaging materials and packaged products. Grace Packaging believes that
combining its technological strengths with superior customer service leads to
product differentiation and market leadership, which optimize profits.
In addition, Grace Packaging has been reorganized so that its
product lines are managed on a global basis. As a result, Grace Packaging
believes it is better able to serve its multinational customers in all global
regions. Worldwide, Grace Packaging employs approximately 10,000 people and
operates 30 production facilities (10 in North America, 9 in Europe, 5 in each
of the Asia/Pacific region and Latin America and 1 in Africa).
Further information concerning Grace Packaging is set forth in
the Grace 10-K. See "Where You Can Find More Information" on page 100.
GRACE PACKAGING SELECTED SPECIAL-PURPOSE COMBINED FINANCIAL DATA
The following selected special-purpose combined financial data
present only selected financial data for Grace Packaging prior to the
Reorganization and Merger. The financial data for the years ended December 31,
1996, 1995 and 1994 are derived from the Grace Packaging Special-Purpose
Combined Financial Statements, which were audited by Price Waterhouse LLP
(except for the Balance Sheet Data at December 31, 1994). The financial data for
the nine months ended September 30, 1997 and 1996 and the years ended December
31, 1993 and 1992 and the balance sheet data at September 30, 1997 and December
31, 1994, 1993 and 1992 are derived from Grace Packaging's unaudited financial
statements. To understand this selected financial data more fully, you should
read the Grace Packaging Special-Purpose Combined Financial Statements,
including the notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations for Grace Packaging" included
elsewhere in this Joint Proxy Statement/Prospectus.
Nine Months
Ended September 30, Years Ended December 31,
------------------------- --------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- --------
(In thousands)
Combined Statement of
Earnings Data:
Net sales.............. $1,347,739 $1,271,612 $1,741,602 $1,705,642 $1,428,459 $1,256,132 $1,236,659
Gross profit........... 473,883 431,278 590,596 627,542 545,313 492,911 483,803
Operating profit....... 191,918 139,106 173,500 248,062 237,349 219,474 218,863
Other expense, net..... 2,215 5,036 3,678 12,589 9,597 12,949 9,101
Earnings before income
taxes................. 189,703 134,070 169,822 235,473 227,752 206,525 209,762
Net earnings........... 111,545 78,813 99,830 140,892 139,511 125,980 127,955
Combined Balance Sheet Data (at end of period):
Working capital........ $323,510 $277,583 $289,605 $224,815 $194,284 $176,502
Total assets........... 1,683,432 1,702,888 1,477,360 1,179,937 914,669 839,310
Total liabilities...... 301,614 321,098 303,398 282,176 214,950 219,787
Total equity .......... 1,381,818 1,381,790 1,173,962 897,761 699,719 619,523
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR GRACE PACKAGING
Results of Operations
For the Nine Months Ended September 30, 1997 and 1996
Net sales increased 6% in the first nine months of 1997 compared
with the 1996 period, primarily due to increased unit volume, sales from
businesses acquired, and higher average selling prices. These increases were
partially offset by the negative effect of foreign currency translation and, to
a lesser extent, the continuing effect of negative publicity surrounding bovine
spongiform encephalopathy, commonly referred to as "mad cow disease," which led
to reduced consumption of beef products and accordingly lower sales of certain
Grace Packaging products, particularly in Europe. Excluding the effect of
foreign currency translation, the increase in net sales would have been 10% for
the first nine months of 1997 compared with the 1996 period.
Cost of sales increased 4% in the first nine months of 1997
compared with the 1996 period, primarily reflecting the increase in net sales
and higher levels of manufacturing-related depreciation as a result of the
completion of several major expansion programs, discussed below, partially
offset by the cost savings realized as a result of the worldwide restructuring
program implemented in 1995, described below. As a result of this program, cost
of sales decreased as a percentage of net sales to 64.8% in the first nine
months of 1997 compared with 66.1% in the 1996 period.
Marketing, administrative and development expenses increased 7%
in the first nine months of 1997 compared with the 1996 period, primarily
reflecting increased corporate allocations from Grace and the increase in net
sales, partially offset by the cost savings realized as a result of the
worldwide restructuring program discussed below. As the realized cost savings
only partially offset the increased corporate allocation in the first nine
months of 1997 compared to the 1996 period, marketing, administrative and
development expenses as a percentage of sales increased to 20.3% in the first
nine months of 1997 compared with 20.1% in the 1996 period.
Charges for restructuring costs under Grace Packaging's worldwide
restructuring program (discussed below) were $8.4 million and $37.0 million in
the first nine months of 1997 and 1996, respectively. The 1997 charge primarily
related to employee termination benefits. The 1996 charge primarily related to
the restructuring of Grace Packaging's European operations and consisted of
costs related primarily to employee termination benefits and lease termination
costs.
Operating profit increased 38% and net earnings increased 42% in
the first nine months of 1997 compared to the 1996 period, primarily due to the
lower level of restructuring costs in the 1997 period and the other changes in
costs and expenses discussed above.
Grace Packaging's effective income tax rate was 41.2% for the
first nine months of both 1997 and 1996.
For the Three Years Ended December 31, 1996:
Net sales increased 2% in 1996 compared with 1995 and 19% in 1995
compared with 1994. The increase in 1996 was due primarily to increased unit
volume in certain products, partially offset by the effect of the negative
publicity surrounding "mad cow disease," which led to reduced consumption of
beef products and accordingly lower sales of certain Grace Packaging products,
particularly in Europe, and by changes in product mix. The increase in 1995 was
due primarily to increased unit volume in certain products, the favorable effect
of foreign currency translation and the sales of a European laminates business
acquired in November 1994.
Cost of sales increased 7% in 1996 compared with 1995 and 22% in
1995 compared with 1994. The disproportionate increase in cost of sales in 1996
resulted primarily from higher indirect manufacturing costs, including
depreciation resulting from the completion of certain major expansion projects
begun in 1995, which were not offset by increased net sales. Cost of sales also
increased due to changes in product mix. These changes in costs of sales were
partially offset by certain lower raw material costs. The disproportionate
increase in cost of sales in 1995 primarily reflected certain higher raw
material costs and, to a lesser extent, higher depreciation, as certain property
and equipment was placed in operation at the end of 1995 as part of the
expansion program. As a result of the factors discussed above, primarily the
higher indirect manufacturing costs in 1996 compared to 1995 and higher raw
material costs in 1995 compared to 1994, cost of sales as a percentage of net
sales was 66.1%, 63.2% and 61.8% in 1996, 1995 and 1994, respectively.
Marketing, administrative and development expenses decreased 5%
in 1996 compared with 1995 but increased 20% in 1995 compared with 1994. The
decrease in 1996 was primarily due to the cost savings realized from the
restructuring programs implemented in 1995, discussed below, and a decrease in
corporate allocations, partially offset by increased research and development
costs in 1996. The increase in 1995 primarily reflected the increase in net
sales. Marketing, administrative and development expenses as a percentage of net
sales were 19.6%, 21.2% and 21.1% in 1996, 1995 and 1994, respectively.
Restructuring costs and asset impairments were $74.9 million,
$17.7 million and $6.0 million in 1996, 1995 and 1994, respectively. In 1995,
Grace Packaging began implementing a worldwide restructuring program focused on
streamlining processes and reducing operating costs, and continued to implement
additional cost reductions and efficiency improvements beyond those initiated in
1995 as it further evaluated and reengineered its operations. In connection with
these programs, Grace Packaging recorded restructuring charges of $47.9 million
in 1996 and $11.1 million in 1995. These charges primarily related to the
restructuring of European operations and consisted of costs related mainly to
employee termination benefits and lease termination costs. In 1994, prior to the
implementation of the worldwide program, Grace Packaging recorded a
restructuring charge of $6.0 million related to the closing of certain
facilities in connection with efforts to reduce costs and implement efficiency
improvements. Also during 1996 and 1995, certain long-lived assets and related
goodwill were determined to be impaired, which resulted in non-cash pre-tax
charges of $27.0 million and $6.6 million, respectively.
Operating profit decreased 30% and net earnings decreased 29% in
1996 compared with 1995, primarily due to the level of restructuring costs and
asset impairments in 1996 compared to the 1995 period and the other changes in
costs and expenses discussed above. Operating profit increased 5% and net
earnings increased 1% in 1995 compared with 1994, primarily due to the changes
in costs and expenses discussed above.
Grace Packaging's effective income tax rates were 41.2%, 40.2%
and 38.7% in 1996, 1995 and 1994, respectively. The higher effective tax rates
in 1996 and 1995 resulted from higher U.S. and foreign taxes on foreign
operations in each period.
Liquidity and Capital Resources
Grace Packaging's principal sources of liquidity are cash flows
from operations and funding through Grace's centralized cash management
services, whereby cash received from operations is transferred to, and
disbursements are funded from, Grace's centralized accounts. As a result, any
cash needs in excess of cash flows from operations are funded by Grace and any
cash flows from operations in excess of cash needs are transferred to Grace and
used for other purposes. Grace Packaging's participation in Grace's centralized
cash management services will be terminated effective upon the Merger.
Thereafter, any cash needs of Grace Packaging not provided by operations are
expected to be funded by New Sealed Air, including through borrowings and lines
of credit available through New Sealed Air, including the New Credit Agreements.
See the "New Credit Agreements" on page 76 for further information.
Net cash provided by operating activities amounted to $163.0
million and $165.5 million in the first nine months of 1997 and 1996,
respectively. The decrease in operating cash flows in the 1997 period was
primarily due to cash payments made during the 1997 period under the
restructuring program implemented in 1995, which more than offset the increased
net earnings.
Net cash provided by operating activities amounted to $207.6
million, $156.7 million and $179.1 million in 1996, 1995 and 1994, respectively.
The increase in operating cash flows in 1996 was primarily due to increased net
earnings (excluding the non-cash portion of restructuring costs and asset
impairments in both periods) and improved inventory management, partially offset
by higher investments in equipment leased to customers. The decrease in
operating cash flows in 1995 compared with 1994 was primarily due to a higher
use of working capital, largely as a result of an increase in inventory levels,
partially offset by increased net earnings (excluding the non-cash portion of
restructuring costs and asset impairments).
Net cash used for investing activities amounted to $91.4 million
and $248.6 million in the first nine months of 1997 and 1996, respectively. The
decrease in the 1997 period was primarily due to the lower level of capital
expenditures in the 1997 period compared with the 1996 period, as several major
manufacturing expansion programs begun in 1995 neared completion.
Net cash used for investing activities amounted to approximately
$309.1 million, $293.0 million and $192.4 million in 1996, 1995 and 1994,
respectively. Capital expenditures in 1996, 1995 and 1994 were $294.5 million,
$293.3 million and $185.9 million, respectively, reflecting increases in 1996
and 1995 over the prior periods as a result of the global expansion program
begun in 1995. The increase in 1996 compared with 1995 also reflected cash used
in connection with an acquisition.
Net cash used for financing activities of $71.6 million in the
first nine months of 1997 represented a net advance to Grace; net cash provided
by financing activities of $83.2 million in the 1996 period represented a net
advance from Grace, in part to fund the expansion program discussed above.
Net cash provided by financing activities amounted to $101.5
million, $136.3 million and $13.3 million in 1996, 1995 and 1994, respectively,
representing net advances from Grace, partially offset, in 1994, by principal
payments on long-term debt assumed in connection with an acquisition made in
1994.
Grace Packaging has no capital structure, and there has been no
allocation of Grace's borrowings and related interest expense, except for
interest capitalized as a component of properties and equipment. Therefore, the
financial position of Grace Packaging is not indicative of the financial
position that would exist if it were an independent stand-alone entity.
Other Matters
Environmental Matters
Grace Packaging is subject to loss contingencies resulting from
environmental laws and regulations. Grace Packaging accrues for anticipated
costs associated with investigatory and remediation efforts when 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
and are not reduced by potential insurance recoveries, if any. Environmental
liabilities are reassessed whenever circumstances become better defined and/or
remediation efforts and their costs can be better estimated. These liabilities
are evaluated periodically based on available information, including the
progress of remedial investigation at each site, the current status of
discussions with regulatory authorities regarding the methods and extent of
remediation and the apportionment of costs among potentially responsible
parties. As some of these issues are decided (the outcomes of which are subject
to uncertainties) and/or new sites are assessed and costs can be reasonably
estimated, Grace Packaging will adjust the recorded accruals, as necessary.
However, Grace Packaging believes that it is adequately reserved for all
probable and estimable environmental exposures.
Non-Grace Packaging Contingent Liabilities
In connection with the Merger, New Grace has agreed to indemnify
New Sealed Air (including Grace Packaging) against all liabilities of Grace,
whether relating to events occurring before or after the Reorganization, other
than liabilities arising from or relating to Grace Packaging's operations
(except those retained by New Grace under the terms of the Transaction
Agreements). Grace believes that, in view of New Grace's financial position
giving effect to the Reorganization, New Grace's agreement to indemnify Grace
Packaging, and the nature of the non-Grace Packaging liabilities and other
liabilities retained by New Grace, the risk of loss to Grace Packaging from
these liabilities is remote.
Guarantee of New Grace Outstanding Public Debt
Grace currently is the guarantor of certain debt, including
approximately $644 million in outstanding public debt of a subsidiary that will
be wholly owned by New Grace after the Spin-off. Although the subsidiary intends
to repurchase this public debt, some or all of it may remain outstanding after
the Merger. Because Grace will become New Sealed Air, New Sealed Air will remain
the guarantor of any such debt remaining outstanding. New Grace will indemnify
New Sealed Air against any liability arising from the guarantee. In addition, if
more than $50 million of this public debt remains outstanding after the Merger,
New Sealed Air will receive a letter of credit (in the amount of the public debt
in excess of $50 million) to cover any payments it must make under its
guarantee, up to the amount of the letter of credit. Based upon the foregoing
and New Grace's expected financial position, giving effect to the
Reorganization, Grace believes such guarantee obligations are not material to
the financial condition of New Sealed Air.
Year 2000 Computer System Compliance
Grace Packaging has conducted a comprehensive review of its
computer systems to identify systems that could be affected by the "Year 2000"
issue and is implementing a plan to resolve the issue. Grace Packaging presently
believes that, with modifications to existing software and by converting to new
software, the Year 2000 issue will not pose significant operational problems for
its computer systems. However, if such modifications and conversions are not
completed in a timely manner, the Year 2000 issue may have a material impact on
the operations of Grace Packaging. It is anticipated that the costs associated
with modifying the existing systems will not be material. The modification costs
incurred in connection with Year 2000 compliance are expensed as incurred.
NEW SEALED AIR
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The unaudited pro forma condensed consolidated financial data of
New Sealed Air are presented to show how Sealed Air and Grace Packaging might
have looked if Grace Packaging had been an independent company and Grace
Packaging and Sealed Air had been combined for the periods presented. These pro
forma data are based on, and should be read together with, the historical
financial statements for Sealed Air and Grace Packaging that are included or
incorporated by reference in this Joint Proxy Statement/Prospectus. The pro
forma financial data were prepared using the assumptions described below and in
the related notes thereto.
The pro forma earnings data were prepared as if the
Reorganization and Merger took place on January 1, 1996 and the pro forma
balance sheet data were prepared as if the transactions took place on September
30, 1997. The financial statements give pro forma effect to (i) borrowings of
approximately $1.241 billion (subject to adjustment) to fund the Cash Transfer,
(ii) the issuance of 40.895 million shares of New Sealed Air common stock and 36
million shares of New Sealed Air convertible preferred stock in the
Recapitalization and the issuance of approximately 42.7 million shares of New
Sealed Air common stock in the Merger, (iii) certain quantifiable adjustments to
reflect New Sealed Air's results of operations on a stand-alone basis, and (iv)
adjustments for certain Grace Packaging assets and liabilities that will be
retained by New Grace in the Reorganization. The pro forma financial statements
have not been adjusted for certain operating efficiencies that may be realized
as a result of the Merger.
For accounting purposes, the Merger will be treated as a purchase
of Sealed Air by Grace Packaging. Accordingly, the net assets of Sealed Air will
be adjusted to their fair values, and the excess of the purchase price for
Sealed Air (the total market value of Sealed Air's common stock around the time
the Merger was announced plus certain acquisition costs) over the fair value of
its net assets will be recorded as goodwill. The preliminary adjustments to net
assets and goodwill which are shown in these pro forma financial data may be
adjusted based on a valuation study to be conducted. Sealed Air does not expect
these adjustments to be material.
Because Grace Packaging is a part of Grace rather than a
stand-alone company, a portion of Grace's corporate, marketing, administrative
and development expenses were allocated to Grace Packaging when the
Special-Purpose Combined Financial Statements for Grace Packaging were prepared.
In the opinion of Grace's management, these allocations are reasonable. However,
these expenses may not be indicative of, and it is not feasible to estimate, the
nature and level of expenses which might have been incurred had Grace Packaging
operated as an independent company for the periods presented. The Grace
Packaging Special-Purpose Combined Financial Statements do not include any of
Grace's debt and related interest expense (except for the interest capitalized
as a component of properties and equipment used in Grace Packaging's business).
After the Merger, New Sealed Air may incur certain charges and
expenses related to restructuring and integrating the operations of Sealed Air
and Grace Packaging. New Sealed Air will assess the combined operating
structure, business processes and circumstances that bear upon the operations,
facilities and other assets of the business as part of developing a combined
strategic and operating plan. The objective of such plan will be to enhance
productivity and efficiency of combined operations by reducing duplicate
functions, facilities and overhead costs. The nature of any such charges and
expenses may include provisions for severance and related costs, facilities
closures or other charges identified in connection with the assessment and plan
development. The unaudited pro forma condensed consolidated financial data do
not reflect such provisions nor do they include certain cost savings or
operating synergies that may result from the Merger, as such amounts are not
currently determinable.
The unaudited pro forma condensed consolidated financial data are
provided for illustrative purposes only. They do not purport to represent what
New Sealed Air's results of operations and financial position would have been
had the Reorganization and Merger actually occurred as of the dates indicated,
and they do not purport to project New Sealed Air's future results of operations
or financial position.
NEW SEALED AIR
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(In thousands, except per share data)
Year Ended December 31, 1996
------------------------------------------------------------------------------
Adjustments for
Historical Grace Historical Reorganization
Packaging Sealed Air and Merger Pro Forma
----------------- ---------- --------------- ----------
Net sales.................................. $1,741,602 $789,612 $(1,569)(A) $2,529,645
Cost of sales.............................. 1,151,006 495,185 (1,569)(A) 1,654,922
500 (B)
9,800 (D)
---------- -------- ---------
Gross profit............................ 590,596 294,427 874,723
Marketing, administrative and
development expenses....................... 342,149 164,355 42,491 (B) 531,121
(39,342)(C)
21,468 (D)
Restructuring costs and asset impairments.. 74,947 -- 74,947
---------- -------- ---------
Operating profit........................ 173,500 130,072 268,655
Other:
Interest expense.......................... -- (13,350) (74,200)(E) (87,550)
Other, net (3,678) (2,127) (5,805)
---------- -------- ---------
Other, net................................ (3,678) (15,477) (93,355)
---------- -------- ---------
Earnings before income taxes............... 169,822 114,595 175,300
Income taxes............................... 69,992 45,266 28,136 (F) 87,122
---------- -------- ---------
Net earnings............................... $99,830 $69,329 $88,178
========== ======== =========
Preferred stock dividend................... $72,000 (G)
=========
Earnings available to common
stockholders............................... $16,178
=========
Weighted average common shares
outstanding................................ 83,595 83,595 (G)
=========
Earnings per common share.................. $ 0.19 (G)
=========
See Accompanying Notes to the Unaudited Pro Forma Condensed
Consolidated Financial Data.
NEW SEALED AIR
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(In thousands, except per share data)
Nine Months Ended September 30, 1997
-------------------------------------------------------------------
Adjustments for
Historical Historical Reorganization
Grace Packaging Sealed Air and Merger Pro Forma
--------------- ---------- --------------- ------------
Net sales.................................. $1,347,739 $620,769 $(979) (A) $1,967,529
Cost of sales.............................. 873,856 387,364 (979) (A) 1,267,966
375 (B)
7,350 (D)
---------- --------- ----------
Gross profit............................ 473,883 233,405 699,563
Marketing, administrative and development
expenses.................................. 273,594 127,417 32,648 (B) 404,857
(44,439) (C)
15,637 (D)
Restructuring costs........................ 8,371 -- 8,371
---------- --------- ----------
Operating profit........................ 191,918 105,988 286,335
Other:
Interest expense.......................... -- (5,683) (56,487) (E) (62,170)
Other, net................................ (2,215) 2,846 631
---------- --------- ----------
(2,215) (2,837) (61,539)
---------- --------- ----------
Earnings before income taxes............... 189,703 103,151 224,796
Income taxes............................... 78,158 40,642 15,133 (F) 103,667
---------- --------- ----------
Net earnings............................... $111,545 $62,509 $121,129
========== ========= ==========
Preferred stock dividend................... $54,000 (G)
==========
Earnings available to common stockholders.. $67,129
==========
Weighted average common shares
outstanding................................ 83,595 83,595 (G)
==========
Earnings per common share.................. $ 0.80 (G)
==========
See Accompanying Notes to the Unaudited Pro Forma Condensed
Consolidated Financial Data.
NEW SEALED AIR
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
September 30, 1997
----------------------------------------------------------------------------------
Historical Historical Adjustments
--------------------------------
Grace Packaging Sealed Air Reorganization Merger Pro Forma
--------------- ---------- -------------- ----------- ------------
Assets
Current assets:
Accounts receivable, net...................... $272,807 $127,801 $400,608
Inventories................................... 228,874 62,217 $17,800 (O) 308,891
Other current assets.......................... 27,744 46,999 72,925
$(1,818) (J)
---------- -------- ----------
Total current assets........................ 529,425 237,017 782,424
---------- -------- ----------
Properties and equipment, net................. 1,082,356 166,961 5,000 (O) 1,254,317
Excess of cost over fair value of net assets
acquired, net............................... 13,118 41,003 (41,003)(O) 1,942,130
1,929,012 (O)
Other assets................................ 58,533 38,247 20,000 (O) 116,780
---------- -------- ----------
Total assets................................... $1,683,432 $483,228 $4,095,651
========== ======== ==========
Liabilities, Convertible Preferred Stock and
Stockholders' Equity
Current liabilities:
Notes payable and current installments of
long-term debt.............................. -- 24,599 240,800 (I) 265,399
Accounts payable.............................. 111,108 47,295 158,403
Other current liabilities..................... 94,807 81,019 (4,783) (J) 7,298 (O) 198,291
---------- -------- ----------
19,950 (O)
Total current liabilities................... 205,915 152,913 622,093
---------- -------- ----------
Long-term debt, less current installments...... -- 48,718 1,000,000 (I) 1,048,718
Deferred income taxes.......................... 2,119 21,477 20,000 (H) 12,729 (O) 86,637
15,489 (J)
14,823 (K)
Deferred credits and other liabilities......... 93,580 12,494 (40,761) (J) 65,313
---------- -------- ----------
Total liabilities............................. 301,614 235,602 1,822,761
---------- -------- ----------
Convertible preferred stock.................... -- -- 1,800,000 (L) 1,800,000
Stockholders' Equity:
Common stock.................................. -- 428 4,090 (L) 4,270 (M) 8,360
(428) (N)
Additional paid-in capital.................... -- 172,120 (1,562,651) (L) 2,110,234 (M) 577,583
(172,120) (N)
30,000 (O)
Retained earnings (deficit)................... -- 78,530 (20,000) (H) (78,530) (N) (20,000)
Cumulative translation adjustment............. (87,007) 740 (740) (N) (87,007)
Net assets.................................... 1,468,825 (1,240,800) (I) --
28,237 (J)
(14,823) (K)
(241,439) (L)
Less:
Deferred compensation......................... -- 4,034 (4,034) (N) 6,046
6,046 (O)
Treasury stock at cost........................ -- 158 (158) (N) --
---------- -------- ----------
Stockholders' equity 1,381,818 247,626 472,890
---------- -------- ----------
Total Liabilities, Convertible Preferred Stock
and Stockholders' Equity....................... $1,683,432 $483,228 $4,095,651
========== ======== ==========
See Accompanying Notes to the
Unaudited Pro Forma Condensed Consolidated Financial Data.
New Sealed Air
Notes to the Unaudited Pro Forma Condensed Consolidated
Financial Data
(amounts in thousands, except share and per share data)
(A) Represents the elimination of sales between Sealed Air and Grace Packaging,
assuming that all such sales are subsequently made to third parties.
(B) Represents (i) the amount by which the amortization of the goodwill
resulting from the Merger on a straight-line basis over 40 years ($48,225
per year or $36,169 for nine months) exceeds the amortization of Sealed
Air's historical goodwill ($7,734 and $5,021 for the year ended December 31,
1996 and the nine months ended September 30, 1997, respectively) and (ii)
increased depreciation and amortization resulting from the allocation of the
purchase price to certain tangible and intangible assets over an average
remaining useful life of approximately 10 years ($500 in depreciation and
$2,000 in amortization per year or $375 and $1,500, respectively, for nine
months). See Note (O).
(C) Reflects the elimination of certain Grace cost allocations and certain
compensation and benefit programs in which employees of Grace Packaging have
participated but which will not be assumed by New Sealed Air, as shown
below:
Year ended Nine months ended
December 31, 1996 September 30, 1997
----------------- ------------------
Allocated corporate overhead: (1)
Personnel and related costs............................. $9,775 $15,751
Corporate incentive compensation costs.................. 2,000 2,500
Corporate facility costs................................ 2,000 2,500
Network/information systems costs....................... 1,400 4,800
--------- ---------
Subtotal............................................... 15,175 25,551
Corporate allocated development costs.................... 5,074 --
Long-term incentive compensation plan (2)................ 11,193 14,226
Certain U.S. pension plans (2)........................... 5,300 2,562
Other post-retirement benefits (3)....................... 2,600 2,100
--------- ---------
$39,342 $44,439
========= =========
- ------------------
(1) Represents the corporate overhead expenses of Grace allocated to Grace
Packaging in accordance with SAB 55. Allocated corporate overhead will
not be assumed by New Sealed Air. The corporate overhead allocated to
Grace Packaging for the nine months ended September 30, 1997 exceeded the
allocation for the year ended December 31, 1996 because Grace Packaging
represented a larger portion of Grace's total business in 1997. Grace's
corporate overhead costs were $54.0 million for the year ended December
31, 1996 (of which 28% was allocated to Grace Packaging) and $46.3
million for the nine months ended September 30, 1997 (of which 55% was
allocated to Grace Packaging).
(2) Represents the costs related to the participation of Grace Packaging
employees in Grace's long-term incentive compensation plan and certain U.S.
defined benefit pension plans. These plans will not be continued by New
Sealed Air. New Sealed Air intends to replace such pension plans with
defined contribution retirement plans currently provided by Sealed Air to
its employees.
(3) Represents the approximate cost of post-retirement health and life
insurance benefits for current retirees of Grace Packaging and current
employees of Grace Packaging who are eligible to retire within one year.
New Grace will retain responsibility for providing these benefits.
New Sealed Air does not intend to provide company-paid post-retirement
health and life insurance benefits. For further discussion of the
treatment of employee benefits, see "Employee Benefits Agreement"
beginning on page 78.
(D) Reflects the following incremental costs of New Sealed Air after the Merger:
Year ended Nine months ended
December 31, 1996 September 30, 1997
---------------- ------------------
Corporate overhead: (1)
Personnel and related costs......................... $ 4,000 $ 3,000
Corporate incentive compensation costs.............. -- --
Corporate facility costs............................ -- --
Network/information systems costs................... 1,000 750
Subtotal........................................... 5,000 3,750
------ ------
Deferred compensation................................ 1,768 862
Profit-sharing and other retirement plans (2)........ 24,500 18,375
------ ------
$31,268 $22,987
====== ======
- ----------
(1) Represents the incremental costs to New Sealed Air of providing corporate
accounting, finance, human resources and other corporate services. New
Sealed Air intends to remain in the current Sealed Air corporate
headquarters after the Merger.
(2) Represents the incremental cost to New Sealed Air of the participation by
Grace Packaging's eligible employees in Sealed Air's defined contribution
retirement plans, principally the Profit-Sharing Plan, and other
incremental costs of maintaining existing foreign pension plans for
certain employees of Grace Packaging following the Merger. For further
discussion of the treatment of employee benefits, see "Employee Benefits
Agreement" beginning on page 78.
The unaudited pro forma condensed consolidated statements of earnings do not
include certain other cost savings or operating synergies that may result
from the Merger, as such amounts are not currently determinable.
(E) Reflects the additional interest expense resulting from borrowings of
approximately $1,240,800 under the New Credit Agreements (see "The New
Credit Agreements" on page 80 for further information). Such borrowings are
expected to bear interest at LIBOR plus an estimated 0.375%, plus an
additional 0.05% whenever outstanding borrowings exceed $800,000. For
purposes of the unaudited pro forma condensed consolidated statements of
earnings, assumed interest rates of 5.98% and 6.07% have been used to
calculate interest expense for the year ended December 31, 1996 and nine
months ended September 30, 1997, respectively. Such interest rates are
representative of the interest rates that would have been in effect under
the New Credit Agreements, including the effect of assumed interest rate
swap agreements on a portion of the amount borrowed, had such amount been
borrowed on January 1, 1996 and remained outstanding throughout the periods
presented. A 0.125% increase or decrease in LIBOR (related to the portion of
the borrowings not affected by the interest rate swap) would have resulted
in a $931 and $698 adjustment to interest expense for the year ended
December 31, 1996 and the nine months ended September 30, 1997,
respectively.
(F) Represents the income tax effect of increased interest expense, additional
depreciation and amortization (excluding goodwill amortization) and other
adjustments. The effective income tax rate of New Sealed Air is expected to
be higher than that of Sealed Air or Grace Packaging because the
amortization of goodwill will not be deductible for tax purposes.
(G) For purposes of calculating unaudited pro forma earnings per common share,
net earnings have been reduced by the 4% dividend payable on New Sealed
Air's convertible preferred stock ($72,000 and $54,000 for the year ended
December 31, 1996 and nine months ended September 30, 1997, respectively) to
arrive at earnings available to common stockholders.
The weighted average number of outstanding common shares is assumed to be
the shares of New Sealed Air common stock expected to be issued in the
Recapitalization and Merger (40.895 million and 42.7 million shares,
respectively). For purposes of this calculation, all shares are assumed to
be outstanding throughout each period presented. Options to purchase Grace
common stock that are held by Grace Packaging employees and that will become
options to purchase New Sealed Air common stock have an immaterial effect on
the unaudited pro forma earnings per common share. Generally accepted
accounting principles do not permit the presentation of diluted earnings per
share or the elimination of the preferred stock dividend if the treatment of
the convertible preferred stock as the common stock into which it is
convertible would be antidilutive (i.e., would increase earnings per common
share). If the shares of New Sealed Air convertible preferred stock to be
issued in the Merger were converted into common stock at their conversion
price of $56.525 per share (which would result in the issuance of 31.8
million shares of common stock), pro forma earnings per common share would
increase by $0.57 and $0.25 for the year ended December 31, 1996 and the
nine months ended September 30, 1997, respectively.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share", which is required to be adopted on December
31, 1997. The adoption of such statement is expected to have an immaterial
impact on the unaudited pro forma earnings per common share.
(H) Following the Merger, New Sealed Air intends to provide for income taxes on
the assumed repatriation of earnings of Grace Packaging's foreign
subsidiaries. This would result in a non-recurring charge to income tax
expense of approximately $20,000 to reflect the cumulative effect of this
provision for income taxes. Such charge has been reflected in the unaudited
pro forma condensed consolidated balance sheet. The unaudited pro forma
condensed consolidated statements of earnings do not include this
non-recurring charge. They also do not include the effect of providing
additional income taxes on the assumed repatriation of Grace Packaging's
foreign earnings in the periods presented, as the impact is expected to be
immaterial.
(I) Reflects the assumed borrowings under the New Credit Agreements to finance
the Cash Transfer of $1,240,800 (subject to adjustment), including an
estimated $40,800 for Grace Packaging's share of the costs of the
Reorganization (see "Expenses" on page 77 for further information). Deferred
financing costs relating to such borrowings are expected to be immaterial.
(J) Reflects the adjustments to the historical Grace Packaging liabilities and
related deferred tax assets that will be retained by New Grace, as provided
in the Transaction Agreements. The adjustments include the reduction of the
following: (i) pension liability for certain U.S. retirement plans of
$5,228, (ii) post-retirement medical and life insurance liability of $23,500
related to current retirees and Grace Packaging employees who are eligible
to retire within one year following the Merger, (iii) environmental
liabilities of $4,433 related to certain of Grace Packaging's current and
former operating sites, (iv) certain restructuring reserves of $3,283
related to a lease obligation, (v) long-term and annual incentive
compensation plans of $9,100 and (vi) related deferred tax assets of
$17,307.
(K) Reflects the elimination of a Grace Packaging deferred tax asset of $14,823
related to certain foreign net operating loss carryforwards and other
credits which, pursuant to the Distribution Agreement and Tax Sharing
Agreement (defined under "Tax Sharing Agreement" on page 78, 78), New Sealed
Air will not realize following the Reorganization.
(L) As provided for in the Distribution Agreement, these amounts assume the
issuance of 40.895 million shares of New Sealed Air common stock and 36
million shares of New Sealed Air convertible preferred stock in the
Recapitalization. The net assets of Grace Packaging are reclassified as
additional paid-in capital. Each share of convertible preferred stock is
convertible into .8845644 shares of New Sealed Air common stock at any time.
The convertible preferred stock, which has a liquidation value of $50.00 per
share, votes with the common stock on an as-converted basis, will be
redeemable at the option of New Sealed Air beginning in 2001, subject to
certain conditions, and will be subject to a mandatory redemption after 20
years at $50.00 per share. Because it is subject to mandatory redemption,
the convertible preferred stock is classified outside of the stockholders'
equity section of the unaudited pro forma condensed consolidated balance
sheet. The pro forma condensed consolidated financial statements assume that
the convertible preferred stock was issued at September 30, 1997. At such
date, the estimated fair value of the convertible preferred stock exceeded
its mandatory redemption amount by approximately $190 million primarily due
to the common stock conversion feature of such preferred stock. Accordingly,
the carrying amount of the convertible preferred stock is reflected in the
pro forma condensed consolidated balance sheet at its mandatory redemption
value. If the fair value of the convertible preferred stock is less than its
mandatory redemption amount at the actual date of issuance, the carrying
value of such preferred stock would be reflected at its fair value. The
carrying amount would be increased by periodic accretions over the mandatory
redemption period (i.e., 20 years) so that the carrying amount would equal
the mandatory redemption amount at the mandatory redemption date. The
periodic accretions to the mandatory redemption amount would be reflected as
a direct reduction of retained earnings and would reduce income available to
common shareholders in calculating earnings per share.
See "Convertible Preferred Stock" beginning on page 91 for a complete
description of the terms of the convertible preferred stock.
(M) Reflects the issuance in the Merger of approximately 42.7 million shares of
New Sealed Air common stock in exchange for the same number of shares of
Sealed Air common stock.
(N) Reflects the elimination of the historical Sealed Air equity balances.
(O) Reflects the allocation of the purchase price to the net assets of Sealed
Air. Under purchase accounting, the assets and liabilities of Sealed Air are
required to be adjusted to their fair values. The purchase price of
$2,144,504 is the sum of (i) the product of multiplying approximately 42.7
million shares of Sealed Air common stock exchanged in the Merger by $49.52
per share, the average market price of Sealed Air common stock for a period
around the time the Merger was announced and (ii) an estimated $30,000 of
certain Grace Packaging costs of the Merger.
The following are the pro forma adjustments made to reflect the preliminary
allocation of the purchase price to the estimated fair value of the net
assets acquired based upon available information. These adjustments may
change based on the results of appraisals and other analyses. Sealed Air
does not expect these changes to be material.
Purchase price........................................... $2,144,504
Net assets of Sealed Air (1)............................. (213,058)
---------
Subtotal 1,931,446
Fair value adjustments:
Inventory........................................... 17,800
Properties and equipment, net....................... 5,000
Other assets (patents and other intangibles)........ 20,000
Deferred compensation............................... 6,046
Deferred tax liabilities, net....................... (26,462)
Liabilities assumed(2).............................. (19,950)
---------
Subtotal 2,434
---------
Excess of cost over fair value of net
assets acquired (goodwill)............................. $1,929,012
=========
- ------------
(1) Reflects the historical Sealed Air net assets adjusted to eliminate
historical goodwill of $41,003 and net deferred tax liabilities of $6,435.
(2) Reflects the estimated additional transaction-related expenses to be
incurred by Sealed Air between September 30, 1997 and the date of the
Merger. Such expenses have not been reflected in the unaudited pro forma
condensed consolidated statements of earnings because they are nonrecurring
in nature.
THE DISTRIBUTION AND MERGER AGREEMENTS
This section describes the material provisions of the
Distribution Agreement and the Merger Agreement. This description does not
purport to be complete and is qualified in its entirety by reference to the
Distribution Agreement and Merger Agreement, copies of which are attached hereto
as Annexes A and B, respectively, and which are incorporated herein by
reference. All stockholders are urged to read the Distribution Agreement and
Merger Agreement carefully in their entirety.
General
The Distribution Agreement sets forth the terms and conditions on
which Grace will be reorganized in connection with the Merger, including (1) the
separation of Grace Packaging from Grace's specialty chemicals businesses and
the Cash Transfer to New Grace, (2) the Spin-off of New Grace and (3) the
Recapitalization of Grace common stock into new common and convertible preferred
stock.
The Merger Agreement sets forth the terms and conditions on which
the Merger will be effected.
Reorganization of Grace
Separation of Grace Packaging from Grace's Other Businesses
Before the Spin-off, Grace Packaging and Grace's specialty
chemicals businesses will be separated into different groups of subsidiaries.
o In the U.S., Grace will transfer its packaging business to a subsidiary,
Cryovac, Inc., and Grace's existing subsidiary, W. R. Grace & Co.-Conn.,
will retain the specialty chemicals businesses.
o Outside the U.S., where Grace conducts its business through local
subsidiaries, Grace will cause its local subsidiaries to transfer either
the packaging business or the specialty chemicals businesses to a newly
formed local subsidiary. The local subsidiaries will then be
transferred, if necessary, so that Cryovac, Inc. will become the owner
(directly or indirectly) of all of the local packaging subsidiaries and
W. R. Grace & Co.-Conn. will become the owner (directly or indirectly)
of all of the local specialty chemicals subsidiaries.
o Cryovac, Inc. will be transferred to become a direct, wholly owned
subsidiary of Grace, and ownership of W. R. Grace & Co.-Conn. will be
transferred to New Grace, another wholly owned subsidiary of Grace.
The packaging subsidiaries worldwide will become the owners of
(or will be given rights to use) the assets currently used or held for use in
Grace's packaging business. When assets are used both in the packaging business
and in the specialty chemicals businesses, these assets will generally be
separated so the packaging subsidiaries will own and control the portion used in
the packaging business and New Grace and its subsidiaries will own and control
the portion used in Grace's specialty chemicals businesses. In cases where
separation is not practicable, ownership generally will be allocated to the
packaging subsidiaries or to New Grace and its subsidiaries based on which group
is the predominant user of the asset, and the other group will have the right to
use the asset (and the obligation to pay a proportionate share of the asset's
costs and expenses during the first two years after the Spin-off and a market
rate thereafter).
The assets to be owned by the packaging subsidiaries generally
will not include any cash or marketable securities and will not include certain
general corporate or corporate service operations such as those conducted by
Grace at its headquarters in Boca Raton, Florida. Generally, the packaging
subsidiaries' assets will include vacant or unoccupied property only if used or
held for use by Grace's packaging business or located at sites that are used
exclusively by, or engaged predominantly in, the packaging business.
With certain exceptions, the packaging subsidiaries will assume
all of the liabilities associated with Grace's packaging business, and New Grace
and its subsidiaries will be liable for and indemnify the packaging subsidiaries
with respect to all liabilities that are not assumed. The packaging subsidiaries
will not assume:
o liabilities relating to asbestos or asbestos-containing materials
manufactured and/or sold by Grace, its subsidiaries or any of their
respective subsidiaries, affiliates or predecessors;
o environmental liabilities at two of Grace's former packaging sites (in
Woburn, Massachusetts and Laurens County, South Carolina);
o environmental liabilities at other formerly used or divested packaging
sites (and off-site disposal sites) and liabilities relating to any
business, product line, facility or asset that was previously divested by
Grace Packaging, except that the packaging subsidiaries will be
responsible for 25% of these liabilities, up to $10 million;
o intercompany debt (subject to certain exceptions);
o liability for preclosing taxes, except that the packaging subsidiaries
will be responsible for 25% of certain preclosing foreign tax liabilities,
up to $3 million; and
o other actual or potential liabilities relating to any existing interim
service and tolling agreements, violations of securities laws and breaches
of fiduciary duties by officers and directors.
Cash Transfer. Before the Spin-off, Grace and Cryovac, Inc.
will borrow funds under the New Credit Agreements (as defined below) to enable
them to make the Cash Transfer to New Grace and W. R. Grace & Co.-Conn. The
New Credit Agreements will remain the obligation of New Sealed Air and
Cryovac, Inc. following the Merger. The amount of the Cash Transfer will be
$1.2 billion plus the sum of:
(1) the excess of the total amount of cash held by the packaging
subsidiaries immediately prior to the Spin-off over the total amount
of withholding and certain other taxes that would be payable if
certain excess cash held by the foreign packaging subsidiaries were to
be distributed to a U.S. packaging subsidiary immediately before the
Spin-off;
(2) the amount by which the aggregate assets transferred to New Sealed Air
relating to Grace's foreign and certain U.S. pension plans exceeds
certain aggregate projected benefit obligations under those plans
attributable to employees of Grace Packaging (or, if these obligations
exceed the assets, the shortfall will reduce the Cash Transfer); and
(3) the total amount of transaction costs that must be paid by Grace to
New Grace under the Distribution Agreement as of the date of the
Spin-off ("Distribution Date"). See "Expenses" on page 77.
New Grace intends to use approximately $1.1 billion of the Cash
Transfer to repay outstanding bank and other borrowings. A portion of the Cash
Transfer may be used to make a cash tender offer for, or otherwise retire, the
outstanding 7.4% Notes due 2000, 7.75% Notes due 2002 and 8.0% Notes due 2004
(collectively, the "Public Debt") issued by W. R. Grace & Co.-Conn. and
guaranteed by Grace. Approximately $644 million of Public Debt is currently
outstanding. If any Public Debt remains outstanding after the Merger, it will
continue to be the obligation of W. R. Grace & Co.-Conn., with New Sealed Air as
guarantor. If more than $50 million of Public Debt remains outstanding, New
Grace will obtain a letter of credit (the "Letter of Credit") for the benefit of
New Sealed Air, in the amount of the Public Debt remaining outstanding in excess
of $50 million, which will permit New Sealed Air to draw on the Letter of Credit
if it is required to make any payments on the Public Debt under its guarantee,
up to the amount of the Letter of Credit.
Spin-off
After the separation of Grace's businesses and the Cash Transfer
but before the Merger, Grace will distribute all outstanding shares of New Grace
to Grace's stockholders. As a result of the Spin-off, Grace and its subsidiaries
will own and operate only the packaging business, and New Grace will be a
separate, publicly traded company owned by Grace's stockholders that will own
and operate Grace's specialty chemicals businesses.
Recapitalization of Grace Common Stock
Immediately before the Merger occurs, each outstanding share of
Grace common stock will be recapitalized into a fraction of a share of a new
common stock (the "Common Consideration") and a fraction of a share of a new
convertible preferred stock (the "Preferred Consideration").
The Common Consideration will be equal to:
40,895,000 + (1.7027 x Net Increase in Sealed Air Shares) - Net Option Number
-----------------------------------------------------------------------------
Outstanding Grace Shares
The Preferred Consideration will be equal to: 36,000,000
------------------------
Outstanding Grace Shares
Where:
"Outstanding Grace Shares" means: The total number of shares of
Grace common stock outstanding
as of the record date set by
the Grace Board for the
Recapitalization (the "Record
Date").
"Net Increase in Sealed Air Shares"
means: The net increase, if any, in
the number of outstanding shares of
Sealed Air common stock between
August 14, 1997 and the
Distribution Date.
"Net Option Number" means:
Option Shares x (New Sealed Air Price - Average Exercise Price)
---------------------------------------------------------------
New Sealed Air Price
"Option Shares" means: The total number of shares of
New Sealed Air common stock
for which outstanding Grace
options held by Grace
Packaging employees are or may
be exercisable, as described
below.
"New Sealed Air Price" means: The average of the arithmetic
mean between the highest and
lowest sales prices of a share
of New Sealed Air common stock
on the New York Stock Exchange
Composite Tape on each of the
five trading days beginning on
the Distribution Date.
"Exercise Price" means: The weighted average per-share
exercise price of the options
to purchase New Sealed Air
common stock held by Grace
Packaging employees.
The Record Date and Distribution Date are expected to be the same
date as the Effective Time. The Record Date may, if necessary, precede the
Distribution Date and Effective Time by one day.
No fractional shares of New Sealed Air common or convertible
preferred stock will be issued in the Recapitalization. Instead, Grace
stockholders that would otherwise be entitled to receive fractional shares will
receive cash in the amount of the proceeds realized from a sale of those shares
in the market, net of sale expenses.
In the Recapitalization, Grace stockholders will receive an
estimated .53 to .54 of a share of New Sealed Air common stock and an estimated
.46 to .48 of a share of New Sealed Air convertible preferred stock for each
share of Grace common stock that they own. These estimates are based on the
relevant stock prices, numbers of outstanding shares, number of outstanding
Grace stock options, and other information available as of February 11, 1998.
Because the exercise of options is likely to have the largest effect on the
number of shares to be received by Grace stockholders, the estimates were
calculated by varying only the number of options that are exercised prior to the
Merger. The low estimates (.53 and .46) were calculated assuming that all of the
options that are outstanding as of such date and exercisable prior to the Merger
will be exercised before the Merger takes place. The high estimates (.54 and
.48) were calculated assuming that none of the options outstanding as of such
date are exercised prior to the Merger. The actual amount of New Sealed Air
stock that Grace stockholders will receive will not be determined until shortly
after the Merger using the formulas described above.
Conversion of Grace Stock Options. Each option to purchase Grace
common stock held by an individual who will become an employee of New Sealed Air
or one of its subsidiaries after the Merger will become an option to purchase
New Sealed Air common stock. The number of shares of New Sealed Air common stock
covered by the option will be equal to the number of shares of Grace common
stock subject to the option multiplied by the New Sealed Air Ratio (as defined
below) rounded down to the nearest whole share, and the per share exercise price
for the new option will be the per share exercise price immediately before the
Distribution Date divided by the New Sealed Air Ratio (rounded up to the nearest
whole cent). The "New Sealed Air Ratio" is the amount obtained by dividing (1)
the average of the arithmetic mean between the highest and lowest sales prices
of a share of Grace common stock on the New York Stock Exchange Composite Tape
on each of the five trading days immediately preceding the Distribution Date
(the "Grace Share Price") by (2) the New Sealed Air Price.
Each option held by an individual who will not be an employee of
New Sealed Air or any of its subsidiaries after the Spin-off and Merger will
become an option to purchase New Grace common stock. These options will also be
adjusted in a similar manner to preserve the economic value that they had prior
to the Reorganization.
Merger of Sealed Air and Grace Packaging
The Merger
In the Merger, a wholly owned subsidiary of Grace will be merged
into Sealed Air, with Sealed Air being the surviving corporation. Grace will be
renamed "Sealed Air Corporation" and Sealed Air will also be renamed. As a
result, New Sealed Air will be the public parent company owning Grace Packaging
and the former Sealed Air.
The Merger will become effective at the Effective Time, which is
expected to occur on the business day when all of the conditions to the Merger
set forth in the Merger Agreement have been satisfied or waived. We anticipate
that the Effective Time will occur promptly after the Special Meetings, late in
the first quarter of 1998.
Pursuant to the Merger Agreement, each share of Sealed Air common
stock outstanding immediately prior to the Effective Time (other than any Sealed
Air common stock owned by Grace or Sealed Air or any of their subsidiaries) will
be converted into and become one share of New Sealed Air common stock. All
shares of Sealed Air common stock that are owned by Grace or its subsidiaries or
Sealed Air or its subsidiaries will, at the Effective Time, be canceled and
retired and will cease to exist, without any payment for such shares.
All of Sealed Air's rights and obligations under the Sealed Air
Contingent Stock Plan and Sealed Air Restricted Stock Plan for Non-Employee
Directors will be assumed by New Sealed Air as of the Effective Time. Any
unexercised rights to acquire Sealed Air common stock under these stock plans
will become rights to acquire the same numbers of shares of New Sealed Air
common stock.
Certain Covenants
Interim Operations. From August 14, 1997 (the date of the Merger
Agreement) until the Effective Time, Grace and Sealed Air and their subsidiaries
are required to conduct their businesses in the ordinary course, to use
reasonable efforts to preserve their business organizations intact and to
maintain their existing relations with customers, suppliers, employees and
business associates. During this period, Grace, Sealed Air and their respective
subsidiaries may not:
o sell or pledge any capital stock of subsidiaries; amend their
certificates of incorporation or bylaws; split, combine or reclassify
any outstanding capital stock; declare, set aside or pay any dividends
(except that intercompany dividends are permitted and Grace may pay
regular quarterly cash dividends); issue, sell, encumber or otherwise
dispose of any capital stock (except that Grace may grant options that
will become options of New Grace, and Sealed Air may grant awards to
acquire Sealed Air common stock and make all or part of its contribution
to the Sealed Air Profit Sharing Plan in the form of Sealed Air common
stock); sell, encumber or otherwise dispose of any assets or make any
material acquisition or investment, except in the ordinary course of
business; sell, encumber or otherwise dispose of any material
intellectual property rights;
o grant severance or termination pay or enter into, extend or amend
employment or other types of agreements with directors, officers or
(other than in the ordinary course of business consistent with past
practice) other employees, other than agreements that will not be
binding on New Sealed Air or its subsidiaries after the Reorganization
and Merger; establish or amend or make any elections under any
collective bargaining, bonus, profit sharing or other types of
arrangements for directors, officers or employees that would be binding
on New Sealed Air after the Reorganization and Merger;
o make any changes in accounting policies (other than those required by
accounting rules or necessary or advisable in connection with the
Reorganization and Merger); conduct their cash management and intercompany
transactions in a manner other than in the ordinary and usual course of
business consistent with past practices;
o intentionally take any action knowing that it would cause a breach of a
representation or warranty in the Merger Agreement; or
o authorize or agree to any of the foregoing.
No Solicitation. Grace and Sealed Air have each agreed in the
Merger Agreement that it and its subsidiaries, and their officers and directors
will not, and that it will use its best efforts to cause its employees,
investment bankers, attorneys, accountants and other agents and representatives
not to, directly or indirectly, initiate, solicit or encourage any inquiries or
the making or implementation of any Acquisition Proposal (as defined below) or
provide any confidential information to or have any discussions or engage in any
negotiations with, any person relating to an Acquisition Proposal.
Notwithstanding these restrictions, the Grace Board and the Sealed Air Board may
furnish information (pursuant to confidentiality arrangements) and may
participate directly or indirectly in discussions and negotiations if the
failure to do so would breach their fiduciary duties, in the opinion of the
Board's counsel, or if another person makes a Higher Offer (as defined below).
Grace and Sealed Air have agreed to notify the other as soon as practicable if
any inquiries or proposals are received, any confidential information is
requested or any negotiations or discussions relating to an Acquisition Proposal
are sought to be initiated or continued, and to keep the other reasonably
informed of the status and details of any such inquiry, request for information,
offer or proposal, discussions or negotiations.
"Acquisition Proposal" means a proposal or offer regarding a
merger, acquisition, consolidation, business combination, recapitalization or
similar transaction involving, or a purchase of all or any significant portion
of the assets or any equity securities of, the company or any of its
subsidiaries (but excluding a proposal exclusively involving all or part of the
stock or assets of New Grace, unless the proposal or consummation of the
proposal will adversely affect the Reorganization and Merger).
"Higher Offer" means a written offer or proposal that the Board
believes (in good faith and based upon the advice of its outside advisors) could
reasonably be expected to be consummated and represents a transaction more
favorable to its stockholders than the Reorganization and Merger, but only if
the offer or proposal was not solicited and did not result from a breach of the
prohibitions against soliciting inquiries, providing confidential information
and engaging in negotiations relating to an Acquisition Proposal.
Special Meetings of Stockholders. Grace and Sealed Air have
agreed in the Merger Agreement to hold their special meetings as promptly as
practicable and to proceed promptly to ensure that the disclosure documents
required in connection with the Reorganization and Merger are filed with and
declared effective or otherwise cleared by the SEC.
Grace has agreed that its Board will recommend to its
stockholders that they approve the Reorganization and Merger. Sealed Air has
agreed that its Board will recommend to its stockholders that they approve the
Merger. Notwithstanding these agreements, the Grace Board or the Sealed Air
Board may elect not to make such a recommendation, or to withdraw or modify its
recommendation or recommend another offer or proposal, if the failure to do so
would breach its fiduciary duties, in the opinion of the board's counsel, or if
a Higher Offer is made.
Certain Employee Benefits Matters. After the Effective Time, New
Sealed Air must maintain employee benefits plans and programs for the employees
of Grace Packaging that are, in the aggregate, at least substantially comparable
to the plans and programs in effect for employees of Grace Packaging at the
Effective Time or other plans that are, in the aggregate, at least substantially
comparable to the plans and programs in effect from time to time with respect to
comparable employees of Sealed Air.
Certain Other Covenants. Sealed Air and Grace have agreed to
certain other customary covenants in the Merger Agreement, including covenants
relating to ensuring that the registration statement relating to the issuance of
shares in the Recapitalization and Merger (the "New Sealed Air Registration
Statement"), the registration statement relating to the issuance of the New
Grace common stock in the Spin-off (the "New Grace Registration Statement"), and
this Joint Proxy Statement/Prospectus do not contain any untrue statements of
material fact and are not otherwise misleading; obtaining necessary consents and
approvals; cooperating with each other to obtain antitrust clearances; providing
access to and furnishing information; providing notices of certain events and
consulting with each other regarding public statements and filings; compliance
with takeover statutes; using reasonable efforts to obtain agreements from
affiliates; consummating the transactions that must be consummated prior to the
Effective Time; and reporting the Spin-off and Merger as tax-free transactions.
Certain Representations and Warranties
The Merger Agreement contains, subject to certain exceptions,
substantially reciprocal representations and warranties by Grace and Sealed Air
as to the following, among other things: capitalization; due organization and
good standing; corporate authorization to effect the Reorganization and Merger;
governmental approvals required in connection with the Reorganization and
Merger; absence of any breach of organizational documents, agreements and court
orders as a result of the Reorganization and Merger; filings with the SEC;
financial statements; absence of certain undisclosed liabilities; absence of
certain changes since December 31, 1996; compliance with takeover statutes;
brokerage fees, commissions and finders' fees; tax matters; and accuracy of
representations and warranties made in the Merger Agreement or other documents
related to the Reorganization and Merger.
In addition, Grace has made representations and warranties to
Sealed Air in the Merger Agreement with respect to Grace Packaging as to the
following, among other things: the capital stock of the packaging subsidiaries;
due organization and good standing; corporate authorization to effect the
Reorganization and Merger; financial statements; absence of certain undisclosed
liabilities; absence of certain changes since December 31, 1996; compliance with
laws; title to and adequacy of assets; absence of certain litigation; tax
matters; environmental matters; absence of agreements that will materially limit
the ability of New Sealed Air and its subsidiaries to compete after the Merger;
absence of breach of certain agreements; employee benefits matters; and
intellectual property matters.
Sealed Air has made certain additional representations and
warranties to Grace in the Merger Agreement as to the following, among other
things: compliance with laws; title to and adequacy of assets; absence of
certain litigation; absence of agreements that will materially limit the ability
of New Sealed Air and its subsidiaries to compete after the Merger; absence of
breach of certain agreements; employee benefits matters; environmental matters;
and intellectual property matters.
The representations and warranties in the Merger Agreement do not
survive the Effective Time.
Conditions to the Reorganization and Merger
Conditions to Each Party's Obligations. The obligations of Grace
and Sealed Air to consummate the Reorganization and Merger are subject to the
satisfaction of the following conditions:
o the receipt of approvals of the stockholders of Grace and Sealed Air;
o the expiration of the applicable waiting period under the HSR Act and
receipt of all governmental and other consents and approvals required in
connection with the consummation of the Reorganization and Merger, except
where the failure to obtain such consents or approvals is not likely to
have a material adverse effect;
o the absence of any law, judgment, decree, injunction or other order
prohibiting the consummation of the Reorganization and Merger;
o the receipt by Grace of a tax opinion from Wachtell, Lipton, Rosen & Katz
and by Sealed Air of a tax opinion from Davis Polk & Wardwell;
o the effectiveness of the New Sealed Air Registration Statement and the New
Grace Registration Statement, with no stop order suspending their
effectiveness and no proceedings for that purpose known to be initiated or
threatened by the SEC;
o the receipt of approval for listing on the New York Stock Exchange of
shares of New Sealed Air common and convertible preferred stock and New
Grace common stock, subject to official notice of issuance; and
o the consummation of the Reorganization (including the consummation in
all material respects, to the extent required prior to the Spin-off, of
the separation of Grace Packaging, the Cash Transfer, the
Recapitalization and related transactions; the Spin-off; the election of
the Board of Directors of New Grace, with a majority of independent
directors; the execution of the Other Agreements (as defined below); and
receipt of solvency opinions and compliance with the requirements of
applicable federal and state laws).
Additional Conditions to the Obligations of Grace. The
obligations of Grace to consummate the Reorganization and Merger are subject to
the satisfaction or waiver by Grace of the following additional conditions:
o the representations and warranties of Sealed Air in the Merger Agreement
must be true in all material respects as of the date of the Merger
Agreement and as of the Effective Time as though made at and as of the
Effective Time (or as of a different date as specified in the Merger
Agreement); and
o the performance in all material respects by Sealed Air of its obligations
under the Merger Agreement and the other Transaction Agreements at or
prior to the Effective Time.
Additional Conditions to Obligations of Sealed Air. The
obligations of Sealed Air to consummate the Reorganization and Merger are
subject to the satisfaction or waiver by Sealed Air of the following additional
conditions:
o the representations and warranties of Grace in the Merger Agreement must
be true in all material respects as of the date of the Merger Agreement
and as of the Effective Time as though made at and as of the Effective
Time (or as of a different date as specified in the Merger Agreement);
o the performance in all material respects by Grace of its obligations under
the Merger Agreement and the other Transaction Agreements at or prior to
the Effective Time;
o the issuance of the Letter of Credit for the benefit of New Sealed Air if
the outstanding Public Debt exceeds $50 million; and
o the receipt by the Sealed Air Board of a solvency opinion with respect to
Grace, New Grace and certain other Grace entities.
Termination of the Merger Agreement and Distribution Agreement
Rights to Terminate. At any time prior to the Effective Time,
the Merger Agreement may be terminated and the Reorganization and Merger may
be abandoned as follows:
o by the mutual consent of Grace and Sealed Air;
o by either Grace or Sealed Air if:
o the Merger is not consummated by April 30, 1998, (however, this right
is not available to any party if its own breach is the reason the
Merger is not consummated by that date);
o Grace stockholders fail to approve the Reorganization and Merger or
Sealed Air stockholders fail to approve the Merger; or
o Grace or Sealed Air enters into an agreement with respect to a Higher
Offer;
o by Grace if:
o Sealed Air fails to comply in any material respect with its obligations
under the Merger Agreement, and such failure cannot, after notice, be
cured by April 30, 1998;
o the Sealed Air Board fails to make or withdraws or modifies, in a
manner that is materially adverse to Grace, its recommendation that its
stockholders approve the Merger; or
o the average closing sales price of a share of Sealed Air common stock
for the 20 trading days immediately prior to the Effective Time is less
than $37.00 per share; and
o by Sealed Air if:
o Grace fails to comply in any material respect with its obligations
under the Merger Agreement, and such failure cannot, after notice, be
cured by April 30, 1998;
o the Grace Board fails to make or withdraws or modifies, in a manner
that is materially adverse to Sealed Air, its recommendation that its
stockholders approve the Reorganization and Merger; or
o the average closing sales price of a share of Grace common stock for
the 20 trading days immediately prior to the Effective Time is less
than $45 3/8 per share.
If the Merger Agreement is terminated, no provision of the Merger
Agreement will survive (other than the provisions relating to payment of
expenses and confidentiality), and termination will be without any liability on
the part of any party, other than liability for a material and willful breach of
a covenant in the Merger Agreement.
The Distribution Agreement may be terminated only after the
Merger Agreement is terminated.
Termination Fees and Expenses Payable by Grace. Grace has
agreed to pay Sealed Air:
(1) $150 million plus Sealed Air's out-of-pocket expenses if the Merger
Agreement is terminated because:
o Grace enters into an agreement with respect to a Higher Offer; or
o the Grace Board fails to make or withdraws or modifies, in a
manner that is materially adverse to Sealed Air, its
recommendation that its stockholders approve the Merger, and
within one year after termination of the Merger Agreement, Grace
consummates or enters into a written agreement to consummate an
Acquisition Proposal for at least 20% of its assets or equity
securities or a person or group acquires at least 35% of Grace's
outstanding common stock;
(2) if the Merger Agreement is terminated because Grace's stockholders do
not approve the Reorganization and Merger after an Acquisition
Proposal for Grace has been publicly disclosed:
o $25 million, and
o an additional $125 million plus Sealed Air's out-of-pocket expenses
if, within one year after termination of the Merger Agreement,
Grace consummates or enters into a written agreement to consummate
an Acquisition Proposal for at least 20% of its assets or equity
securities or a person or group acquires at least 35% of Grace's
outstanding common stock; or
(3) $25 million if the Merger Agreement is terminated because Grace's
stockholders do not approve the Reorganization and Merger other than
in circumstances described in (2) above.
Termination Fees and Expenses Payable by Sealed Air. Sealed
Air has agreed to pay Grace:
(1) $75 million plus Grace's out-of-pocket expenses incurred in connection
with the Reorganization and Merger if the Merger Agreement is
terminated because:
o Sealed Air enters into an agreement with respect to a Higher
Offer; or
o the Sealed Air Board fails to make or withdraws or modifies, in a
manner that is materially adverse to Grace, its recommendation
that its stockholders approve the Merger, and within one year
after termination of the Merger Agreement, Sealed Air consummates
or enters into a written agreement to consummate an Acquisition
Proposal for at least 20% of its assets or equity securities or a
person or group acquires at least 35% of Sealed Air's outstanding
common stock;
(2) if the Merger Agreement is terminated because Sealed Air's
stockholders do not approve the Merger after an Acquisition Proposal
for Sealed Air has been publicly disclosed:
o $25 million, and
o an additional $50 million plus Grace's out-of-pocket expenses if,
within one year after termination of the Merger Agreement, Sealed
Air consummates or enters into a written agreement to consummate an
Acquisition Proposal for at least 20% of its assets or equity
securities or a person or group acquires at least 35% of Sealed
Air's outstanding common stock; or
(3) $25 million if the Merger Agreement is terminated because Sealed Air's
stockholders do not approve the Merger other than in circumstances
described in (2) above.
Expenses
New Grace has agreed to pay all costs and expenses incurred by
Grace (and New Sealed Air after the Merger), New Grace and their subsidiaries in
connection with the Reorganization, except that New Sealed Air will pay:
o the lesser of $50 million and 37% of the aggregate amount of (i) costs
incurred in connection with a tender offer, defeasance, retirement or
other acquisition of the Public Debt, the costs associated with
terminating or renegotiating related interest rate swaps and the costs
of the Letter of Credit, (ii) certain tax costs associated with the
separation of Grace Packaging from its other businesses outside of the
U.S. and (iii) the costs associated with terminating employees located
at Grace's corporate headquarters in connection with the Reorganization
and Merger;
o the lesser of $10 million and 37% of the aggregate amount of all other
costs associated with the Reorganization; and
o the fees and expenses incurred in connection with the New Credit
Agreements.
New Grace and Sealed Air will pay their own Merger-related fees and expenses
(including the fees and expenses of financial advisors, accountants and
counsel), and each will pay 50% of the costs and expenses of printing and
mailing this Joint Proxy Statement/Prospectus, the New Sealed Air Registration
Statement and the associated SEC filing fees.
Amendments
Subject to Delaware Law (which may require stockholder approval
to amend the Merger Agreement under certain circumstances), the Merger Agreement
may be amended prior to the Effective Time only if the amendment is in writing
and signed by each of the parties to the agreement.
The Distribution Agreement may be amended only if the amendment
is in writing and signed by each of the parties to the agreement, subject to the
reasonable consent of Sealed Air.
RELATIONSHIP BETWEEN NEW SEALED AIR AND NEW GRACE
AFTER THE REORGANIZATION AND MERGER
Sealed Air and Grace, or their respective subsidiaries, will
enter into various agreements that will govern their ongoing relationships and
provide for an orderly transition after the Reorganization and Merger.
Certain of these agreements are summarized below.
Tax Sharing Agreement
Prior to the Merger, Grace and Sealed Air will enter into a tax
sharing agreement (the "Tax Sharing Agreement") which will provide, among other
things, that (i) New Grace and its subsidiaries will be responsible for paying
substantially all of the taxes of Grace and its subsidiaries (and entitled to
receive and retain substantially all refunds of taxes relating thereto) for
periods, or portions thereof, ending prior to or on the Distribution Date, and
(ii) New Sealed Air will be responsible for paying all taxes of New Sealed Air
and its subsidiaries (and entitled to receive and retain all refunds of taxes
relating thereto) with respect to periods, or portions thereof, after the
Distribution Date.
The Tax Sharing Agreement will also prohibit New Sealed Air and
New Grace from engaging in certain transactions for two years following the
Distribution Date. See "Certain Risk Factors--Restrictions on New Sealed Air and
New Grace to Protect Tax-free Treatment" on page 22. New Sealed Air and New
Grace will also agree that, in general, they will indemnify each other (on an
after-tax basis) against any tax liability resulting from either party's breach
of any covenant or representation contained in the Tax Sharing Agreement.
Additionally, New Grace will indemnify New Sealed Air and its affiliates against
any tax liability resulting from a failure of the Spin-off to qualify as a
tax-free transaction under Section 355 of the Code (other than any failure
resulting from a breach of any representation or covenant by New Sealed Air).
New Sealed Air will indemnify New Grace and its affiliates against any tax
liability resulting from a breach of any representation or covenant by New
Sealed Air that causes the Spin-off to fail to qualify as a tax-free transaction
under Section 355 of the Code.
The Tax Sharing Agreement will not be binding on the IRS or any
other taxing authority and will not affect the several liability of New Grace
and New Sealed Air and their respective subsidiaries to the IRS for U.S. federal
and certain state income taxes of the Grace consolidated group relating to
periods ending on or prior to the Distribution Date (including any tax liability
resulting from a failure of the Spin-off to qualify as a tax-free transaction
under Section 355 of the Code). See "Certain Risk Factors--U.S. Federal Income
Tax Consequences if Reorganization and Merger Do Not Qualify for Tax-Free
Treatment" on page 24.
Employee Benefits Agreement
Prior to the Merger, New Sealed Air and New Grace will enter into
an employee benefits allocation agreement (the "Employee Benefits Agreement")
that will allocate the assets and liabilities under Grace's employee benefit
plans and other employment-related liabilities between New Sealed Air and New
Grace. After the Merger, New Sealed Air will be responsible for providing
compensation and other employee benefits for active employees of Grace
Packaging, and New Grace will be responsible for providing compensation and
other employee benefits for Grace's specialty chemicals employees and all former
Grace employees (including former Grace Packaging employees).
New Sealed Air will agree to maintain benefits for the Grace
Packaging employees that are at least substantially comparable (in the
aggregate) either to those established by Grace for the Grace Packaging
employees prior to the Merger or to those provided by New Sealed Air to
similarly situated Sealed Air employees. In addition, New Sealed Air will agree
that, for one year after the Merger, it will maintain a severance plan for Grace
Packaging's U.S. employees that will provide severance payments equal to 13
weeks' pay plus an additional 1 1/2 weeks' pay for each year of employment.
Employees of Grace Packaging will retain their vested benefits
under Grace's U.S. defined benefit pension plans, although most employees will
cease to accrue additional benefits under these plans at the time of the Merger.
New Sealed Air will agree to implement a program designed substantially to make
up for any anticipated material adverse impact on employees of Grace Packaging
that results from the termination of their participation in Grace's principal
U.S. pension plan. After the Merger, most New Sealed Air employees in the U.S.
(other than those covered by certain collective bargaining agreements) will be
eligible to participate in Sealed Air's Profit-Sharing Plan, a defined
contribution plan in which most of Sealed Air's U.S. employees currently
participate. New Sealed Air will also establish or assume certain 401(k) plans
for Grace Packaging's U.S. employees.
New Grace generally will retain responsibility for Grace's U.S.
defined benefit pension plans, although New Sealed Air will assume certain
defined benefit plans for several small groups of Grace Packaging's U.S.
employees. Outside of the U.S., certain pension plan assets and liabilities will
be transferred to New Sealed Air. Any excess or shortfall in the allocation of
certain pension plan assets and liabilities will be reflected in the Cash
Transfer. See "The Distribution and Merger Agreements-- Reorganization of Grace"
on page 68.
New Grace will be responsible for providing active employees of
Grace Packaging with certain other employee benefits that accrue prior to the
Merger, such as bonus compensation, long-term incentive program benefits and
supplemental executive retirement plan benefits. New Grace will also retain
responsibility for providing post-retirement health and life insurance benefits
for retired Grace Packaging employees and for active Grace Packaging employees
who would be eligible under the current post-retirement benefit plan to receive
such benefits within one year after the Merger. New Sealed Air will adopt a
postretirement benefit plan for other employees of New Sealed Air under which
retirees who elect to participate will pay the entire cost of such benefits.
Other Agreements
Other Agreements Between New Sealed Air and Grace. Before the
Merger occurs, Grace, New Grace and their subsidiaries will enter into other
agreements in connection with the Reorganization and Merger (the "Other
Agreements"). The Other Agreements will include (i) an agreement regarding
insurance policies, coverage, procedures, benefits, costs and other insurance
matters; (ii) agreements governing interim services to be provided by New Grace
or New Sealed Air to each other; (iii) the Shared Facilities Agreements (as
defined below); (iv) the Intellectual Property Licenses (as defined below); and
(v) other agreements regarding other matters as may be advisable. The Other
Agreements must be on terms acceptable to Grace, New Grace and Sealed Air.
Shared Facilities Agreements. Certain of Grace's properties,
including certain production, manufacturing, sales office and other facilities,
are used by both Grace Packaging and the specialty chemicals businesses (the
"Shared Facilities"). Although most of the Shared Facilities will be divided,
New Grace subsidiaries and New Sealed Air subsidiaries may continue to require
the use of some of the same Shared Facilities and of certain related services
(such as waste disposal, utilities, security and other matters) after the
Merger. Before the Merger occurs, the companies that will continue to share
facilities will enter into appropriate agreements regarding the use of such
Shared Facilities, the services to be provided in connection with the Shared
Facilities and the allocation of related costs (the "Shared Facilities
Agreements").
Intellectual Property Licenses. The Distribution Agreement
provides that intellectual property rights that are used or held for use only by
Grace Packaging will be owned by New Sealed Air, and that intellectual property
rights that are used or held for use only in Grace's other businesses will be
owned by New Grace. Certain of Grace's intellectual property rights are used or
held for use in both its packaging business and its other businesses. With minor
exceptions, title to such rights will be owned by New Grace, and New Sealed Air
will have an exclusive, worldwide, fully paid, perpetual, royalty-free license
to use such intellectual property rights (the "Intellectual Property Licenses").
The field of use for such licenses will be the businesses engaged in by Grace
Packaging prior to the Merger, the businesses engaged in by Sealed Air prior to
the Merger, and reasonable extensions thereof in both cases. The field of use
will not include the business engaged in by Grace's container sealants and
coatings business prior to the Merger (i.e., the business of closures, closure
sealant compositions, multifunctional can ends used on or with containers,
coatings, sealants, compositions and equipment used or held for use in the
manufacture of cans and other rigid containers,) and reasonable extensions
thereof. To the extent there is overlap between reasonable extensions of the
businesses of Grace Packaging and Sealed Air and reasonable extensions of the
container business, the license will be non-exclusive. The Intellectual Property
Licenses will not affect any other intellectual property rights of New Sealed
Air.
THE NEW CREDIT AGREEMENTS
Grace has received a commitment letter in which ABN AMRO Bank
N.V. ("ABN AMRO"), BT Alex Brown Incorporated, BancAmerica Robertson Stephens
and NationsBanc Montgomery Securities, Inc. (collectively the "Arrangers") have
agreed, subject to certain conditions, to use their best efforts to arrange a
syndicate of banks that will enter into two credit agreements with Grace (one
for the Long-Term Facility and one for the Short-Term Facility, each referred to
below and each a "New Credit Agreement") in connection with the Reorganization
and Merger. Following the execution of the New Credit Agreements and the
satisfaction of the conditions to borrowings, the banks would make available up
to $1.6 billion of loans to Grace (and New Sealed Air after the Merger) and
certain of its subsidiaries (collectively, the "Borrowers"). These loans would
provide the funds that would be needed for the Cash Transfer, to pay certain
fees and expenses relating to the Reorganization and Merger, to refinance
certain existing debt and to meet the working capital and other general
corporate needs of New Sealed Air and its subsidiaries after the Merger. In the
commitment letter, ABN AMRO, Bankers Trust Company, Bank of America National
Trust and Savings Association and NationsBank, N.A. (collectively, the "Agent
Banks") have agreed to provide $1.05 billion of the loans under the New Credit
Agreements.
The following summary describes the anticipated material terms of
the New Credit Agreements based upon the commitment letter from the Arrangers
and the Agent Banks. There can be no assurance that the New Credit Agreements
will be successfully syndicated, entered into or become effective, that the
terms and conditions in the New Credit Agreements will conform to those
contemplated by the commitment letter or that the conditions to borrowings under
the New Credit Agreements can be satisfied.
The execution of the New Credit Agreements and the borrowing of
sufficient funds to enable Grace and Cryovac, Inc. to make the Cash Transfer
to New Grace and W. R. Grace & Co.-Conn. are conditions to the Reorganization
and Merger. See "The Distribution and Merger Agreements--Reorganization of
Grace--Spin-off" on page 70 for an explanation of the Cash Transfer, and "The
Distribution and Merger Agreements--Merger of Sealed Air and Grace
Packaging--Conditions to the Reorganization and Merger" on page 74 for a
description of the conditions to the Reorganization and Merger.
General Terms
Under the New Credit Agreements, the banks would provide a total
of $1.6 billion in loans (and letters of credit, subject to a sub-limit to be
determined) to the Borrowers through two credit facilities: a $1.0 billion
revolving credit facility that would be available for five years (the "Long-Term
Facility") and a $0.6 billion revolving credit facility that would be available
until 364 days after the execution of the New Credit Agreements (the "Short-Term
Facility"). Loans under the New Credit Agreements would be available in U.S.
Dollars and in certain other currencies. All loans outstanding under the
Long-Term Facility would be payable on the fifth anniversary of the execution of
the New Credit Agreements, and all loans outstanding under the Short-Term
Facility would be payable 364 days after the execution of the New Credit
Agreements, in each case without any interim amortization requirements. All of
the loans and letter of credit obligations will be guaranteed by Grace and all
of its material U.S. subsidiaries (including Cryovac, Inc. but excluding New
Grace and its subsidiaries). After completion of the Merger, at the option of
New Sealed Air, Sealed Air Packaging, Inc. may become a co-obligor with New
Sealed Air and assume joint and several liability for all of New Sealed Air's
obligations under the New Credit Agreements.
Interest Rates and Fees
The interest rate on loans outstanding under the New Credit
Agreements generally would be (at the Borrowers' option): (1) the "London
Interbank Offered Rate" ("LIBOR") for interest periods of 1, 2, 3 or 6 months,
plus a margin that may range from 0.19% to 0.55% for loans under the Short Term
Facility and from 0.17% to 0.50% for loans under the Long-Term Facility, with
the actual margins depending on a ratio measuring Grace's (and, after the
Merger, New Sealed Air's) financial leverage or the rating for its senior
unsecured long-term debt at the time, or (2) ABN AMRO's "Base Rate". An
additional utilization fee of 0.05% will be added to the margin at any time the
outstanding amounts under the New Credit Agreements exceed $800 million. The
Borrowers also would be permitted to borrow separately from individual banks
under the New Credit Agreements, at fixed interest rates for periods of 1 to 180
days as determined by competitive bid auctions. In addition, the Borrowers may
negotiate separate foreign currency loans with individual banks, the interest
rates on which would be separately negotiated. The fee for letters of credit
will be the applicable LIBOR margin under the Long-Term Facility.
Grace (and, after the Merger, New Sealed Air) will be required
under the New Credit Agreements to pay an annual facility fee that would range
from 0.06% to 0.20% of the amount of the Short-Term Facility and from 0.08% to
0.25% of the amount of the Long-Term Facility, also depending on a ratio
measuring its financial leverage or the rating for its senior unsecured
long-term debt at the time. In addition, Grace has agreed to pay the Agent Banks
a customary upfront agency fee for their commitments and to pay ABN AMRO
customary additional fees for administration of the New Credit Agreements. Grace
will also be obligated to pay any participation or similar fees that, in
connection with the syndication of the New Credit Agreements, must be paid to
the banks that make commitments to participate in them. These fees will be paid
by Grace or New Sealed Air, and not by New Grace, and any fees paid by Grace
prior to the Reorganization will be reimbursed through the Cash Transfer. Grace
or New Sealed Air will also pay the reasonable expenses that ABN AMRO incurs in
connection with the New Credit Agreements (including its reasonable legal fees
and expenses), and will give customary indemnities to the banks under the New
Credit Agreements.
Covenants and Other Provisions of the New Credit Agreements
The New Credit Agreements will contain a variety of operating and
financial covenants that will restrict New Sealed Air and its subsidiaries after
the Merger. These covenants are expected to restrict (in each case subject to
certain exceptions) (1) liens and other security interests; (2) mergers,
consolidations and dispositions of material assets; (3) subsidiary debt; (4)
asset transfers to foreign subsidiaries; and (5) changes in New Sealed Air's
business. In addition, New Sealed Air will be required to maintain specified
financial ratios (measuring New Sealed Air's interest and preferred stock
dividend coverage and leverage).
The New Credit Agreements will also contain customary affirmative
operating covenants, conditions to borrowings, representations and warranties
and event of default provisions (including a change of control other than as a
result of the Merger), as well as a covenant that the Merger must occur within
five days of the first borrowing.
MANAGEMENT OF NEW SEALED AIR
General
The seven directors of Sealed Air, plus four individuals who are
currently serving as outside directors of Grace, will become the directors of
New Sealed Air. The Grace directors who will join the New Sealed Air Board are
Hank Brown, Christopher Cheng, Virginia A. Kamsky and John E. Phipps.
The officers of New Sealed Air will be the existing officers of
Sealed Air, including T.J. Dermot Dunphy (Chairman of the Board and Chief
Executive Officer) and William H. Hickey (President and Chief Operating
Officer), joined by J. Gary Kaenzig, Jr. (currently a Senior Vice President of
Grace and President of Grace Packaging), Leonard R. Byrne and Alan S. Weinberg
(currently executives of Grace Packaging), and any others who may be appointed
by the New Sealed Air Board.
Directors and Executive Officers
Information regarding the directors and executive officers of
Sealed Air and Grace is set forth in documents filed with the SEC by Sealed Air
and Grace. See "Where You Can Find More Information" on page 100.
Messrs. Byrne and Weinberg are not currently officers of Grace,
but they are expected to become vice presidents of New Sealed Air following the
Merger. Leonard R. Byrne, age 56, has been Executive Vice President of Grace
Packaging's North American operations since July 1997, and has been an executive
of Grace Packaging for more than five years. Alan S. Weinberg, age 55, has been
Vice President of Global Technology for Grace Packaging since July 1996, and has
been an executive of Grace Packaging for more than five years.
INTERESTS OF CERTAIN PERSONS
Members of Sealed Air's management and Board of Directors may be
deemed to have interests in the Merger that are different from, or in addition
to, the interests of Sealed Air's stockholders generally. The Sealed Air Board
was aware of these interests and considered them, among other matters, in
approving the Merger Agreement and the transactions contemplated thereby. In
addition, members of Grace's management and Board of Directors may be deemed to
have interests in the Reorganization and Merger that are different from, or in
addition to, the interests of Grace's stockholders generally. The Grace Board
was aware of these interests and considered them, among other matters, in
approving the Merger Agreement and the transactions contemplated thereby. These
interests are described below.
Existing Officers and Directors Who Will Join New Sealed Air and New Grace at
the Effective Time
At the Effective Time, all of the existing directors of Sealed
Air and four of the current outside directors of Grace are expected to become
members of the New Sealed Air Board. All of the existing officers of Sealed Air,
an officer of Grace and certain executives of Grace Packaging are expected to
become officers of New Sealed Air. See "Management of New Sealed Air--General."
At the Effective Time, the existing officers and directors of
Grace, except those joining New Sealed Air, will hold the same positions with
New Grace.
Indemnification of Officers and Directors
The Distribution Agreement provides that New Grace will
indemnify, defend and hold harmless (including the payment of reasonable fees
and expenses of legal counsel) New Sealed Air and its officers and directors
for:
o losses arising from the failure of New Grace to pay the
liabilities that it agreed to pay, or to perform obligations it
agreed to perform, under the Distribution Agreement;
o losses arising from any untrue statement or alleged untrue
statement of material fact, or any omission or alleged omission
of a material fact required to be stated, in this Joint Proxy
Statement/Prospectus, the New Sealed Air Registration Statement
or the New Grace Registration Statement, in preliminary or
final form, other than with respect to information in those
documents relating to and provided by Sealed Air specifically
for use therein or relating to New Sealed Air after the Merger;
and
o losses arising from or related to litigation brought by
pre-Merger stockholders of Grace in such capacity and related
to any events or transactions occurring prior to the Effective
Time or to the transactions contemplated by any of the
Transaction Agreements.
The Distribution Agreement also provides that New Sealed Air will
indemnify and hold harmless (including the payment of reasonable fees and
expenses of legal counsel) New Grace and its officers and directors for:
o losses arising from the failure of New Sealed Air to pay the
liabilities that it agreed to pay, or to perform obligations it
agreed to perform, under the Distribution Agreement; and
o losses arising from any untrue statement or alleged untrue
statement of material fact, or any omission or alleged omission
of a material fact required to be stated, in this Joint Proxy
Statement/Prospectus, the New Sealed Air Registration Statement
or the New Grace Registration Statement, in preliminary or
final form, related to Sealed Air and provided by Sealed Air
specifically for use therein or relating to New Sealed Air
after the Merger.
Under the Grace Charter and the Sealed Air Charter, officers and
directors will also be indemnified by their respective corporations to the
fullest extent permitted under Delaware Law. In addition, under the Grace
Charter, no director of Grace will be personally liable for monetary damages for
breach of fiduciary duty as a director except for (i) any breach of the duty of
loyalty to Grace or its stockholders; (ii) acts or omissions in bad faith or
which involve intentional misconduct or knowing violation of the law; (iii)
liabilities under Section 174 of the Delaware Law, which creates liability for
directors for unlawful payment of dividends or unlawful stock purchases or
redemptions; and (iv) any transaction from which the director derived an
improper personal benefit. The certificate of incorporation and by-laws of New
Grace and New Sealed Air are expected to contain similar provisions.
Sealed Air Officers' and Directors' Interests under Stock Plans
Certain members of Sealed Air's management and Board of Directors
own shares issued under Sealed Air's Contingent Stock Plan or its Restricted
Stock Plan for Non-Employee Directors that continue to be subject to
restrictions on transfer and, under the Contingent Stock Plan, subject to
repurchase options. Under the provisions of those plans as in effect prior to
the approval of the Merger, the transfer restrictions and repurchase options
would cease to apply upon consummation of the Merger. The Sealed Air Board has
amended those plans so that the transfer restrictions and repurchase options
will continue, notwithstanding the Merger.
Grace Officers' Ownership of Grace Stock Options
Officers of Grace own options to purchase Grace common stock that
are exercisable prior to the Reorganization and Merger. If these options are
exercised prior to the Reorganization and Merger, the shares acquired upon
exercise will be treated the same as shares owned by other Grace stockholders.
If they are not exercised, these options will be converted into options to
purchase common stock of the company that the officer will join following the
Merger, as described on page 71. As a result, officers holding Grace options
that are exercisable prior to the Reorganization and Merger may choose whether
to invest in both New Sealed Air and New Grace, or only in the company that they
will join after the Merger, among other factors that may influence their
decision to exercise options.
THE SPECIAL MEETINGS
This Joint Proxy Statement/Prospectus is furnished in connection
with the solicitation of proxies (i) from the holders of Sealed Air common stock
by the Sealed Air Board for use at the Sealed Air Special Meeting; and (ii) from
the holders of Grace common stock by the Grace Board for use at the Grace
Special Meeting. This Joint Proxy Statement/Prospectus and accompanying form of
proxy are first being mailed to the respective stockholders of Sealed Air and
Grace on or about February 17, 1998.
Times and Places; Purposes
The Sealed Air Special Meeting will be held at Saddle Brook
Marriott, Garden State Parkway at I-80, Saddle Brook, New Jersey 07663, on March
23, 1998, starting at 11:00 a.m. local time. At the Sealed Air Special Meeting
(and any adjournment or postponement thereof), Sealed Air's stockholders will be
asked to consider and vote upon the approval and adoption of the Merger
Agreement (the "Sealed Air Merger Proposal"). Representatives from KPMG Peat
Marwick LLP, independent certified public accountants for Sealed Air, are
expected to be present at the Sealed Air Special Meeting, to have the
opportunity to make a statement if they so desire, and to be available to
respond to appropriate questions.
The Grace Special Meeting will be held at Grace's offices,
located at One Town Center Road, Boca Raton, Florida 33486, on March 20, 1998,
starting at 10:00 a.m. local time. At the Grace Special Meeting (and any
adjournment or postponement thereof), Grace's stockholders will be asked to
consider and vote upon:
(1) the approval and adoption of the Merger Agreement (which will
constitute approval of the Reorganization, Merger and other
transactions contemplated thereby, including the Spin-off of
New Grace, the amendment and restatement of the Grace Charter
(other than the repeal of the Supermajority Provisions), the
Recapitalization of Grace common stock and the issuance of
shares of New Sealed Air common stock in the Merger)
(collectively, the "Grace Merger Proposal"),
(2) the approval and adoption of an amendment repealing the
Supermajority Provisions (the "Grace Special Charter
Proposal", and together with the Grace Merger Proposal,
the "Grace Proposals").
Representatives from Price Waterhouse LLP, independent certified
public accountants for Grace, are expected to be present at the Grace Special
Meeting, to have the opportunity to make a statement if they so desire, and to
be available to respond to appropriate questions.
Record Date; Voting Rights; Votes Required for Approval
Sealed Air
The Sealed Air Board has fixed the close of business on February
17, 1998 (the "Sealed Air Record Date") as the record date for Sealed Air's
stockholders entitled to notice of and to vote at the Sealed Air Special
Meeting.
Only holders of record of shares of Sealed Air common stock on
the Sealed Air Record Date are entitled to notice of and to vote at the Sealed
Air Special Meeting. Each holder of record of Sealed Air common stock as of the
Sealed Air Record Date is entitled to cast one vote per share on all matters
submitted to Sealed Air's stockholders.
On February 13, 1998, there were 42,624,246 shares of Sealed Air
common stock outstanding and entitled to vote at the Sealed Air Special Meeting.
The presence, in person or by proxy, of the holders of a majority
of the outstanding shares of Sealed Air common stock entitled to vote is
necessary to constitute a quorum at the Sealed Air Special Meeting. The
affirmative vote of the holders of a majority of the outstanding shares of
Sealed Air common stock is required to approve and adopt the Sealed Air Merger
Proposal.
The directors and officers of Sealed Air beneficially own
approximately 6.3% of Sealed Air's outstanding common stock. For additional
information on the ownership of Sealed Air common stock by Sealed Air directors
and executive officers, see "Security Ownership of Certain Beneficial Owners" on
page 87.
Grace
The Grace Board has fixed the close of business on February 11,
1998 as the record date (the "Grace Record Date") for Grace's stockholders
entitled to notice of and to vote at the Grace Special Meeting.
Only holders of record of shares of Grace common stock on the
Grace Record Date are entitled to notice of and to vote at the Grace Special
Meeting. Each holder of record of Grace common stock as of the Grace Record Date
is entitled to cast one vote per share on all matters submitted to Grace's
stockholders.
On the Grace Record Date, there were 74,796,863 shares of Grace
common stock outstanding and entitled to vote at the Grace Special Meeting.
The presence, in person or by proxy, of the holders of a majority
of the outstanding shares of Grace common stock entitled to vote is necessary to
constitute a quorum for purposes of voting on the Grace Proposals. The
affirmative vote of the holders of a majority of the outstanding shares of Grace
common stock is required to approve the Grace Merger Proposal. The affirmative
vote of the holders of 80% of the outstanding shares of Grace common stock is
required to approve and adopt the Grace Special Charter Proposal.
The directors and officers of Grace beneficially own less than 1%
of Grace's outstanding common stock. For additional information on the ownership
of Grace common stock by Grace directors and executive officers, see "Security
Ownership of Certain Beneficial Owners" on page 87.
Proxies
All shares of common stock of Sealed Air and Grace represented by
properly executed proxies received prior to or at the applicable Special Meeting
and not revoked will be voted in accordance with the instructions indicated in
such proxies. If no instructions are indicated on a properly executed returned
proxy, such proxies will be voted FOR the approval of the Sealed Air Merger
Proposal or the Grace Proposals, as the case may be.
Abstentions may be specified on all proposals. A properly
executed proxy marked "ABSTAIN" with respect to any proposal will be counted as
present for purposes of determining whether there is a quorum and for purposes
of determining the aggregate voting power and number of shares represented and
entitled to vote at the applicable Special Meeting with respect to the indicated
proposal. Because the affirmative votes described above are required for
approval of the Sealed Air Merger Proposal and the Grace Proposals, a proxy
marked "ABSTAIN" with respect to any such proposal will have the effect of a
vote against such proposal. In addition, the failure of a stockholder of Sealed
Air or Grace to return a proxy will have the effect of a vote against the Sealed
Air Merger Proposal or the Grace Proposals, respectively.
Under New York Stock Exchange rules, brokers who hold shares in
street name for customers have the authority to vote on certain "routine"
proposals when they have not received instructions from beneficial owners. Under
New York Stock Exchange rules, such brokers are precluded from exercising their
voting discretion with respect to proposals for non-routine matters such as the
Sealed Air Merger Proposal and the Grace Proposals. Thus, absent specific
instructions from the beneficial owner of such shares, brokers are not empowered
to vote such shares with respect to the approval and adoption of the Sealed Air
Merger Proposal or the Grace Proposals (i.e., "broker non-votes"). Since the
affirmative votes described above are required for approval of the Sealed Air
Merger Proposal and the Grace Proposals, a "broker non-vote" with respect to
such proposals will have the effect of a vote against such proposals.
A stockholder may revoke his or her proxy at any time prior to
its use by delivering to the Secretary of Sealed Air or Grace, as the case may
be, a signed notice of revocation or a later-dated, signed proxy or by attending
the applicable Special Meeting and voting in person. Attendance at the Sealed
Air Special Meeting or the Grace Special Meeting will not in itself constitute
the revocation of a proxy.
The cost of solicitation of proxies will be paid by Sealed Air
for Sealed Air proxies and by Grace for Grace proxies. In addition to
solicitation by mail, arrangements will be made with brokerage houses and other
custodians, nominees and fiduciaries to send the proxy materials to beneficial
owners; and Sealed Air or Grace, as the case may be, will, upon request,
reimburse such brokerage houses and custodians for their reasonable expenses in
so doing. Sealed Air has retained Morrow and Co., Inc., for a fee of $7,500
(plus expenses) and Grace has retained D.F. King & Co., Inc. for a fee of
$13,000 (plus expenses) to aid in the solicitation of proxies and to verify
certain records related to the solicitations. To the extent necessary in order
to ensure sufficient representation at its Special Meeting, Sealed Air, Grace or
their proxy solicitors may request the return of proxy cards by personal
interview, mail, telephone, facsimile or other means of electronic transmission.
The extent to which this will be necessary depends entirely upon how promptly
proxy cards are returned. Stockholders are urged to send in their proxies
without delay.
Stockholders should not send in any stock certificates with their
proxy cards. As soon as practicable after the consummation of the Merger, a
transmittal form will be sent to former stockholders of Sealed Air with
instructions for receiving New Sealed Air common stock, and a transmittal form
will be sent to former stockholders of Grace with instructions for surrendering
Grace common stock certificates in exchange for New Sealed Air common and
convertible preferred stock. Stockholders will receive uncertificated shares of
New Sealed Air stock recorded in book-entry form unless they request
certificated shares. New Grace common stock certificates will be sent to former
stockholders of Grace as soon as practicable after the Spin-off without any
action on their part.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Security Ownership of Sealed Air
The following table sets forth the number and percentage of
outstanding shares of Sealed Air common stock beneficially owned, directly or
indirectly, as of February 4, 1998 by: (i) each person known to Sealed Air to be
the beneficial owner of more than five percent of the then outstanding shares of
Sealed Air common stock, (ii) each director of Sealed Air and each executive
officer of Sealed Air named in the Summary Compensation Table set forth in the
Sealed Air 1997 Proxy Statement (other than those who have since resigned as
executive officers), and (iii) all directors and executive officers of Sealed
Air as a group. Except as indicated below, none of the directors or executive
officers listed below beneficially owns more than 1% of the outstanding shares
of Sealed Air common stock.
Shares of Sealed Air
Common Stock % of Outstanding
Beneficial Owner Beneficially Owned Common Stock
- ---------------------------------------- -------------------- ----------------
The Equitable Companies Incorporated (1)........ 4,391,465 10.3
787 Seventh Avenue
New York, New York 10019
Janus Capital Corporation (2)................... 3,495,100 8.2
100 Fillmore Street, Suite 300
Denver, Colorado 80206-4923
FMR Corp. (3)................................... 4,746,500 11.1
82 Devonshire Street
Boston, Massachusetts 02109
Travelers Group Inc. (4)........................ 2,325,086 5.5
388 Greenwich Street
New York, New York 10013
John K. Castle.................................. 12,936 *
Lawrence R. Codey............................... 5,800 *
T. J. Dermot Dunphy............................. 1,096,647 (5)(6) 2.6
Charles F. Farrell, Jr.......................... 24,600 (6) *
David Freeman................................... 5,600 *
William V. Hickey............................... 286,894 (5) *
Alan H. Miller.................................. 502,710 (6) 1.2
Robert L. San Soucie............................ 11,400 (6) *
All directors and executive
officers as a group (20 persons).............. 2,694,029 (7) 6.3
* Less than 1%.
(1) The ownership information set forth in the table is based in its entirety on
material contained in a Schedule 13G, dated November 7, 1997, filed with the
SEC by The Equitable Companies Incorporated ("Equitable Companies"),
AXA-UAP, which beneficially owns a majority interest in Equitable Companies,
and Mutuelles AXA, which as a group beneficially own a majority interest in
AXA-UAP. The Schedule 13G stated that the shares were not acquired for the
purpose of changing or influencing the control of Sealed Air. The shares are
owned by the following subsidiaries of Equitable Companies in the amounts
indicated: The Equitable Life Assurance Society of the United States,
36,600; Alliance Capital Management L.P., 4,350,565; DLJ, 100; and Wood,
Struthers & Winthrop Management Corp., 4,200.
(2) The ownership information set forth in the table is based in its entirety on
material contained in Amendment No. 1 to Schedule 13G, dated February 10,
1997, filed with the SEC by Janus Capital Corporation ("Janus"), which
stated that the shares were not acquired for the purpose of changing or
influencing the control of Sealed Air and indicated that Janus beneficially
owned such shares, with shared voting and dispositive power as to such
shares. Such Schedule 13G states that Thomas H. Bailey may be deemed to
control Janus Capital Corporation and to be a beneficial owner of such
shares, which beneficial ownership Mr. Bailey specifically disclaims.
(3) The ownership information set forth in the table is based in its entirety on
material contained in Amendment No. 3 to Schedule 13G, dated February 14,
1997, filed with the SEC by FMR Corp. ("FMR"), which stated that the shares
were not acquired for the purpose of changing or influencing the control of
Sealed Air and indicated that FMR had sole voting power as to 25,500 shares
and sole dispositive power as to 4,746,500 shares. Such Schedule 13G
indicates that Fidelity Management & Research Company ("Fidelity"), a
wholly-owned subsidiary of FMR, beneficially owns 4,630,400 of such shares
(as to which shares Edward C. Johnson 3d, chairman of FMR, and Fidelity
Funds each have sole power of disposition). The power to vote these shares
resides with the Board of Trustees of Fidelity Funds. Of the shares
beneficially owned by FMR, Fidelity Management Trust Company, a wholly owned
subsidiary of FMR, is the beneficial owner of 116,100 shares, of which Mr.
Johnson and FMR have sole dispositive power over 116,100 shares and sole
voting power over 25,500 shares. Such Schedule 13G states that members of
the family of Mr. Johnson may be deemed to control FMR.
(4) The ownership information set forth in the table is based in its entirety on
material contained in a Schedule 13G, dated February 6, 1998, filed with the
SEC by Travelers Group Inc. ("Travelers"), and its wholly owned subsidiary
Saloman Smith Barney Holdings Inc. ("SSB Holdings"). The Schedule 13G stated
that Travelers has shared voting power and shared dispositive power as to
2,325,086 shares, of which 2,308,286 are held by SSB Holdings, and that the
shares were not acquired for the purpose of changing or influencing the
control of Sealed Air.
(5) This figure includes approximately 67,297, 13,294 and 139,962 shares of
common stock held in Sealed Air's Profit-Sharing Plan trust fund with
respect to which Messrs. Dunphy and Hickey and the executive officers of
Sealed Air who participate in such Plan as a group, respectively, may, by
virtue of their participation in such Plan, be deemed to be beneficial
owners. The participants in such Plan include, in general, all full-time
employees of Sealed Air except employees who are covered by collective
bargaining agreements that do not provide for their participation. As of
February 4, 1997, approximately 2,172,125 shares of Sealed Air common stock
were held in the trust fund under such Plan, constituting approximately 5.1%
of the outstanding shares of Sealed Air common stock. Sealed Air has been
advised that Bankers Trust Company, the trustee of such Plan, does not deem
itself the beneficial owner of the shares of Sealed Air common stock held as
trustee of such Plan.
(6) The number of shares held by Mr. Dunphy includes 81,600 shares held by him
as custodian for certain of his children and 34,250 shares held by a
charitable foundation for which he shares voting and investment power. The
number of shares held by Mr. Farrell includes 11,200 shares held in a
revocable retirement trust of which he is the trustee and sole beneficiary.
All but 1,200 of the shares held by Mr. Miller are held indirectly through a
limited partnership for which he shares voting and investment power. Mr. San
Soucie shares investment and voting power as to 3,120 of the shares
beneficially owned by him with his wife.
(7) This figure includes, without duplication, all of the outstanding shares
referred to in notes 4 and 5 above as well as 12,400 shares for which voting
and investment power is shared by an executive officer of Sealed Air and
3,580 shares held by or for family members of executive officers of Sealed
Air who are not named in the above table.
Security Ownership of Grace
The following table sets forth the Grace common stock
beneficially owned, directly or indirectly, as of December 31, 1997 by: (i) each
person known to Grace to be the beneficial owner of more than five percent of
the then outstanding shares of Grace common stock; (ii) current directors and
each of the executive officers named in the Summary Compensation Table set forth
in the Grace 1997 Proxy Statement (other than those who have resigned); and
(iii) all directors and executive officers of Grace 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
Grace's Savings and Investment Plan and shares covered by currently exercisable
stock options; it does not reflect shares covered by unexercisable stock
options. The Grace common stock owned by directors and executive officers as a
group (excluding option shares) as of December 31, 1997 represents less than 1%
of the Grace common stock outstanding as of that date.
Shares of
Grace Common Stock
Beneficial Owner Beneficially Owned
- ------------------------------------------------- ------------------
FMR Corp(+)....................................... 7,379,887
82 Devonshire Street
Boston Massachusetts 02109
Lincoln Capital Management Company(++)............ 7,332,200
200 South Wacker Drive, Suite 2100
Chicago, Illinois 60606
J.F. Akers........................................ 1,205
504 (T)
R.H. Beber........................................ 7,673
198,338 (O)
H. Brown.......................................... 1,139
153 (T)
C. Cheng.......................................... 139
140 (T)
A.J. Costello..................................... 32,776
31,123 (T)
336,375 (O)
H.A. Eckmann...................................... 3,690
1,997 (T)
L. Ellberger...................................... 1,662
14,502 (T)
91,132 (O)
M.A. Fox ......................................... 964
135 (T)
J.W. Frick........................................ 3,489
76 (T)
T.A. Holmes....................................... 4,421
1,261 (T)
J.R. Hyde......................................... 9,090
184,127 (O)
V.A. Kamsky....................................... 2,931
J.J. Murphy....................................... 1,139
414 (T)
J.E. Phipps....................................... 11,921
17,450 (T)(S)
3,860 (T)
T.A. Vanderslice.................................. 1,731
1,058 (T)
Various directors, executive officers
and others, as Trustees......................... 2,696 (T)(S)
Directors and executive officers
as a group...................................... 89,911
65,244 (T)
20,146 (T)(S)
965,123 (O)
(+) The shares owned by FMR Corp. represent 9.9% of the Grace common stock
outstanding as of December 1, 1997. The ownership information set
forth in the table is based in its entirety on material contained in a
Schedule 13G, dated August 8, 1997, filed with the SEC by FMR Corp.,
which stated that the securities were not acquired for the purpose of
changing or influencing the control of Grace. With respect to the
shares held, such shareholder 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.
(++) The shares owned by Lincoln Capital Management Company represent
approximately 9.9% of the Grace common stock outstanding as of December 1,
1997. The ownership information set forth in the table 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 stated that
the securities were not acquired for the purpose of changing or influencing
the control of Grace. With respect to the shares held, such shareholder
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.
(T) Shares owned by trusts and other entities as to which the person either has
the power to direct voting and/or investment or is a beneficiary.
(O) Shares covered by stock options exercisable on or within 60 days after
December 31, 1997.
(S) Shares as to which the person shares voting and/or investment power with
others.
DESCRIPTION OF CAPITAL STOCK OF NEW SEALED AIR
The following summary of the material terms of the capital stock
of New Sealed Air does not purport to be complete and is qualified by reference
to the New Sealed Air Charter and the bylaws of New Sealed Air (the "New Sealed
Air Bylaws"). The form of the New Sealed Air Charter is attached as Annex E to
this Joint Proxy Statement/Prospectus. The New Sealed Air Bylaws will be
substantially the same as Sealed Air's existing bylaws, which are incorporated
by reference herein and will be sent to Sealed Air and Grace stockholders upon
request. See "Where You Can Find More Information" on page 100.
Authorized Capital Stock
Under the New Sealed Air Charter, the authorized capital stock
will consist of 400 million shares of common stock, par value $0.10 per share,
and 50 million shares of preferred stock, par value $0.10 per share.
New Sealed Air Common Stock
Each share of New Sealed Air common stock will be entitled to one
vote on all matters submitted to a vote of stockholders. Dividends on shares of
New Sealed Air common stock may be declared by the New Sealed Air Board from the
surplus or net profits of New Sealed Air to the extent such funds are legally
available for the payment of dividends. New Sealed Air common stock will have no
preemptive, conversion or similar rights, nor will it have cumulative voting
rights. Outstanding shares of New Sealed Air common stock will not be subject to
any calls or assessments. There will be no redemption rights.
In the event of the liquidation of New Sealed Air, holders of New
Sealed Air common stock will be entitled to share on a pro rata basis in all of
its remaining assets and funds available for distribution under such
liquidation, subject to the payment in full of all claims of creditors and prior
rights of any class or series of preferred stock then outstanding. The rights of
holders of New Sealed Air common stock may only be modified by a vote of a
majority of the shares outstanding or through the issuance of preferred stock as
authorized in the New Sealed Air Charter.
New Sealed Air Preferred Stock
General
Under the New Sealed Air Charter, preferred stock may be issued
from time to time in one or more series. Preferred stock will have the powers,
designations, preferences and other rights and qualifications, limitations and
restrictions stated in the New Sealed Air Charter and otherwise as fixed by the
New Sealed Air Board. Except as otherwise fixed by the New Sealed Air Board or
as required by law, the New Sealed Air Charter provides that holders of
preferred stock of any series are entitled to one vote per share held, are
entitled to vote share for share with the holders of New Sealed Air common stock
without distinction as to class and are not entitled to vote separately as a
class or series of a class. Unless otherwise fixed by the New Sealed Air Board,
all series of preferred stock will rank equally and will be identical in all
respects. All shares of any one series of preferred stock must be identical with
each other in all respects, except that shares of any one series issued at
different times may differ as to the dates on which dividends thereon
accumulate. The number of shares of preferred stock authorized to be issued may
be increased or decreased from time to time by the affirmative vote of the
holders of a majority of the stock of New Sealed Air entitled to vote, and the
holders of the preferred stock will not be entitled to vote separately as a
class or series of a class on any such increase or decrease.
Convertible Preferred Stock
As part of the Recapitalization, Grace stockholders will be
issued an aggregate of 36 million shares of voting convertible preferred stock,
which will become (with the consummation of the Merger) series A preferred stock
of New Sealed Air. The convertible preferred stock's powers, designations,
preferences and other rights and qualifications, limitations and restrictions
are summarized below.
Dividends
Holders of convertible preferred stock will be entitled to
receive a cash dividend at an annual rate of $2.00 per share, payable quarterly
in arrears. Dividends on the convertible preferred stock are fully cumulative,
accruing, without interest, from the most recent date on which dividends have
been paid, or if none have been paid, from the date of original issuance of the
convertible preferred stock.
The convertible preferred stock will have priority as to
dividends over New Sealed Air common stock and any other series or class of New
Sealed Air preferred stock that ranks junior to it ("Junior Securities"). The
convertible preferred stock will rank on a parity with all classes or series of
capital stock (other than common stock) of New Sealed Air that do not by their
terms expressly provide that they rank senior or junior to the convertible
preferred stock ("Parity Securities").
So long as the convertible preferred stock is outstanding, no
dividends (other than dividends payable solely in common stock, other Junior
Securities, or warrants or other rights to acquire such common stock or other
Junior Securities) may be paid or declared and set apart for payment on, and no
purchase, redemption or other acquisition will be made by New Sealed Air of any
common stock or other Junior Securities unless and until all accrued and unpaid
dividends on the convertible preferred stock, including the full dividend for
the current quarterly dividend period, is paid or declared and set apart for
payment.
In general, New Sealed Air may not pay dividends on Parity
Securities unless it has paid or declared and set apart for payment (or
contemporaneously pays or declares and sets apart for payment) all accrued and
unpaid dividends on the convertible preferred stock, for all prior dividend
payment periods, and New Sealed Air may not pay dividends on the convertible
preferred stock unless it has paid or declared and set apart for payment (or
contemporaneously pays or declares and sets apart for payment) all accrued and
unpaid dividends on Parity Securities, for all prior dividend periods. However,
until all accrued dividends in respect of prior dividend payment periods are
paid in full on the convertible preferred stock and on all Parity Securities,
New Sealed Air may declare and pay dividends on the convertible preferred stock
and the Parity Securities, but only if the dividends are declared and paid
ratably in proportion to the respective amounts of accrued and unpaid dividends
on the convertible preferred stock and the Parity Securities.
New Sealed Air may not, directly or indirectly, purchase or
redeem any shares of Parity Securities (except for consideration payable in
common stock or other Junior Securities) unless all accrued and unpaid dividends
on the convertible preferred stock for all prior dividend periods have been paid
or declared and set apart for payment.
If New Sealed Air issues any series or class of stock that ranks
senior to the convertible preferred stock ("Senior Securities"), New Sealed Air
may not pay or declare and set apart for payment any dividends on the
convertible preferred stock unless and until all accrued and unpaid dividends on
the Senior Securities, including the full dividends for the then current
dividend period, have been paid or declared and set apart for payment (except to
the extent allowed by the terms of the Senior Securities).
Liquidation Rights
The liquidation value of the convertible preferred stock, in the
case of a voluntary or involuntary liquidation, dissolution or winding-up of New
Sealed Air, is $50.00 per share, plus an amount equal to the accrued and unpaid
dividends, whether or not declared, to (but not including) the payment date (the
"Liquidation Value").
If there is a voluntary or involuntary liquidation, dissolution
or winding up of New Sealed Air, holders of convertible preferred stock will not
be entitled to receive the Liquidation Value of their shares until the
liquidation preference of all Senior Securities, if any, and any creditors of
New Sealed Air have been paid in full. Subject to the payment in full, or
provision for the payment in full, of all claims of creditors of New Sealed Air,
and the liquidation preference of all Senior Securities, holders of convertible
preferred stock will be entitled to receive the Liquidation Value of the
convertible preferred stock before any payment or distribution is made to the
holders of New Sealed Air common stock or any other Junior Securities. Once
payment in full of the Liquidation Value of the convertible preferred stock is
made to holders thereof, the holders of convertible preferred stock will not be
entitled to any further participation in any distribution of assets of New
Sealed Air. The holders of convertible preferred stock and any Parity Securities
will be entitled to share ratably, in accordance with the respective liquidation
preferences payable on their stock, in any distribution (after payment of all
claims of creditors and the liquidation preference on any Senior Securities)
that is not sufficient to pay in full the aggregate liquidation preference on
both the convertible preferred stock and on any Parity Securities.
Voting Rights
The holders of the convertible preferred stock will be entitled
to vote on all matters submitted to a vote of the holders of New Sealed Air
common stock, voting together with the holders of New Sealed Air common stock as
one class, and will be entitled to notice of any stockholders' meeting in
accordance with the New Sealed Air Charter and the New Sealed Air Bylaws. Each
share of convertible preferred stock will be entitled to the number of votes
equal to the number of shares of New Sealed Air common stock into which such
share of convertible preferred stock could be converted on the record date for
determining the stockholders entitled to vote.
If dividends payable on the convertible preferred stock are in
arrears and unpaid for six quarterly periods, or if New Sealed Air fails to
redeem the convertible preferred stock on the twentieth anniversary of the
Effective Time, the number of directors serving on the New Sealed Air Board will
be increased by two and the holders of shares of convertible preferred stock,
voting as a single class with the holders of shares of all other series of
preferred stock upon which like voting rights have been conferred and are
exercisable, will have the right to vote for the election of the two additional
directors to serve on the New Sealed Air Board. The right of the holders of
convertible preferred stock and such other series of preferred stock to vote for
the election of two directors will, when vested, continue until all dividends in
arrears on the convertible preferred stock and such other series of preferred
stock have been paid in full or declared and set aside for payment (or the
mandatory redemption obligation has been satisfied, as the case may be), at
which time the term of office of all directors so elected shall terminate and
the number of directors on the New Sealed Air Board will be reduced accordingly.
In addition, for so long as any shares of convertible preferred
stock are outstanding, (1) the written consent or affirmative vote of at least
two-thirds of the outstanding shares of convertible preferred stock, voting as a
single class, will be necessary to amend, alter or repeal any provision of the
New Sealed Air Charter in a manner that materially and adversely affects the
preferences, rights or powers of the convertible preferred stock (provided that
any such amendment, alteration or repeal that would create, authorize or issue
any Junior Securities or Parity Securities, or any security convertible into, or
exchangeable or exercisable for, shares of Junior Securities or Parity
Securities is deemed not to have any such material adverse effect); (2) the
written consent or affirmative vote of at least two-thirds of the outstanding
shares of convertible preferred stock and all other series of preferred stock
upon which like voting rights have been conferred and are exercisable, voting as
a single class regardless of series, will be necessary to create, authorize or
issue any Senior Securities, or any security convertible into, or exchangeable
or exercisable for, shares of Senior Securities; and (3) the written consent or
affirmative vote of a majority of the outstanding shares of convertible
preferred stock and all other series of preferred stock upon which like voting
rights have been conferred and are exercisable, voting as a single class
regardless of series, will be necessary to create, authorize or issue any new
class of Parity Securities (provided that requirement will not limit the right
of New Sealed Air to issue Parity Securities in connection with any merger in
which New Sealed Air is the surviving entity). Notwithstanding the consent or
voting requirements summarized in this paragraph, no such consent or vote of
holders of the convertible preferred stock will be required if provision is made
for the redemption of all shares of convertible preferred stock at the time
outstanding.
The holders of convertible preferred stock will not have any
voting rights except as summarized above or as required by law.
Redemption at Option of New Sealed Air
The convertible preferred stock may not be redeemed before the
third anniversary of the Effective Time. From the third anniversary until the
fifth anniversary of the Effective Time, New Sealed Air may redeem shares of
convertible preferred stock only if the last reported sales price of a share of
New Sealed Air common stock in its principal trading market for any 20 trading
days within a period of 30 consecutive trading days ending on the trading day
before the date of mailing the notice of redemption is at least $70.6563.
Subject to this restriction, New Sealed Air may redeem for cash the convertible
preferred stock, in whole or in part at its option, after the third anniversary
of the Effective Time at the applicable Redemption Price shown below, plus
accrued but unpaid dividends to (but not including) the payment date.
Redemption Between
Anniversaries Redemption Price
------------------ ----------------
3 and 4 $51.40
4 and 5 $51.20
5 and 6 $51.00
6 and 7 $50.80
7 and 8 $50.60
8 and 9 $50.40
9 and 10 $50.20
Thereafter $50.00
Mandatory Redemption
The convertible preferred stock is subject to mandatory
redemption (subject to contractual and other restrictions and to the legal
availability of funds therefor) in whole on the twentieth anniversary of the
Effective Time, at a price of $50.00 per share in cash, plus accrued and unpaid
dividends to (but not including) the payment date.
Conversion Rights
Each holder of convertible preferred stock will have the right,
at the holder's option, to convert any or all shares of convertible preferred
stock into New Sealed Air common stock at any time at a conversion price
(subject to customary antidilution adjustments) of $56.525 per share of
underlying common stock of New Sealed Air. Accordingly, each share of
convertible preferred stock will be convertible into 0.8845644 shares of New
Sealed Air common stock, subject to certain adjustments. Cash will be paid in
lieu of any fractional shares. If the convertible preferred stock is called for
redemption, the conversion right with respect to the called shares of
convertible preferred stock will terminate at the close of business on the
business day preceding the redemption date.
Transfer Agent and Registrar
First Chicago Trust Company of New York will be the transfer
agent and registrar for the New Sealed Air common and convertible preferred
stock.
Stock Exchange Listing; Delisting and Deregistration of Sealed Air Common Stock
It is a condition to the Merger that the shares of New Sealed Air
common and convertible preferred stock to be issued in the Recapitalization and
Merger must be approved for listing on the New York Stock Exchange prior to the
Effective Time, subject to official notice of issuance. If the Merger is
consummated, Sealed Air common stock will cease to be listed on the New York
Stock Exchange and will be deregistered under the Securities Exchange Act of
1934, as amended.
COMPARISON OF STOCKHOLDER RIGHTS
General
The rights of Sealed Air stockholders are currently governed by
Delaware Law, the Sealed Air Charter and the bylaws of Sealed Air (the "Sealed
Air Bylaws"). The rights of Grace's stockholders are currently governed by the
Delaware Law, the Grace Charter and the by-laws of Grace (the "Grace By-laws").
As a condition to the Merger and as a transaction contemplated by the Merger
Agreement, Grace's stockholders have been asked to approve and adopt the New
Sealed Air Charter (for further information concerning the Grace Charter
Proposal, see "The New Sealed Air Charter" on page 37). Also, following the
Merger, the New Sealed Air Board will repeal the Grace By-laws and adopt the New
Sealed Air Bylaws.
Accordingly, following the Merger, the rights of Sealed Air
stockholders and Grace stockholders who become stockholders of New Sealed Air in
the Merger will be governed by Delaware Law, the New Sealed Air Charter and the
New Sealed Air Bylaws. The following is a summary of the principal differences
between the current rights of Grace stockholders and those of New Sealed Air
stockholders following the Merger. Because the New Sealed Air Charter and Bylaws
are substantially the same as the Sealed Air Charter and Bylaws, the rights of
Sealed Air's stockholders will not substantially change. To the extent Sealed
Air's stockholders will have different rights following the Merger, the
differences are also summarized below.
The following discussions are not intended to be complete and are
qualified by reference to Delaware Law, the Sealed Air Charter, the Sealed Air
Bylaws, the Grace Charter, the Grace By-laws and the proposed New Sealed Air
Charter. Copies of the Sealed Air Charter, the Sealed Air Bylaws, the Grace
Charter and the Grace By-laws are incorporated by reference herein and will be
sent to Sealed Air and Grace stockholders upon request. See "Where You Can Find
More Information" on page 100. The form of the New Sealed Air Charter is
attached as Annex E to this Joint Proxy Statement/Prospectus. The New Sealed Air
Bylaws will be substantially the same as the Sealed Air Bylaws.
Following the Spin-off, the rights of New Grace stockholders will
be governed by Delaware Law, the Certificate of Incorporation of New Grace and
the by-laws of New Grace, which are described in the New Grace Information
Statement.
Comparison of Current Sealed Air Stockholder Rights and Current Grace
Stockholder Rights with the Rights of New Sealed Air Stockholders Following
the Merger
The rights of Sealed Air stockholders under the Sealed Air
Charter and Sealed Air Bylaws prior to the Merger, and the rights of Grace
stockholders under the Grace Charter and Grace By-laws prior to the Merger, will
be substantially the same as the rights of New Sealed Air stockholders
(including Sealed Air's stockholders and Grace stockholders who become New
Sealed Air's stockholders as a result of the Merger) under the New Sealed Air
Charter and New Sealed Air Bylaws after the Merger, with the following principal
exceptions.
Authorized Capital Stock. The authorized capital stock of Grace
consists of 300 million shares of common stock and 53 million shares of
preferred stock, par value $0.01 per share. The authorized capital stock of
Sealed Air consists of 125 million shares of common stock, par value $0.01 per
share, and 1 million shares of preferred stock, no par value. The authorized
capital of New Sealed Air will be 400 million shares of common stock and 50
million shares of preferred stock, each with a par value of $0.10 per share.
Board of Directors. Under the New Sealed Air Bylaws and the
Sealed Air Bylaws, the number of directors may be fixed by an ordinary
resolution of the board of directors, which requires a majority vote by a quorum
of directors. A quorum is a majority of all directors in office at the time. The
New Sealed Air Board will not be classified, and directors will have one-year
terms. There will be no age limitation and no for-cause requirement for removing
directors.
Under the Grace Charter and the Grace By-laws, the number of
directors is fixed by resolution adopted by a majority of the entire board of
directors, counting vacancies towards the total number of directors required for
a majority. The board is divided into three classes, with each class having a
staggered three-year term, and, subject to certain exceptions, no person may be
nominated for election as a director after reaching age 70 or if such nominee
would reach age 70 during his or her term. In accordance with Delaware Law,
directors may not be removed by stockholders except for cause.
Indemnification; Breach of Fiduciary Duty by Directors. The New
Sealed Air Charter and the Grace Charter provide that directors of the
corporation will be indemnified by the corporation to the fullest extent
permitted by Delaware Law. In addition, a director will not be personally liable
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability: (i) for breach of the
director's duty of loyalty; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) under
Section 174 of the Delaware Law, which creates liability for a director for
unlawful payment of dividends and unlawful stock purchases or redemptions; or
(iv) for any transaction from which the director derives an improper personal
benefit.
The Sealed Air Charter provides that a director will not be
liable to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, to the full extent permitted by law.
Interested Director or Officer Transactions. The New Sealed Air
Charter and the Sealed Air Charter provide that a director or officer of the
corporation may not be disqualified, by virtue of being a director or officer,
from dealing or contracting with the corporation either as a vendor, purchaser
or otherwise on the basis that the director or officer or any firm of which that
director or officer is a member, or any corporation of which that director or
officer is a stockholder, officer or director, is in any way interested in such
transaction or contract, provided that such transaction or contract is or shall
be authorized, ratified or approved either by a vote of (i) a majority of a
quorum of the board of directors or of a committee thereof, without counting the
interested director in such majority (although the interested director may be
included in the quorum), or (ii) a majority of a quorum of the stockholders
entitled to vote at any meeting. The New Sealed Air Charter further provides
that no director or officer will be liable to the corporation for any profits
realized from any transaction or contract authorized, ratified or approved by
the board or stockholders solely because the director, or any firm of which the
director is a member, or any corporation of which he or she is a stockholder,
officer or director, was interested in such transaction or contract. Interested
transactions may also be ratified or approved in any other manner permitted by
law.
The Grace Charter has no similar provision, although interested
transactions are governed by Delaware Law. Delaware Law provides that
transactions will not be void or voidable solely due to the conflicting interest
of directors or officers, so long as the transactions are ratified or approved
by the board or stockholders, in the same manner as described in the preceding
paragraph. Delaware Law does not prevent corporations from enacting bylaws or
policies disqualifying an interested director or officer from transacting or
contracting with the company.
Stockholder Rights Plan. Unlike Grace, Sealed Air does not have,
and New Sealed Air does not currently intend to have, a stockholder rights plan.
Grace has entered into a Rights Agreement (the "Rights
Agreement") with The Chase Manhattan Bank, as rights agent. Pursuant to the
Rights Agreement, Grace has issued preferred share purchase rights (each, a
"Right") to Grace's stockholders. One Right trades together with each
outstanding share of Grace common stock, and entitles the registered holder,
among other things, to purchase hundredths of a share of Grace Series A Junior
Participating Preferred Stock (the "Junior Preferred Stock") from Grace at a
price per hundredth of a share equal to 50% of the then current market price for
Grace common stock if a person becomes an "Acquiring Person" (as defined in the
Rights Agreement) and certain other events occur. The dividend, liquidation and
voting rights of the Junior Preferred Stock are designed to give a hundredth of
a share of Junior Preferred Stock a value approximately equal to the value of
one share of Grace common stock. The Rights are redeemable by Grace in whole,
but not in part, at $0.01 per Right. The Rights expire in 2006.
It is a condition to the Merger that the Grace Board must take
such action as shall be required to render the Rights inapplicable to the
Reorganization and Merger, and to terminate or redeem the Rights at or prior to
the Effective Time.
Inspection of Books and Accounts. Under the New Sealed Air
Charter and the Sealed Air Charter, the board of directors or the bylaws may
determine the conditions under which stockholders may inspect the books and
accounts of the corporation. Under the Grace Charter, the Grace Board may
determine when, where and under what other conditions stockholders may inspect
the books and accounts of the corporation. Stockholders only have such rights of
inspection to the extent required by law, and additional rights may only be
provided through a charter amendment.
Stockholder Proposals. No notice procedures are designated in
the New Sealed Air Charter or Bylaws or the Sealed Air Charter or Bylaws for
stockholder proposals.
Under the Grace By-laws, stockholder proposals at annual meetings
may only be made by a stockholder of record at the time of the giving of the
notice for the meeting who is eligible to vote at the meeting and who follows
the notice procedures set forth in the Grace By-laws. The notice procedures
require the stockholder to notify the Secretary of Grace in writing of his or
her nominations for directors or other business to be brought before the annual
meeting. The stockholder notice to the Secretary must be delivered between 60
and 90 days before the anniversary of the prior year's annual meeting, unless
the annual meeting will be held more than 30 days before or 60 days after the
date of the prior year's annual meeting, in which case the notice must be
delivered between 60 and 90 days before the date of the annual meeting, or by
the 10th day following public announcement of the date of the annual meeting.
Such stockholder notice must set forth, as applicable, information concerning
the persons to be nominated as directors, a description of the business to be
brought before the annual meeting, the name and address of the stockholder or
beneficial owner giving the notice, and share ownership information. Under
similar notice procedures, stockholders may also nominate persons for election
to the board when elections are called for at special meetings of the
stockholders.
Special Meetings of Stockholders. Under the New Sealed Air Bylaws
and the Sealed Air Bylaws, special meetings of the stockholders may be called by
the Chairman of the Board, by the Chief Executive Officer, by resolution of the
Board of Directors, or by the request in writing of stockholders owning a
majority of the entire capital stock issued and outstanding and entitled to
vote.
Under the Grace By-laws, special meetings of stockholders may
only be called by the Chairman of the Board of Directors, the President or the
Board of Directors pursuant to a resolution adopted by a majority of the entire
board of directors, counting vacancies towards the total number of directors
required for a majority.
Stockholder Action by Written Consent. The New Sealed Air Charter
and the Sealed Air Charter permit stockholders to act by written consent on any
corporate action on which a vote of stockholders at a stockholder meeting is
required or permitted. The written consent for such action must be signed by
holders of at least a majority of the stock that would have been entitled to
vote upon such corporate action if a meeting were held, or higher minimum
percentage approval, if required by the New Sealed Air Charter or by statute for
the proposed corporate action. All stockholders must be given prompt notice of
any corporate action taken that was authorized without a meeting and by less
than unanimous written consent.
Under the Grace Charter, stockholder action may not be taken by
written consent.
Amendment of Corporate Charter and Bylaws. Any amendment to the
New Sealed Air Charter and the Sealed Air Charter requires approval by a
majority of the board and the holders of at least a majority of the voting power
of the issued and outstanding stock entitled to vote thereon. Any amendment of
the New Sealed Air Bylaws or the Sealed Air Bylaws will require either the
approval by the majority of the entire board of directors or the approval of a
majority of all the stock issued and outstanding and entitled to vote thereon.
The board of directors may amend any bylaw adopted by the stockholders, but the
stockholders may specify that certain provisions of the bylaws may not be
amended by the board of directors. The New Sealed Air Charter and Sealed Air
Charter do not require that any charter amendment be approved by more than a
majority of the voting power of the issued and outstanding stock entitled to
vote.
Generally, any amendment of the Grace Charter requires approval
by a majority of the entire board of directors, counting vacancies toward the
total number of directors required for a majority, and the holders of a majority
of the voting power of the issued and outstanding stock entitled to vote
thereon. Any amendment of the Grace By-laws requires either the approval of the
majority of a quorum of the board of directors, a quorum being a majority of the
entire board of directors, counting vacancies toward the total number of
directors, or the approval of 80% of the voting power of the issued and
outstanding stock entitled to vote thereon ("Supermajority Approval"). The Grace
Charter requires Supermajority Approval for three types of amendments to the
charter: (i) those amending, repealing or adopting provisions inconsistent with
the charter provision requiring Supermajority Approval for stockholder amendment
to the bylaws, (ii) those amending, repealing or adopting provisions
inconsistent with the charter provision prohibiting stockholder action by
written consent; and (iii) those amending, repealing or adopting provisions
inconsistent with Article VIII of the Grace Charter. Article VIII provides that
(a) the number of directors may be changed from time to time and in the manner
prescribed in the Grace By-laws; (b) the election of directors need not be by
written ballot unless the Grace By-laws so require; (c) the board must be
classified into three classes, with each class holding a staggered three-year
term; and (d) any director may be removed from office at any time by the
stockholders, but only for cause.
Compromise or Arrangement Between Corporation and Creditors or
Stockholders. The New Sealed Air Charter and the Sealed Air Charter incorporate
the provisions described in Section 102(b)(2) of the Delaware Law, which
provides for compromises or arrangements between the corporation and its
creditors or stockholders. Section 102(b)(2) states that whenever a compromise
or arrangement is proposed between the corporation and its creditors or any
class of them and/or between the corporation and its stockholders or any class
of them, any court of equitable jurisdiction within the State of Delaware may,
on the application in a summary way of the corporation or any of its creditors
or stockholders or on the application of any receiver or receivers appointed for
the corporation under the provisions of Section 291 of Title 8 of the Delaware
Code or on the application of trustees in dissolution or of any receiver or
receivers appointed for the corporation under the provisions of Section 279 of
Title 8 of the Delaware Code, order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of the
corporation, as the case may be, to be summoned in such manner as the court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of the corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the corporation as a consequence of
such compromise or arrangement, the compromise or arrangement and the
reorganization shall, if sanctioned by the court to which the application has
been made, be binding on all the creditors or class of creditors, and/or on all
the stockholders or class of stockholders, of the corporation, as the case may
be, and also on the corporation.
The Grace Charter does not incorporate Section 102(b)(2) of the
Delaware Law.
Certain Rights Under the New Sealed Air Charter if the Grace
Special Charter Proposal is Not Approved. If the Grace Special Charter Proposal
is not approved, the Supermajority Provisions will not be repealed. In this
case, the stockholder rights under the New Sealed Air Charter would differ from
the rights described above in the following respects:
(1) Instead of having annual terms, the directors of New Sealed
Air would be divided into three classes, with each class
having a staggered three-year term.
(2) Stockholder action by written consent would not be permitted.
(3) Stockholder amendments to the New Sealed Air Bylaws would
require Supermajority Approval.
(4) Supermajority Approval would be required to amend, repeal or
adopt any charter provisions inconsistent with the charter
provisions providing for (1), (2) and (3) above.
LEGAL MATTERS
The validity of the New Sealed Air common stock and convertible
preferred stock to be issued to Sealed Air's stockholders and Grace's
stockholders in the Recapitalization and Merger will be passed upon by Wachtell,
Lipton, Rosen & Katz, special counsel to Grace, located at 51 West 52nd Street,
New York, New York 10019. It is a condition to the consummation of the Merger
that Sealed Air receive an opinion from Davis Polk & Wardwell, located at 450
Lexington Avenue, New York, New York 10017, with respect to the tax treatment of
the Merger and that Grace receive an opinion from Wachtell, Lipton, Rosen & Katz
with respect to the tax treatment of the Reorganization. See "The Reorganization
and Merger--Certain United States Federal Income Tax Consequences" and "The
Distribution and Merger Agreements--Conditions to the Reorganization and Merger"
on pages 34 and 74, respectively.
EXPERTS
The Grace Packaging special-purpose combined financial statements
included in this Joint Proxy Statement/Prospectus have been audited by Price
Waterhouse LLP, independent certified public accountants, as set forth in their
report thereon (which includes explanatory paragraphs describing the purpose of
presenting the Grace Packaging special-purpose combined financial statements),
which is included herein. The consolidated financial statements and financial
statement schedule of Grace and its subsidiaries incorporated in this Joint
Proxy Statement/ Prospectus by reference to the Grace 10-K have also been
audited by Price Waterhouse LLP, independent certified public accountants, as
set forth in their report thereon, which is incorporated herein by reference.
The Grace Packaging special-purpose combined financial statements and the
consolidated financial statements and financial statement schedule of Grace and
its subsidiaries are included or incorporated herein by reference in reliance
upon such reports, given upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements and financial statement
schedule of Sealed Air and its subsidiaries as of December 31, 1996 and 1995,
and for each of the years in the three-year period ended December 31, 1996,
incorporated in this Joint Proxy Statement/Prospectus by reference to the Sealed
Air 10-K, have been incorporated by reference herein in reliance upon the
reports of KPMG Peat Marwick LLP, independent certified public accountants, and
upon the authority of such firm as experts in accounting and auditing.
FUTURE STOCKHOLDER PROPOSALS
If the Merger is consummated, New Sealed Air expects to hold an
annual meeting of stockholders in the second or third quarter of 1998.
Stockholder proposals intended to be included in New Sealed Air's proxy
materials for the 1998 annual meeting of stockholders must be received by New
Sealed Air a reasonable time before the solicitation of proxies for the meeting
is made. If the merger is not consummated, Sealed Air expects to hold an annual
meeting of stockholders in the second quarter of 1998. Any Sealed Air
stockholder who intended to submit a proposal for inclusion in the proxy
materials for the 1998 annual meeting of Sealed Air was required to submit such
proposal to the Secretary of Sealed Air by November 26, 1997.
Due to the contemplated consummation of the Merger, neither Grace
(as it currently exists) nor New Grace intends to hold a 1998 annual meeting of
stockholders. New Grace's 1999 annual meeting of stockholders is expected to be
held in May 1999. Any New Grace stockholder who intends to submit a proposal for
inclusion in the proxy materials for the 1999 annual meeting must submit such
proposal to the Secretary of New Grace by December 8, 1998.
SEC rules set forth standards as to what stockholder proposals
are required to be included in a proxy statement for an annual meeting.
WHERE YOU CAN FIND MORE INFORMATION
Sealed Air and Grace 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 we file 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.
Our 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".
Grace has filed the New Sealed Air Registration Statement on Form
S-4 with the SEC to register the New Sealed Air common and convertible preferred
stock to be issued in the Merger and Recapitalization. This Joint Proxy
Statement/Prospectus is a part of the New Sealed Air Registration Statement and
constitutes a prospectus of Grace/New Sealed Air in addition to being a proxy
statement of Grace and Sealed Air for the Special Meetings. In addition, Grace
has filed the New Grace Registration Statement on Form 10 with the SEC to
register the New Grace common stock to be distributed to Grace's stockholders in
the Spin-off. The New Grace Information Statement is a part of the New Grace
Registration Statement. The New Grace Information Statement is being furnished
to Grace stockholders as supplemental proxy material.
As allowed by SEC rules, this Joint Proxy Statement/Prospectus
does not contain all the information you can find in the New Sealed Air
Registration Statement or the exhibits to the New Sealed Air Registration
Statement. Similarly, the New Grace Information Statement does not contain all
the information that stockholders can find in the New Grace Registration
Statement or the exhibits to the New Grace Registration Statement.
The SEC allows us to "incorporate by reference" information into
this Joint Proxy Statement/Prospectus, which means that we can disclose
important information to you by referring you to another document filed
separately with the SEC. The information incorporated by reference is deemed to
be part of this Joint Proxy Statement/Prospectus, except for any information
superseded by information in this Joint Proxy Statement/Prospectus. This Joint
Proxy Statement/Prospectus incorporates by reference the documents set forth
below that have previously been filed with the SEC. These documents contain
important information about our companies and their finances.
Sealed Air SEC Filings
(File No. 1-7834) Period
- --------------------------------- -------------------------------------------
Annual Report on Form 10-K Year ended December 31, 1996 (amended by
Form 10-K/A filed on March 26, 1997)
Quarterly Reports on Form 10-Q Quarters ended March 31, 1997, June 30,
1997, and September 30, 1997
Current Report on Form 8-K Filed on August 18, 1997 (amended by Form
8-K/A filed on August 21, 1997)
Description of convertible Filed on August 21, 1997
preferred stock as set forth in
Form 8-K/A
Description of Sealed Air Filed on May 1, 1979
common stock as set forth in
Registration Statement on
Form 8-A
Proxy Statement on Schedule 14A Filed on March 26, 1997
for 1997 Annual Meeting
Grace SEC Filings
(File No. 1-12139) Period
- --------------------------------- --------------------------------------------
Annual Report on Form 10-K Year ended December 31, 1996
Quarterly Reports on
Form 10-Q Quarters ended March 31, 1997, June 30,
1997, and September 30, 1997
Current Reports on Form 8-K Filed on January 8, 1997, February 14, 1997,
March 4, 1997, March 12, 1997, May 1, 1997,
August 5, 1997, August 18, 1997 (amended by
Form 8-K/A filed on August 21, 1997),
October 17, 1997, November 4, 1997 and
February 9, 1998.
Description of Grace common Filed on August 2, 1996
stock as set forth in
Registration Statement on
Form S-1 (Registration
No. 333-09495)
Proxy Statement on Schedule Filed on April 7, 1997
14A for 1997 Annual Meeting
We are also incorporating by reference additional documents that
we file with the SEC between the date of this Joint Proxy Statement/Prospectus
and the dates of the Special Meetings.
Sealed Air has supplied all information contained or
incorporated by reference in this Joint Proxy Statement/
Prospectus relating to Sealed Air, and Grace has supplied all such information
relating to Grace and Grace Packaging.
If you are a stockholder, we may have sent you some of the
documents that are incorporated by reference, but you can obtain any of them
through us or the SEC. Documents incorporated by reference are available from us
without charge, excluding all exhibits unless we have specifically incorporated
by reference an exhibit in this Joint Proxy Statement/Prospectus. Stockholders
may obtain documents that we referred to or that we incorporated by reference in
this Joint Proxy Statement/Prospectus by requesting them in writing or by
telephone from the appropriate party at the following address:
Sealed Air Corporation W. R. Grace & Co.
Park 80 East One Town Center Road
Saddle Brook, New Jersey 07663 Boca Raton, Florida 33486
Tel: (800) 350-9512 Tel: (800) 354-8917
If you would like to request documents from us, please do so by
March 13, 1998 to receive them before the Special Meetings.
You should rely only on the information contained or incorporated
by reference in this Joint Proxy Statement/Prospectus to vote on the Sealed Air
Merger Proposal and the Grace Proposals. We have not authorized anyone to
provide you with information that is different from what is contained in this
Joint Proxy Statement/Prospectus. This Joint Proxy Statement/Prospectus is dated
February 13, 1998. You should not assume that the information contained in this
Joint Proxy Statement/Prospectus is accurate as of any date other than such
date, and neither the mailing of this Joint Proxy Statement/Prospectus to
stockholders nor the issuance of New Sealed Air common and convertible preferred
stock in the Recapitalization and Merger shall create any implication to the
contrary.
LIST OF DEFINED TERMS
Term Page
Acquiring Person.................96
Acquisition Proposal.............73
Antitrust Division...............36
Base Case........................42
Base Rate........................80
Bemis............................47
Borrowers........................80
Cash Transfer....................26
Code.............................34
Common Consideration.............70
Comparable Companies.............47
Conservative Case................42
Credit Suisse First Boston.......28
DCF..............................42
Delaware Law.....................36
Distribution Agreement...........26
Distribution Date................69
DLJ Opinion......................28
DLJ..............................28
EBITDA...........................41
Effective Time...................27
Engelhard........................48
EPS..............................42
Equitable Companies..............87
Expected Efficiencies............45
Fidelity.........................88
Financial Advisors Engagement
Letters........................49
FMR..............................88
FTC..............................36
Grace 10-K......................100
Grace By-laws....................95
Grace Financial Advisors.........39
Grace Merger Proposal............84
Grace New York...................21
Grace Packaging...................1
Grace Proposals..................84
Grace Record Date................84
Grace Share Price................71
Grace Special Charter Proposal...84
Higher Offer.....................73
HSR Act..........................36
IBES.............................47
Index Companies..................48
Intellectual Property Licenses...79
IRS..............................23
Janus............................88
Junior Preferred Stock...........96
Junior Securities................91
Letter of Credit.................69
LIBOR............................80
Liquidation Value................92
London Interbank Offered Rate....80
Long-Term Facility...............80
Merger Agreement.................26
Merger...........................26
Merrill Lynch....................28
Net Increase in Sealed Air
Shares........................70
Net Option Number................70
New Credit Agreements............80
New Grace Registration
Statement.....................73
New Sealed Air Bylaws............90
New Sealed Air Charter...........37
New Sealed Air Ratio.............71
New Sealed Air Registration
Statement.....................73
Option Shares....................70
Other Agreements.................79
Outstanding Grace Shares.........70
P/E Multiples....................47
Parity Securities................91
Preferred Consideration..........70
Public Debt......................69
Recapitalization.................26
Record Date......................70
Reorganization...................27
Rights Agreement.................96
Right............................96
Sealed Air 10-K..................52
Sealed Air Bylaws................95
Sealed Air Charter...............37
Sealed Air Merger Proposal.......83
Sealed Air Record Date...........84
Securities Act...................24
SEC..............................23
Senior Securities................92
Shared Facilities
Agreements....................79
Shared Facilities................79
Short-Term Facility..............80
Specialty Chemical
Comparable Companies..........40
Specialty Packaging
Comparable Companies..........40
Spin-off.........................26
Supermajority Approval...........98
Supermajority Provisions.........36
Synergies........................40
Tax Sharing Agreement............78
Transaction Agreements...........26
Transaction Fee..................49
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Page
W. R. GRACE & CO. -- GRACE PACKAGING ----
Special-Purpose Combined Financial Statements
Special-Purpose Report of Independent Certified Public Accountants................................... F-2
Special-Purpose Combined Statement of Earnings for the years ended December 31, 1996, 1995
and 1994........................................................................................ F-3
Special-Purpose Combined Balance Sheet at December 31, 1996 and 1995................................. F-4
Special-Purpose Combined Statement of Cash Flows for the years ended December 31, 1996,
1995 and 1994................................................................................... F-5
Notes to Special-Purpose Combined Financial Statements............................................... F-6
Unaudited Special-Purpose Combined Interim Financial Statements
Special-Purpose Combined Interim Statement of Earnings for the nine months ended September
30, 1997 and 1996............................................................................... F-23
Special-Purpose Combined Interim Balance Sheet at September 30, 1997................................. F-24
Special-Purpose Combined Interim Statement of Cash Flows for the nine months ended
September 30, 1997 and 1996..................................................................... F-25
Notes to Special-Purpose Combined Interim Financial Statements....................................... F-26
Special-Purpose Report of Independent Certified Public Accountants
November 3, 1997
To the Board of Directors and Shareholders of
W. R. Grace & Co.
We have audited the accompanying special-purpose combined balance
sheet of W. R. Grace & Co. and its packaging business, excluding the Darex
Container Products business (the "Company"), as of December 31, 1996 and 1995,
and the related special-purpose combined statements of earnings and cash flows
for each of the three years in the period ended December 31, 1996. These
special-purpose combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
special-purpose combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the special-purpose combined
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. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that
our audits provide a reasonable basis for our opinion.
The accompanying special-purpose combined financial statements
were prepared on the basis of presentation described in Note 1, and are not
intended to be a complete presentation of the consolidated assets,
liabilities, revenues and expenses of W. R. Grace & Co.
As disclosed in Note 14 to the accompanying special-purpose
combined financial statements, the packaging business has engaged in various
transactions and relationships with affiliated entities. The terms of these
transactions may differ from those that would result from transactions among
unrelated parties.
In our opinion, the accompanying special-purpose combined
financial statements audited by us present fairly, in all material respects, the
financial position of the Company as of December 31, 1996 and 1995, and its
earnings and cash flows for each of the three years in the period ended December
31, 1996 pursuant to the basis of presentation described in Note 1, in
conformity with generally accepted accounting principles.
Price Waterhouse LLP
Ft. Lauderdale, Florida
W. R. Grace & Co.
Grace Packaging
SPECIAL-PURPOSE COMBINED STATEMENT OF EARNINGS
(Dollars in thousands)
1996 1995 1994
------------ ------------ ------------
Net sales................................................... $1,741,602 $1,705,642 $1,428,459
Cost of sales............................................... 1,151,006 1,078,100 883,146
------------ ------------ ------------
Gross profit.......................................... 590,596 627,542 545,313
Marketing, administrative and development expenses.......... 342,149 361,735 301,943
Restructuring costs and asset impairments................... 74,947 17,745 6,021
------------ ------------ ------------
Operating profit...................................... 173,500 248,062 237,349
Other expenses, net......................................... 3,678 12,589 9,597
------------ ------------ ------------
Earnings before income taxes................................ 169,822 235,473 227,752
Income taxes................................................ 69,992 94,581 88,241
------------ ------------ ------------
Net earnings.......................................... $99,830 $140,892 $139,511
============ ============ ============
See accompanying Notes to Special-Purpose Combined Financial Statements.
W. R. Grace & Co.
Grace Packaging
SPECIAL-PURPOSE COMBINED BALANCE SHEET
(Dollars in thousands)
December 31,
-----------------------------
1996 1995
------------ ------------
Assets
Current Assets
Cash and cash equivalents..................................................... $ -- $ --
Notes and accounts receivable, net of allowances for doubtful accounts of
$5,734 in 1996 and $4,259 in 1995........................................ 262,392 223,577
Inventories................................................................... 219,311 253,211
Deferred income taxes......................................................... 22,409 17,204
Other current assets.......................................................... 10,981 10,859
------------ ------------
Total Current Assets..................................................... 515,093 504,851
Properties and equipment, net................................................. 1,121,762 918,968
Goodwill, less accumulated amortization of $88 in 1996 and $1,596 in 1995..... 8,650 6,732
Deferred income taxes......................................................... 956 473
Other assets.................................................................. 56,427 46,336
------------ ------------
Total Assets............................................................. $1,702,888 $1,477,360
============ ============
Liabilities and Equity
Current Liabilities
Accounts payable.............................................................. $130,855 $140,652
Other current liabilities..................................................... 106,655 74,594
------------ ------------
Total Current Liabilities................................................ 237,510 215,246
Other liabilities................................................................... 83,588 88,152
------------ ------------
Total Liabilities........................................................ 321,098 303,398
------------ ------------
Commitments and contingencies (Notes 7 and 15)
Equity
Equity........................................................................ 1,428,925 1,227,613
Cumulative translation adjustments............................................ (47,135) (47,265)
Adjustment for minimum pension liability (inclusive of tax benefit)........... -- (6,386)
------------ ------------
Total Equity............................................................. 1,381,790 1,173,962
------------ ------------
Total Liabilities and Equity........................................ $1,702,888 $1,477,360
============ ============
See accompanying Notes to Special-Purpose Combined Financial Statements.
W. R. Grace & Co.
Grace Packaging
SPECIAL-PURPOSE COMBINED STATEMENT OF CASH FLOWS
(Dollars in thousands)
1996 1995 1994
---------- ---------- ----------
Cash Flows from Operating Activities:
Net earnings............................................................. $ 99,830 $ 140,892 $ 139,511
Adjustments to reconcile net earnings to cash provided by operating activities:
Depreciation and amortization of property and equipment............ 90,914 75,578 58,165
Other depreciation and amortization................................ 3,466 4,779 3,759
Restructuring...................................................... 47,947 11,145 6,021
Asset impairment................................................... 27,000 6,600 --
Deferred tax provisions............................................ (9,754) (8,838) 1,520
Net (gain)/loss on disposals of property and equipment............. (929) 2,071 2,056
Changes in operating assets and liabilities, net of assets and
liabilities acquired
Notes and accounts receivable................................. (36,758) (25,506) (59,574)
Inventories................................................... 38,784 (43,516) (21,712)
Other current assets.......................................... 507 3,784 (2,775)
Other assets.................................................. (22,754) (14,765) (6,280)
Accounts payable.............................................. (18,761) (7,892) 41,065
Other accrued liabilities..................................... (16,550) 1,301 18,020
Other liabilities............................................. 4,659 11,046 (690)
---------- ---------- ----------
Net cash provided by operating activities................ 207,601 156,679 179,086
---------- ---------- ----------
Cash Flows from Investing Activities:
Capital expenditures for property and equipment.......................... (294,503) (293,272) (185,940)
Proceeds from sales of property and equipment............................ 1,457 246 680
Businesses acquired in purchase transactions, net of cash acquired
and debt assumed................................................... (16,037) -- (7,090)
---------- ---------- ----------
Net cash used in investing activities......................... (309,083) (293,026) (192,350)
---------- ---------- ----------
Cash Flows from Financing Activities:
Principal payments on long-term debt..................................... -- -- (28,811)
Net advances from W. R. Grace & Co.-Conn................................. 101,482 136,347 42,075
---------- ---------- ----------
Net cash provided by financing activities..................... 101,482 136,347 13,264
---------- ---------- ----------
Effect of exchange rate changes on cash and cash equivalents............. -- -- --
Cash and Cash Equivalents:
Net change during the period............................................. -- -- --
Balance, beginning of period............................................. ---------- ---------- ----------
Balance, end of period................................................... $ -- $ -- $ --
========== ========== ==========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for income taxes............................... $ 79,746 $ 103,419 $ 86,721
========== ========== ==========
Debt assumed on acquisition of business $ -- $ -- $ 28,811
========== ========== ==========
See accompanying Notes to Special-Purpose Combined Financial Statements.
W. R. GRACE & CO. Grace Packaging
NOTES TO SPECIAL-PURPOSE COMBINED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
Note 1. Basis of Presentation
General. W. R. Grace & Co. ("WRG"), through its subsidiaries,
is a leading manufacturer of packaging and specialty chemicals. The assets and
liabilities of WRG's packaging and specialty chemicals businesses are currently
owned by W. R. Grace & Co.-Conn. ("Grace Specialty Chemicals"), a direct
wholly owned subsidiary of WRG, and its subsidiaries.
In August 1997, WRG and Sealed Air Corporation ("Sealed Air")
entered into a definitive agreement ("Merger Agreement," and, together with
related agreements, "Transaction Agreements") to combine WRG's packaging
business, excluding the Darex Container Products business, with the business of
Sealed Air. Under the Transaction Agreements, WRG will separate its packaging
business and its specialty chemicals businesses into two separate groups of
subsidiaries (the "Separation"); WRG will contribute the stock of Grace
Specialty Chemicals to another wholly owned subsidiary, which will be renamed
"W. R. Grace & Co." ("New Grace"), and will spin off New Grace to WRG's
shareholders (the "Spin-off"); WRG (which, after the Spin-off, will own only
WRG's packaging business) will be recapitalized (the "Recapitalization"); and a
subsidiary of WRG will merge with Sealed Air (the "Merger"). The Separation,
Spin-off and Recapitalization are collectively referred to as the
"Reorganization". Upon consummation of the Reorganization and Merger, WRG will
be renamed "Sealed Air Corporation" ("New Sealed Air").
The special-purpose combined financial statements of WRG and its
packaging business, excluding the Darex Container Products business ("Grace
Packaging," and, together with WRG, the "Company"), have been prepared pursuant
to Section 6.7(a) of the Merger Agreement, and exclude all the assets,
liabilities (including contingent liabilities), revenues and expenses of WRG
other than the assets, liabilities, revenues and expenses of Grace Packaging. As
used herein, "Grace" refers to the consolidated businesses of W. R. Grace & Co.
prior to the consummation of the Reorganization.
Grace Packaging is Grace's largest product line and includes the
following trademarked products: Cryovac([Registered]) flexible packaging
systems, Formpac[Trademark] rigid foam trays, and Omicron[Trademark] rigid
plastic cups and tubs. Grace Packaging is primarily engaged in producing
flexible packaging materials used in food processing and industrial and consumer
products, as well as packaging equipment.
Basis of Combination. The special-purpose combined financial
statements have been prepared using Grace's historical basis of accounting and
include the assets, liabilities, revenues, expenses and related taxes on income
of Grace Packaging previously included in the consolidated financial statements
of Grace, and, as such, include certain assets and liabilities of Grace
Packaging that will be retained by New Grace following the Reorganization, as
contemplated by the Transaction Agreements. Additionally, in accordance with
Securities and Exchange Commission Staff Accounting Bulletin No. 55 ("SAB 55"),
the special-purpose combined financial statements have been adjusted to include
certain expenses incurred by Grace on behalf of Grace Packaging. See Note 14 for
a discussion of these corporate allocations.
The special-purpose combined financial statements do not include
an allocation of Grace's debt and related interest expense (except for interest
capitalized as a component of properties and equipment). Therefore, the
special-purpose combined financial statements may not necessarily reflect the
financial position and results of operations that would have occurred had Grace
Packaging been a stand-alone entity on the dates, and for the periods,
indicated. All transactions between and among Grace Packaging entities have been
eliminated.
The special-purpose combined financial statements also exclude
dividends paid by Grace to its shareholders, as the obligation to pay such
dividends was incurred by Grace and not by Grace Packaging on a stand-alone
basis. See Note 12 for a discussion of equity.
Note 2. Summary of Significant Accounting Policies
Use of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions affecting the reported amounts of assets and
liabilities (including contingent assets and liabilities) at the dates of the
special-purpose combined financial statements and the reported revenues and
expenses during the periods presented. Actual amounts could differ from those
estimates.
Financial Instruments. Gains and losses on contracts that hedge
firmly committed foreign currency transactions are deferred and recorded in
income or as adjustments of carrying amounts in the period in which the related
transactions are consummated.
Inventories. Inventories are stated at the lower of cost or
market. The costs of most U.S. inventories are determined on a last-in,
first-out ("LIFO") basis, while the costs of other inventories are determined
on a first-in, first-out ("FIFO") basis.
Properties and Equipment. Properties and equipment are stated at
cost, except for properties and equipment that have been impaired, for which the
carrying amount is reduced to estimated fair value. Significant improvements are
capitalized; repairs and maintenance costs that do not extend the lives of the
assets are charged to expense as incurred. The cost and accumulated depreciation
of assets sold or otherwise disposed of are removed from the accounts, and any
resulting gain or loss is included in income when the assets are disposed of.
The cost of properties and equipment is depreciated over
estimated useful lives on a straight-line basis as follows: buildings - 20 to 40
years, and machinery and other property and equipment - three to 20 years.
Goodwill and Other Intangible Assets. Goodwill arises from
certain purchase transactions and is amortized on a straight-line basis,
generally over 40 years; other intangible assets are amortized over their
estimated lives on a straight-line basis.
Impairment of Long-Lived Assets. In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company
reviews the carrying value of its assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of assets may not be
fully recoverable. The Company considers various valuation factors, including
discounted cash flows, fair values and replacement costs, to assess any
impairment of goodwill and other long-lived assets.
Stock-Based Compensation. The Company adopted Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("SFAS No. 123"), in 1996. 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 stock compensation expense with respect to its
stock-based incentive plans, because it is the Company's practice to grant
options at an exercise price that is equal to the market value of the
Company's stock on the grant date.
Foreign Currency Translation. The Company follows the provisions
of Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation" ("SFAS No. 52"). In locations that are not considered highly
inflationary under SFAS No. 52, the local currency is considered to be the
functional currency. As a result, the balance sheets of the Company's foreign
operations are translated at the current exchange rate and statements of
earnings are translated at the average exchange rate during the applicable
period (except where a country has a highly inflationary economy). Assets and
liabilities of the Company's operations in countries with highly inflationary
economies are translated at the current exchange rate, except that properties
and equipment and inventories are translated at historical exchange rates. Items
included in statements of earnings of the Company's operations in countries with
highly inflationary economies are translated at average rates of exchange
prevailing during the period, except that depreciation and costs of sales are
translated at historical rates.
Income Taxes. The Company's U.S. operations are included in
Grace's U.S. federal and state income tax returns. Grace's consolidated
income tax provision has generally been allocated to the Company as if the
Company filed separate income tax returns. The allocated current provision is
settled with Grace on a current basis. No liability for potential future
income tax assessments relating to prior years is included in the
special-purpose combined financial statements.
Deferred tax assets and liabilities are recognized with respect
to the future tax consequences attributable to differences between the financial
statement amounts for existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. A valuation allowance is
provided when it is more likely than not that all or some portion of a deferred
tax asset will not be realized. Deferred tax liabilities or assets at the end of
each period are determined using the tax rates then in effect.
Research and Development. Research and development costs are
expensed as incurred and amounted to $42,255, $36,926 and $33,727 in 1996, 1995
and 1994, respectively, including corporate allocations. See Note 14 for further
information.
Other Expenses, Net. Other expenses, net consists primarily of
losses on the sale of receivables (see Note 5), realized foreign exchange gains
and losses, gains and losses on the disposal of fixed assets and equity interest
in the gains and losses of affiliated companies.
Earnings per Share. For the periods presented, the Company was a
business unit of Grace and did not have a separate identifiable capital
structure upon which a calculation of earnings per share could be based.
Historical earnings per share of Grace Packaging calculated on an equivalent
share basis (i.e., using the weighted average number of shares of WRG common
stock outstanding) were $1.09, $1.47 and $1.49 for the years ended December 31,
1996, 1995 and 1994, respectively. The equivalent earnings per share of Grace
Packaging are not necessarily indicative of the results that would have occurred
had Grace Packaging been a stand-alone entity for the periods presented.
The weighted average number of common shares used to compute
equivalent earnings per share amounts were 92.0 million for 1996, 95.8 million
for 1995 and 93.9 million for 1994.
Note 3. Acquisitions
In 1996, the Company acquired Cypress Packaging, Inc., a U.S.
manufacturer of flexible packaging primarily for the retail pre-cut produce
market segment, for net cash consideration of $16,838. In 1994, the Company
acquired Schur Multiflex, a manufacturer of laminated packaging products, for
$32,687 (including assumed debt). These transactions have been accounted for as
purchases and resulted in goodwill of $8,738 in 1996 and $7,103 in 1994.
Note 4. Other Balance Sheet Items
The Company's other balance sheet items consist of the following:
December 31,
--------------------
1996 1995
-------- --------
Inventories (at FIFO, which approximates current cost):
Raw materials.................................... $40,853 $48,996
Work in process.................................. 54,781 59,155
Finished goods................................... 140,908 162,804
-------- --------
236,542 270,955
Reduction of certain inventories to LIFO basis......... (17,231) (17,744)
-------- --------
Total............................................ $219,311 $253,211
======== ========
Inventories accounted for on a LIFO basis represented
approximately 27% and 22% of total inventories at December 31, 1996 and 1995,
respectively. The liquidation of prior years' LIFO inventory layers in 1996 did
not materially affect the Company's results of operations.
Other Assets:
Leased equipment, net........................... $30,905 $11,384
Long-term lease receivables..................... 11,086 14,075
Investment in joint ventures and affiliates..... 4,784 5,184
Intangible assets, net.......................... 5,343 8,837
Other........................................... 4,309 6,856
-------- --------
Total....................................... $56,427 $46,336
Leased equipment consists of equipment held for lease or
equipment at customer locations under no-charge operating lease arrangements.
Leased equipment is recorded at cost less accumulated amortization. Amortization
is calculated over a term relevant to the agreement, generally from three to 10
years.
The Company recorded $4,832 and $5,124 of current lease
receivables, and $11,086 and $14,075 in long-term lease receivables, related to
sales-type lease arrangements at December 31, 1996 and 1995, respectively.
Intangibles consist mainly of patents and licenses and
non-compete agreements. Intangibles are amortized over the useful life or the
shorter of the term of the related agreement or four years.
Total amortization expense related to leased equipment and
intangible assets was $3,466, $4,779 and $3,759 during the years ended December
31, 1996, 1995 and 1994, respectively.
December 31,
-----------------------
1996 1995
---------- ---------
Other Current Liabilities:
Accrued restructuring costs............. $38,921 $12,980
Accrued incentive compensation and
other employee benefits................ 25,993 25,486
Accrued salaries, wages and
related taxes.......................... 16,094 11,281
Accrued operating expenses.............. 11,937 11,675
Other................................... 13,710 13,172
---------- ---------
Total.............................. $106,655 $74,594
========== =========
Other Liabilities:
Other postretirement benefits........... $59,600 $59,400
Long-term incentive program............. 7,100 8,100
Pensions................................ 4,200 10,700
Statutory social security............... 3,577 3,688
Deferred income......................... 1,636 2,076
Other................................... 7,475 4,188
---------- ---------
Total.............................. $83,588 $88,152
========== =========
Unfunded statutory social security obligations represent the
present value of the Company's future social security obligations for certain
eligible, active employees in France based on actuarial calculations.
See Notes 8, 10 and 11 for information concerning restructuring,
pension and other postretirement benefit obligations, respectively.
Note 5. Sale of Accounts Receivable
During 1995, Grace entered into agreements to sell up to $120,000
of interests in designated pools of accounts receivable. At December 31, 1995,
$116,000 had been received pursuant to such sales, including $47,068 relating to
accounts receivable of Grace Packaging. The amounts sold have been reflected as
reductions to accounts receivable. Under the terms of the agreements, new
interests in accounts receivable were sold as collections reduced previously
sold accounts. The losses related to such sales were expensed as incurred. These
agreements were terminated as to Grace Packaging during September 1996 with no
gain or loss incurred on termination.
Note 6. Income Taxes
The components of earnings before income taxes were as follows:
1996 1995 1994
---------- ---------- ----------
Domestic......... $101,012 $117,100 $139,538
Foreign.......... 68,810 118,373 88,214
---------- ---------- ----------
Total........ $169,822 $235,473 $227,752
========== ========== ==========
The components of the provision for income taxes were as follows:
1996 1995 1994
--------- --------- ---------
Current tax expense
Federal..................... $41,986 $46,550 $46,323
State and local............. 7,245 9,872 10,411
Foreign..................... 30,515 46,997 29,987
--------- --------- ---------
Total current.......... 79,746 103,419 86,721
--------- --------- ---------
Deferred tax (benefit)/expense
Federal..................... (8,891) (8,011) (216)
State and local............. (328) (826) 33
Foreign..................... (535) (1) 1,703
--------- --------- ---------
Total deferred......... (9,754) (8,838) 1,520
--------- --------- ---------
Total provision........ $69,992 $94,581 $88,241
========= ========= =========
Deferred tax assets/(liabilities) consist of the following:
December 31,
-----------------------
1996 1995
--------- ---------
Reserves not yet deductible for tax purposes..... $13,541 $5,190
Research and development expenses................ 24,306 20,724
Postretirement benefits other than pensions...... 20,860 20,790
Employee benefit items........................... 6,004 9,781
Capitalized inventory costs and inventory
reserves...................................... 4,367 5,768
Foreign net operating loss carryforwards
and investment tax allowances.................. 33,422 12,186
Other............................................ 6,826 5,748
--------- ---------
Gross deferred tax assets.................. 109,326 80,187
Valuation allowance.............................. (18,599) (190)
--------- ---------
Total deferred tax assets.................. 90,727 79,997
--------- ---------
Depreciation and amortization.................... (52,175) (46,656)
Capitalized interest............................. (14,384) (12,067)
Other............................................ (803) (3,597)
--------- ---------
Total deferred tax liabilities............. (67,362) (62,320)
--------- ---------
Net deferred tax assets.................... $23,365 $17,677
========= =========
The U. S. federal statutory corporate tax rate reconciles to
the Company's effective tax rate as follows:
1996 1995 1994
------- ------- -------
Statutory U.S. federal tax rate................ 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit. 2.4 2.3 3.0
U.S. and foreign taxes on foreign operations... 3.4 2.6 (1.1)
Other.......................................... 0.4 0.3 1.8
------- ------- -------
Effective tax rate............................. 41.2% 40.2% 38.7%
======= ======= =======
The Company has concluded that it is more likely than not that
the remaining balance of deferred tax assets of $90,727, after consideration of
the valuation allowance at December 31, 1996, will be realized based upon
anticipated future results. The valuation allowance of $18,599 at December 31,
1996 has been recorded due to the uncertainty of the realization of certain
foreign deferred tax assets, primarily relating to foreign investment tax
allowances that arose during 1996.
Provision has not been made for additional federal, state or
foreign taxes on undistributed earnings of foreign subsidiaries. It is
management's intent that these earnings will continue to be reinvested
indefinitely. The distribution of these earnings would result in additional
foreign withholding taxes 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 distribution.
At December 31, 1996, there were $39,205 of foreign net operating
loss carryforwards ($15,182 tax effected) and $60,800 of investment tax
allowances ($18,240 tax effected), the majority of which have no expiration
period. In accordance with the Transaction Agreements, New Grace will receive
cash from New Sealed Air equivalent to the tax benefit of such tax attributes as
realized.
Note 7. Properties and Equipment
December 31,
----------------------------
1996 1995
------------ -----------
Land and improvements....................... $14,940 $8,775
Buildings................................... 280,982 214,689
Machinery and equipment..................... 1,026,876 874,852
Other property and equipment................ 127,512 96,884
Construction in progress.................... 327,925 308,770
------------ -----------
1,778,235 1,503,970
Accumulated depreciation and amortization... (656,473) (585,002)
------------ -----------
Properties and equipment, net.......... $1,121,762 $918,968
============ ===========
Depreciation and amortization expense relating to properties and
equipment amounted to $90,914, $75,578 and $58,165 in 1996, 1995 and 1994,
respectively.
Interest cost capitalized during 1996, 1995 and 1994 was $17,650,
$15,071 and $8,455, respectively.
Leases. Future minimum payments for operating leases as of
December 31, 1996 are as follows:
1997.......................................... $11,460
1998.......................................... 9,534
1999.......................................... 8,233
2000.......................................... 6,610
2001.......................................... 4,069
2002 and beyond............................... 1,906
---------
Total minimum payments.................... $41,812
=========
Rental expense for operating leases was $12,036, $11,560 and
$9,435 in 1996, 1995 and 1994, respectively.
Note 8. Restructuring Costs and Asset Impairments
Restructuring Costs. The Company began implementing a worldwide
program in 1995 focused on streamlining processes and reducing general and
administrative expenses and factory administration costs. Under this program,
the Company has continued to implement additional cost reductions and efficiency
improvements, as it has further evaluated and reengineered its operations. In
connection with these programs, the Company recorded restructuring charges of
$47,947 in 1996 and $11,145 in 1995. These charges primarily related to
headcount reductions and the restructuring of the Company's European operations
(in areas such as working capital management, manufacturing and sales).
In 1994, the Company recorded restructuring charges of $6,021
related to the closing of certain facilities in connection with efforts to
reduce costs and implement efficiency improvements.
The components of the 1996, 1995 and 1994 restructuring charges,
spending and other activity during 1996, 1995 and 1994, and the remaining
reserve balances at December 31, 1996 were as follows:
Employee
Termination Plant/Office
Benefits Closures Other Costs Total
------------- ------------- ------------ --------
Restructuring provisions recorded in 1994........ $5,515 $506 $ -- $6,021
Cash payments during 1994........................ (2,678) -- -- (2,678)
------------- ------------- ------------ --------
Restructuring reserve at December 31,1994.. 2,837 506 -- 3,343
------------- ------------- ------------ --------
Restructuring provisions recorded in 1995........ 9,845 500 800 11,145
Cash payments during 1995........................ (1,008) -- (500) (1,508)
------------- ------------- ------------ --------
Restructuring reserve at December 31, 1995. 11,674 1,006 300 12,980
------------- ------------- ------------ --------
Restructuring provisions recorded in 1996........ 41,328 4,400 2,219 47,947
Cash payments during 1996........................ (19,971) (200) (1,835) (22,006)
------------- ------------- ------------ --------
Restructuring reserve at December 31,1996.. $33,031 $5,206 $684 $ 38,921
============= ============= ============ ========
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 400 positions
worldwide. Through December 31, 1996, approximately 250 positions had been
eliminated.
Subsequent to the Reorganization, certain restructuring
obligations (for which approximately $1,900 was accrued as of December 31, 1996)
will be retained by New Grace. As of the date of the Reorganization, the
Company's liability with respect to such restructuring obligations retained by
New Grace, including related deferred income taxes, will be reversed and
accounted for as an equity contribution from Grace.
Asset Impairments. During 1996 and 1995, the Company determined
that, due to certain market demand shifts and manufacturing capacity strategies,
certain long-lived assets and related goodwill were impaired. As a result, in
1996 and 1995 the Company recorded noncash pretax charges of approximately
$27,000 and $6,600, respectively. The components of the 1996 and 1995 charges
were as follows:
1996 1995
--------- --------
Goodwill and other intangible assets....... $11,100 $300
Properties and equipment................... 9,000 1,900
Long-term investments...................... 4,200 4,400
Other assets............................... 2,700 --
--------- --------
$27,000 $6,600
========= ========
Note 9. Long-Term Incentive Program
Certain Grace Packaging employees participate in Grace's
Long-Term Incentive Program ("LTIP"), which provides that employees can earn
performance units based upon the achievement of targeted earnings and
shareholder value creation goals over a three-year period. These performance
units are equivalent in value to a share of Grace common stock at the end of the
three-year period. Awards are paid to participants following the end of each
three-year period.
Provisions for the LTIP awards are made quarterly based upon
progress toward meeting the targets described above. LTIP expense included in
the special-purpose combined financial statements related to Grace Packaging
employees was $1,900, $7,000 and $1,000 for 1996, 1995 and 1994, respectively.
In accordance with SAB 55, the special-purpose combined financial
statements also reflect an allocation of LTIP expense related to Grace corporate
employees that performed services on behalf of Grace Packaging. See Note 14 for
a discussion of corporate allocations. The provision included in the
special-purpose combined financial statements for allocated LTIP expenses was
$9,293, $10,811 and $2,538 for 1996, 1995 and 1994, respectively.
Subsequent to the Reorganization, LTIP liabilities related to
Grace Packaging and Grace corporate employees (for which approximately $7,100
was accrued as of December 31, 1996) will be retained by New Grace. As of the
date of the Reorganization, the Company's liability with respect to LTIP
obligations retained by New Grace, including related deferred income taxes, will
be reversed and accounted for as an equity contribution from Grace.
Note 10. Pension Plans
Substantially all of the Company's U.S. employees are covered
by non-contributory defined benefit plans sponsored by Grace. 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. Plan
assets consist primarily of publicly traded common stocks, fixed income
securities and cash equivalents.
Separate calculations of Grace Packaging's net pension cost and
funded status within Grace's U.S. pension plans have been performed. Grace
Packaging's total pension expense consists of the following components:
1996 1995 1994
--------- --------- ---------
Service cost on benefits earned during the year.............. $6,400 $5,200 $5,800
Interest cost on benefits earned in prior years.............. 12,100 10,800 10,000
Actual (return)/loss on plan assets.......................... (18,800) (22,200) 2,500
Deferred gain/(loss) on plan assets.......................... 5,800 10,600 (14,900)
Amortization of net gains and prior service costs............ (200) (1,300) (1,300)
--------- --------- ---------
Net pension cost............................................. $5,300 $3,100 $2,100
========= ========= =========
Grace Packaging's funded status within Grace's U.S. plans was as follows:
December 31,
--------------------------
1996 1995
---------- ----------
Actuarial present value of benefit obligation:
Vested............................................... $150,000 $156,800
---------- ----------
Accumulated benefit obligation....................... $152,400 $158,200
---------- ----------
Total projected benefit obligation................... $163,000 $170,600
Plan assets at fair value............................ 158,700 147,500
---------- ----------
Plan assets less than projected benefit obligation... (4,300) (23,100)
Unamortized net gain at initial adoption............. (7,500) (9,000)
Unamortized prior service cost....................... 6,100 5,700
Unrecognized net loss................................ 1,500 26,000
---------- ----------
Accrued pension cost................................. (4,200) (400)
Adjustment required to recognize
minimum liability.................................. -- (10,300)
---------- -----------
Accrued pension cost liability
recognized in the balance sheet.................... $(4,200) $(10,700)
========== ==========
The following significant assumptions were used in calculating
the Company's U.S. pension cost and funded status:
1996 1995 1994
--------- --------- ---------
Discount rate at December 31,........ 8.0% 7.3% 8.5%
Expected long-term rate of return.... 9.0% 9.0% 9.0%
Rate of compensation increase........ 4.5% 4.5% 4.5%
The Company's non-U.S. employees participate in various
Grace-sponsored retirement plans. Net pension cost for these plans has been
allocated annually to the Company by Grace. Total pension costs/(benefits)
allocated to the Company in connection with these plans were $3,000, $500 and
$(1,600) in 1996, 1995 and 1994, respectively. No portion of the non-U.S.
pension assets or liabilities has been allocated to the Company, on the basis
that non-U.S. employees are considered to have participated in a multiemployer
pension plan as defined in Statement of Financial Accounting Standards No. 87,
"Employer's Accounting for Pensions."
Separate calculations for the components of net pension cost for
the Company and the Company's funded status within the Grace-sponsored non-U.S.
plans are not available. The following tables reflect the components of net
pension cost and the funded status of the non-U.S., Grace-sponsored pension
plans for all Grace businesses:
1996 1995 1994
--------- --------- ---------
Service cost on benefits earned during the year.............. $10,700 $10,500 $13,400
Interest cost on benefits earned in prior years.............. 23,100 21,400 19,300
Actual (return)/loss on plan assets.......................... (39,100) (52,000) 10,600
Deferred gain/(loss) on plan assets.......................... 8,200 26,200 (37,400)
Amortization of net gains and prior service costs............ (300) (800) (1,600)
Net curtailment and settlement gain.......................... (2,400) -- --
--------- --------- ---------
Net pension cost............................................. $200 $5,300 $4,300
========= ========= =========
Assets Exceed Accumulated Accumulated Benefits Exceed
Benefits Assets
December 31, December 31,
------------------------------ ---------------------------------
1996 1995 1996 1995
------------- ------------ -------------- -------------
Actuarial present value of benefit obligation:
Vested................................................. $161,800 $133,500 $75,200 $67,500
------------- ------------ -------------- -------------
Accumulated benefit obligation......................... $162,500 $133,900 $82,800 $75,100
------------- ------------ -------------- -------------
Total projected benefit obligation..................... $183,200 $189,400 $103,300 $92,400
Plan assets at fair value.............................. 313,400 302,500 6,100 7,300
------------- ------------ -------------- -------------
Plan assets in excess of/(less than) projected benefit
obligation....................................... 130,200 113,100 (97,200) (85,100)
Unamortized net (gain)/loss at initial adoption........ (4,700) (6,300) 3,800 4,500
Unamortized prior service cost......................... 4,100 3,600 -- --
Unrecognized net (gain)/loss........................... (17,300) (16,000) 15,000 (3,200)
------------- ------------ -------------- -------------
Prepaid/(accrued) pension cost......................... $112,300 $94,400 $(78,400) $(83,800)
============= ============ ============== =============
The following significant assumptions were used in calculating
the pension cost and funded status for the non-U.S. Grace-sponsored pension
plans for all Grace businesses:
1996 1995 1994
----------- ---------- -----------
Discount rate at December 31...... 3.4 - 8.7% 5.1 - 11.6% 5.0 - 12.0%
Expected long-term rate of return. 6.0 - 10.5% 6.0 - 10.5% 6.0 - 10.5%
Rate of compensation increase..... 2.5 - 7.5% 4.0 - 7.5% 4.0 - 7.5%
The Company's participants historically comprised approximately
65% of the total participants in the non-U.S. Grace-sponsored pension plans.
Subsequent to the Reorganization, the pension obligations
relating to substantially all of the Company's U.S. employees will be retained
by New Grace. As of the date of the Reorganization, the Company's liability with
respect to such employees to be retained by New Grace, including related
deferred income taxes, will be reversed and accounted for as an equity
contribution from Grace.
Subsequent to the Reorganization, it is expected that New Sealed
Air will assume substantially all of the pension obligations related to the
Company's non-U.S. employees and will also receive a corresponding amount of
assets from the non-U.S. Grace plans. However, differences, if any, between the
non-U.S. projected benefit obligations assumed by New Sealed Air and the value
of the assets transferred related to such obligations will be accounted for as a
contribution to, or distribution from, Grace Packaging.
Note 11. Other Postretirement Benefit Plans
The Company's U.S. retired employees receive certain
postretirement health care and life insurance benefits under plans established
by Grace. Those retiree medical and life insurance plans provide for various
levels of benefits to employees (depending on their dates of hire) who retire
from the Company after age 55 with at least 10 years of service. The plans are
unfunded.
The Company applies Statement of Financial Accounting Standards
No. 106, "Employer's Accounting for Postretirement Benefits Other than
Pensions," 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.
Actuarial calculations of net postretirement benefit costs and
accrued obligations for Grace Packaging participants within the Grace retiree
medical and life insurance plans were performed as if Grace Packaging were a
stand-alone entity. Included in other liabilities are the following:
December 31,
-----------------------
1996 1995
--------- ----------
Accumulated postretirement benefit obligation:
Retirees.................................... $23,500 $34,400
Fully eligible participants................. 2,500 5,500
Active ineligible participants.............. 19,300 12,200
--------- ---------
45,300 52,100
Unrecognized net loss....................... -- (11,300)
Unrecognized prior service benefit.......... 14,300 18,600
--------- ---------
Accrued postretirement benefit obligation $59,600 $59,400
========= =========
Net periodic postretirement benefit cost for 1996, 1995 and 1994
consists of the following components:
1996 1995 1994
-------- -------- --------
Service cost........................................................... $800 $600 $700
Interest cost on accumulated postretirement benefit obligation......... 3,400 3,900 3,500
Amortization of net loss............................................... -- -- 300
Amortization of prior service benefit.................................. (1,600) (1,800) (1,800)
-------- -------- --------
Net periodic postretirement benefit cost......................... $2,600 $2,700 $2,700
======== ======== ========
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 $200 and the accumulated postretirement benefit
obligation by $2,000. The discount rates at December 31, 1996, 1995 and 1994
were 8.0%, 7.3% and 8.5%, respectively.
Subsequent to the Reorganization, the postretirement obligation
related to all retired Grace Packaging employees, and those active Grace
Packaging employees who would be eligible to receive postretirement benefits if
they should retire at any time on or before the first anniversary of the
Reorganization, will be retained by New Grace. As of the date of the
Reorganization, the Company's liability to be retained by New Grace, including
related deferred income taxes, will be reversed and accounted for as an equity
contribution from Grace.
Note 12. Equity
Because Grace Packaging operations have been conducted by
divisions or subsidiaries of Grace Specialty Chemicals, rather than by a
distinct consolidated legal entity, there are no customary equity and capital
accounts. Grace Packaging's operations are funded by means of intercompany
accounts with Grace Specialty Chemicals. Therefore, equity also includes
intercompany balances due to Grace Specialty Chemicals arising from the funding
of Grace Packaging, as well as balances related to transactions and other
charges and credits between Grace Packaging and Grace, as more fully described
in Note 14. The special-purpose combined financial statements include equity
balances related only to Grace Packaging. Therefore, changes within the equity
accounts of Grace related to the declaration and payment of dividends to its
shareholders, the addition of capital contributions, the granting and exercising
of stock options and the purchase of treasury stock have been excluded, since
such movements related to Grace and not to Grace Packaging on a stand-alone
basis. Similarly, due to the above factors, it has not been possible to present
separately within equity the retained earnings of Grace related to Grace
Packaging. A summary of changes in equity follows:
1996 1995 1994
------------ ------------ ----------
Balance, beginning of year.............................. $1,227,613 $950,374 $768,788
Net earnings............................................ 99,830 140,892 139,511
Advances from Grace Specialty Chemicals, net............ 101,482 136,347 42,075
------------ ------------ ----------
Balance, end of year.................................... $1,428,925 $1,227,613 $950,374
============ ============ ==========
Cumulative translation adjustments for the three years ended
December 31, 1996 were as follows:
1996 1995 1994
---------- ---------- ----------
Balance, beginning of year.... $(47,265) $(52,613) $(69,069)
Translation adjustment........ 130 5,348 16,456
---------- ---------- ----------
Balance, end of year.......... $(47,135) $(47,265) $(52,613)
========== ========== ==========
Stock Options. Certain of the Company's employees participate in
WRG's stock incentive plans. Options granted under these plans have an exercise
price equal to the market value of WRG's common stock on the date of grant,
become exercisable at the time or times determined by a committee of WRG's Board
of Directors and have terms of up to ten years and one month. Options to
purchase approximately 6.1 million shares of WRG common stock were outstanding
as of December 31, 1996, at an average exercise price of approximately $31.00.
Options held by current and former employees of Grace Packaging represent
approximately 10% of the 6.1 million options outstanding as of December 31,
1996.
Concurrent with the Reorganization, the outstanding options to
purchase WRG common stock that are held by Grace Packaging employees will be
converted to options to purchase common stock of New Sealed Air. All other
options will be converted to options to purchase common stock of New Grace. The
number of shares that can be purchased when the options are exercised, and the
exercise price, will be adjusted using formulas designed to maintain the
approximate economic value of the options at the time of the Reorganization.
The pro forma effects on earnings of applying SFAS No. 123 for
those options granted during 1996 and 1995 to employees of Grace Packaging were
$600 in 1996 and $500 in 1995. The fair value of option grants were estimated
using the Black-Scholes option pricing model, with the following historical
weighted-average assumptions applied to grants in 1996 and 1995:
1996 1995
------- -------
Dividend yields...................... 1% 3%
Expected volatility.................. 26% 25%
Risk-free interest rates............. 6% 7%
Expected life (in years)............. 4 4
Based on the above assumptions, the weighted-average fair value
per share of options granted during 1996 and 1995 was $14.00 and $7.00,
respectively.
Note 13. Financial Instruments
Fair Value of Financial Instruments. At December 31, 1996 and
1995, the carrying value of financial instruments such as accounts receivable,
other assets, accounts payable, and accrued liabilities approximated their fair
values, based on the short-term maturities of these instruments.
Foreign Currency Contracts. Grace Packaging enters into forward
foreign exchange sales and purchase contracts with Grace in order to hedge
foreign currency exposures related to firm commitments to purchase inventory and
fixed assets, as well as firm commitments to sell products. Gains and losses
associated with these forward currency exchange contracts are deferred and
included in the measurement of the related foreign currency transaction.
However, losses are not deferred if it is estimated that deferral would result
in the recognition of losses in later periods.
The notional principal amounts of forward foreign currency
exchange contracts at December 31, 1996 and 1995 were $37,600 and $16,100,
respectively. Fair market values were not significant. The Company may be
exposed to foreign exchange loss in the event of nonperformance by Grace, but
considers the likelihood of nonperformance remote.
Concentrations of Risk. Financial instruments that potentially
expose the Company to concentrations of credit risk consist primarily of trade
accounts receivable. A significant portion of the Company's sales are to
customers in the food processing or distribution industry and, as such, the
Company is directly affected by economic factors impacting that industry. The
Company does not require collateral; however, the credit risk associated with
trade receivables is minimal due to the Company's large customer base.
Historically, the Company has not experienced significant losses on trade
receivables.
The Company relies on certain vendors to supply its primary raw
material needs; however, the Company believes that other suppliers could provide
for the Company's needs on comparable terms. Adverse changes in the supply flow
could, however, cause delays in manufacturing.
Note 14. Related Party Transactions and Allocations
Cash. Grace Packaging has used Grace's centralized cash
management services. Under such service arrangements, excess domestic cash was
invested, and disbursements were funded, centrally by Grace on behalf of Grace
Packaging.
Shared Services. Grace has allocated a portion of its domestic
and overseas regional corporate expenses to its business units, including Grace
Packaging. These expenses have reflected corporate overhead; benefit
administration; risk management/insurance administration; tax and treasury/cash
management services; environmental services; litigation administration services;
general legal services, including intellectual property; and other support and
executive functions. Allocations and charges are based on either a direct cost
pass-through or a percentage allocation for services provided, based on factors
such as net sales, management effort, or headcount.
Domestic corporate expenses of Grace allocated to Grace Packaging
in accordance with SAB 55 totaled $15,175, $22,542 and $19,201 for 1996, 1995
and 1994, respectively, and are included in marketing, administrative and
development expenses.
Domestic research and development expenses of Grace allocated to
Grace Packaging in accordance with SAB 55 totaled $5,074, $6,851 and $6,234 for
1996, 1995 and 1994, respectively, and are included in marketing, administrative
and development expenses.
Management believes that the basis used for allocating corporate
services is reasonable and that the terms of these transactions would not
materially differ from those among unrelated parties.
Additionally, the accompanying statement of earnings includes
allocations of costs for general and administrative services and maintenance
services for shared facilities as well as data processing services provided by
Grace's European central data processing facility. The allocated costs and
expenses related to general and administrative functions, maintenance, data
processing and other facility support functions were $84,005, $99,437 and
$77,153 for 1996, 1995 and 1994, respectively. Of these amounts, $15,226 has
been included in cost of sales and $68,779 has been included in marketing,
administrative and development expenses in 1996 ($15,236 and $84,201 in 1995,
and $12,942 and $64,211 in 1994). The cost allocations for these services were
determined based on methods that management considers to be reasonable.
Prior to the Reorganization, New Grace and the Company expect to
enter into short-term administrative and support service agreements, as
necessary.
Grace has also charged Grace Packaging for its share of domestic
workers' compensation, automobile and other general business liability insurance
premiums and claims, which have all been handled by Grace on a corporate basis.
These charges have been based on Grace Packaging's actual and expected future
experience, including actual payroll expense, and have not been significant to
the Company's results of operations.
Shared Facilities. The Company shares certain sales,
manufacturing and administration facilities with Grace. Subsequent to the
Reorganization, ownership of these shared facilities will either be retained by
the Company, retained by New Grace or physically divided between the Company and
New Grace. In certain locations where the ownership of facilities cannot be
legally divided in accordance with the business needs of Grace Packaging and New
Grace, the two parties will enter into lease or similar agreements under which
one of the parties will retain ownership of land and buildings and lease space
to the other.
The property and equipment included in the accompanying balance
sheet have been allocated in accordance with the expected ownership of such
assets subsequent to the Reorganization.
Note 15. Commitments and Contingencies
Contingent Non-Grace Packaging Liabilities. New Grace has agreed
to indemnify the Company against all liabilities of Grace, whether relating to
events occurring before or after the Reorganization, other than liabilities
arising from or relating to Grace Packaging operations (unless otherwise
retained by New Grace under the terms of the Transaction Agreements). After the
Reorganization, the Company may remain contingently liable with respect to
pre-Reorganization liabilities that are not related to Grace Packaging
operations. Management believes that in view of the nature of the non-Grace
Packaging liabilities, New Grace's agreement to indemnify the Company and the
expected impact of the Reorganization on New Grace's financial position, the
risk of loss to the Company from non-Grace Packaging liabilities is remote.
Environmental. The Company is subject to loss contingencies
resulting from environmental laws and regulations. The Company accrues for
anticipated costs associated with investigatory and remediation efforts when 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 and are not reduced by potential insurance recoveries, if any.
The Company's liabilities for environmental investigatory and remediation costs
totaled approximately $4,800 and $5,300 at December 31, 1996 and 1995,
respectively, and are included in other current liabilities in the accompanying
special-purpose combined balance sheet.
The Company'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 periodically,
based on available information, including the progress of remedial investigation
at each site, the current status of discussions with regulatory authorities
regarding the methods and extent of remediation and the apportionment of costs
among potentially responsible parties. As some of these issues are decided (the
outcomes of which are subject to uncertainties) and/or new sites are assessed
and costs can be reasonably estimated, the Company will continue to review and
analyze the need for adjustments to the recorded accruals. However, the Company
believes that it is adequately reserved for all probable and estimable
environmental exposures.
Subsequent to the Reorganization, certain Grace Packaging
environmental liabilities (for which approximately $4,200 was accrued as of
December 31, 1996) will be retained by New Grace. As of the date of the
Reorganization, the Company's liability with respect to such environmental
obligations retained by New Grace, including related deferred income taxes, will
be reversed and accounted for as an equity contribution from WRG.
Guarantee of New Grace Outstanding Public Debt. WRG currently is
the guarantor of the outstanding public debt (approximately $757,184 at December
31, 1996) of Grace Specialty Chemicals, which will be owned by New Grace upon
completion of the Reorganization. WRG will continue as the guarantor of any of
such debt remaining outstanding following the Reorganization. New Grace will
indemnify New Sealed Air against any liability arising from the guarantee. To
the extent that more than $50,000 of such debt remains outstanding after the
Reorganization, New Sealed Air will receive a letter of credit to be obtained by
New Grace to cover any payments it must make under its guarantee.
Note 16. Information About Foreign Operations
The table below provides information pertaining to Grace
Packaging's operations by geographic area. Interregion sales, eliminated in
combination, were not significant.
United States
and Canada Europe Asia Pacific Latin America Total
--------------- ---------- -------------- --------------- ------------
Net sales................. 1996 $864,254 $530,328 $202,560 $144,460 $1,741,602
1995 859,223 520,571 194,836 131,012 1,705,642
1994 750,921 400,571 164,447 112,520 1,428,459
Earnings before income
taxes(1) ................ 1996 95,543 16,987 26,557 30,735 169,822
1995 108,283 63,222 38,057 25,911 235,473
1994 108,838 57,425 36,603 24,886 227,752
Identifiable Assets....... 1996 873,754 452,272 258,563 118,299 1,702,888
1995 726,243 454,607 193,544 102,966 1,477,360
1994 563,357 387,598 140,200 88,782 1,179,937
- -----------
(1)Includes 1996, 1995 and 1994 pretax charges of $74,947, $17,745 and $6,021,
respectively, relating to restructuring costs and asset impairments (see Note
8).
Note 17. Quarterly Summary (Unaudited)
First Quarter Second Quarter Third Quarter Fourth Quarter
--------------- --------------- --------------- ----------------
1996
Net sales............. $409,141 $426,340 $436,131 $469,990
Cost of sales......... 265,534 286,270 288,530 310,672
Net earnings.......... 29,780 7,975 41,058 21,017
1995
Net sales............. $390,831 $423,445 $437,217 $454,149
Cost of sales......... 241,556 266,085 277,809 292,650
Net earnings.......... 36,759 38,658 41,560 23,915
W. R. Grace & Co.
Grace Packaging
SPECIAL-PURPOSE COMBINED INTERIM STATEMENT OF EARNINGS
(Unaudited)
(Dollars in thousands)
Nine Months Ended
September 30,
------------------------
1997 1996
---------- ----------
Net sales.......................................... $1,347,739 $1,271,612
Cost of sales...................................... 873,856 840,334
---------- ----------
Gross profit................................. 473,883 431,278
Marketing, administrative and development expenses. 273,594 255,202
Restructuring costs................................ 8,371 36,970
---------- ----------
Operating profit............................. 191,918 139,106
Other expenses, net................................ 2,215 5,036
---------- ----------
Earnings before income taxes....................... 189,703 134,070
Income taxes....................................... 78,158 55,257
---------- ----------
Net earnings................................. $111,545 $78,813
========== ==========
W. R. Grace & Co.
Grace Packaging
SPECIAL-PURPOSE COMBINED INTERIM BALANCE SHEET
(Unaudited)
(Dollars in thousands)
September 30,
1997
---------------
Assets
Current Assets
Cash and cash equivalents............................. $ --
Notes and accounts receivable, net of allowances
for doubtful accounts of $6,519...................... 272,807
Inventories........................................... 228,874
Deferred income taxes................................. 13,223
Other current assets.................................. 14,521
---------------
Total Current Assets............................. 529,425
Properties and equipment, net............................... 1,082,356
Goodwill, less accumulated amortization of $294............. 13,118
Other assets................................................ 58,533
---------------
Total Assets.......................................... $1,683,432
===============
Liabilities and Equity
Current Liabilities
Accounts payable...................................... $111,108
Other current liabilities............................. 94,807
---------------
Total Current Liabilities........................ 205,915
Other liabilities........................................... 93,580
Deferred income taxes....................................... 2,119
---------------
Total Liabilities................................ 301,614
---------------
Commitments and contingencies (Note 3)
Equity
Equity................................................ 1,468,825
Cumulative translation adjustments.................... (87,007)
---------------
Total Equity..................................... 1,381,818
---------------
Total Liabilities and Equity..................... $1,683,432
===============
See accompanying Notes to Special-Purpose Combined Interim Financial Statements.
W. R. Grace & Co.
Grace Packaging
SPECIAL-PURPOSE COMBINED INTERIM STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Nine Months Ended
September 30,
--------------------------
1997 1996
----------- ----------
Cash Flows from Operating Activities:
Net earnings........................................................................ $111,545 $78,813
Adjustments to reconcile net earnings to cash provided by operating activities:
Depreciation and amortization of property and equipment............................. 78,701 69,586
Other depreciation and amortization.................................................
Restructuring....................................................................... 8,371 36,970
Asset impairment.................................................................... -- --
Deferred tax provisions............................................................. 12,261 (305)
Net loss on disposals of property and equipment..................................... 594 504
Changes in operating assets and liabilities net of assets and liabilities acquired
Notes and accounts receivable, net............................................. (5,161) (31,354)
Inventories.................................................................... (2,355) 27,764
Other current assets........................................................... (2,910) (285)
Other assets................................................................... (5,150) (15,032)
Accounts payable............................................................... (20,170) (30,545)
Other accrued liabilities...................................................... (19,998) 27,677
Other liabilities.............................................................. 7,318 1,688
----------- ----------
Net cash provided by operating activities...................................... 163,046 165,481
----------- ----------
Cash Flows from Investing Activities:
Capital expenditures for property and equipment..................................... (77,952) (232,719)
Proceeds from sales of property and equipment....................................... 260 109
Businesses acquired in purchase transactions, net of cash acquired and debt
assumed........................................................................... (13,709) (16,037)
----------- ----------
Net cash used in investing activities.......................................... (91,401) (248,647)
----------- ----------
Cash Flows from Financing Activities:
Net advances (to)/from W. R. Grace & Co.-Conn....................................... (71,645) 83,166
----------- ----------
Net cash provided by/(used for) financing activities........................... (71,645) 83,166
----------- ----------
Effect of exchange rate changes on cash and cash equivalents.............................. -- --
Cash and Cash Equivalents:
Net change during the period........................................................ -- --
Balance, beginning of period........................................................ -- --
----------- ----------
Balance, end of period.............................................................. $ -- $ --
Supplemental Disclosures of Cash Flow Information: =========== ==========
Cash paid during the year for income taxes.......................................... $65,897 $55,562
=========== ==========
See accompanying Notes to Special-Purpose Combined Interim Financial Statements.
W. R. GRACE & CO.
Grace Packaging
NOTES TO SPECIAL-PURPOSE COMBINED INTERIM FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The interim special-purpose combined financial statements have
been prepared by the Company in accordance with the accounting policies stated
in the December 31, 1996 special-purpose combined financial statements, except
as noted below, and should be read in conjunction with the notes to
special-purpose combined financial statements appearing therein. These interim
financial statements are presented on a combined basis as described in Note 1 to
the December 31, 1996 historical combined financial statements appearing
elsewhere herein. In the opinion of the Company, all adjustments (consisting of
normal recurring adjustments) necessary for a fair presentation have been
included in the interim combined financial statements. The interim combined
financial statements are based in part on approximations and have not been
audited by independent accountants.
Note 2. Inventories
The Company's inventories consist of the following:
September 30,
1997
---------------
Inventories (at FIFO, which approximates current cost):
Raw materials....................................... $44,236
Work in process..................................... 69,575
Finished goods...................................... 132,911
-------------
246,722
Reduction of certain inventories to LIFO basis............ (17,848)
-------------
Total............................................... $228,874
=============
Note 3. Commitments and Contingencies
See Notes 7 and 15 of the Notes to the Special-Purpose Financial
Statements for details regarding commitments and contingencies.
Note 4. Quarterly Summary (Unaudited)
First Quarter Second Quarter Third Quarter
--------------- ---------------- ---------------
1997
Net sales........ $422,693 $463,211 $461,835
Cost of sales.... 274,629 299,528 299,699
Net earnings..... 37,260 38,259 36,026
ANNEX A
==============================================================================
AGREEMENT AND PLAN OF MERGER
dated as of August 14, 1997
by and among
W. R. GRACE & CO.,
PACKCO ACQUISITION CORP.
and
SEALED AIR CORPORATION
==============================================================================
TABLE OF CONTENTS
Page
----
RECITALS
A. Defined Terms................................................ 1
B. The Contribution............................................. 1
C. The Distribution............................................. 1
D. The Recapitalization......................................... 1
E. The Merger................................................... 1
F. Intention of the Parties..................................... 2
G. Approvals ................................................... 2
ARTICLE I
THE REORGANIZATION; CLOSING; EFFECTIVE TIME
Section 1.1. The Contribution, the Distribution, and the
Recapitalization..................................... 2
Section 1.2. The Merger............................................. 2
Section 1.3. Effective Time......................................... 2
Section 1.4. Closing................................................ 3
ARTICLE II
CERTIFICATE OF INCORPORATION AND BY-LAWS
Section 2.1. Certificates of Incorporation......................... 3
Section 2.2. Surviving Corporation By-laws......................... 3
ARTICLE III
DIRECTORS AND OFFICERS
Section 3.1. Newco Directors....................................... 3
Section 3.2. Newco Officers........................................ 3
Section 3.3. Surviving Corporation Directors....................... 4
Section 3.4. Surviving Corporation Officers........................ 4
ARTICLE IV.
MERGER CONSIDERATION; CONVERSION OR
CANCELLATION OF SHARES IN THE MERGER
Section 4.1. Merger Consideration; Conversion or
Cancellation of Capital Stock of Sealed
Air and Merger Sub.................................. 4
Section 4.2. Exchange of Old Certificates for New
Certificates........................................ 4
(a) Appointment of Exchange Agent.................... 4
(b) Exchange Procedures.............................. 5
(c) No Transfers..................................... 6
(d) No Liability..................................... 6
(e) Withholding Rights............................... 6
(f) Sealed Air Contingent Stock and Restricted
Stock Plans.................................... 6
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Section 5.1. Representations and Warranties of Grace............... 7
(a) Capital Stock.................................... 7
(b) Corporate Organization and Qualification......... 9
(c) Corporate Authority.............................. 9
(d) Governmental Filings; No Violations.............. 10
(e) SEC Documents; Financial Statements;
No Undisclosed Liabilities..................... 11
(f) Absence of Certain Events and Changes............ 11
(g) Takeover Statutes; Rights Plan................... 12
(h) Brokers and Finders.............................. 12
(i) Contribution..................................... 12
(j) Tax Matters...................................... 12
(k) Disclosure....................................... 13
Section 5.2. Representations and Warranties for the
Packaging Business.................................. 13
(a) Corporate Organization and Qualification......... 13
(b) Corporate Authority.............................. 13
(c) Capitalization................................... 14
(d) Financial Statements; No Undisclosed
Liabilities.................................... 14
(e) Absence of Certain Events and Changes............ 15
(f) Compliance with Laws............................. 15
(g) Title to Assets.................................. 16
(h) Litigation....................................... 16
(i) Taxes............................................ 17
(j) Environmental Matters............................ 17
(k) Contracts and Commitments........................ 18
(l) Employee Benefit Plans........................... 19
(m) Trademarks, Patents and Copyrights............... 22
Section 5.3. Representations and Warranties of Sealed Air.......... 23
(a) Capital Stock.................................... 23
(b) Corporate Organization and
Qualification.................................. 24
(c) Corporate Authority.............................. 24
(d) Governmental Filings; No Violations.............. 25
(e) SEC Documents; Financial Statements; No
Undisclosed Liabilities........................ 26
(f) Absence of Certain Events and Changes............ 26
(g) Compliance with Laws............................. 27
(h) Title to Assets.................................. 27
(i) Litigation....................................... 28
(j) Taxes............................................ 28
(k) Contracts and Commitments........................ 29
(l) Employee Benefits................................ 29
(m) Environmental Matters............................ 32
(n) Takeover Statutes; Rights Plans.................. 32
(o) Brokers and Finders.............................. 32
(p) Trademarks, Patents and Copyrights............... 33
(q) Tax Matters...................................... 33
(r) Disclosure....................................... 33
ARTICLE VI
COVENANTS
Section 6.1. Interim Operations 34
Section 6.2. Certain Transactions 36
Section 6.3. Acquisition Proposals 36
Section 6.4. Information Supplied 38
Section 6.5. Shareholder Approvals 38
Section 6.6. Filings; Other Actions 39
Section 6.7. Audited Financial Statements; Comfort
Letters 40
Section 6.8. Access 40
Section 6.9. Notification of Certain Matters 41
Section 6.10. Publicity 41
Section 6.11. Employee Benefits; Headquarters Employees 41
Section 6.12. Expenses 42
Section 6.13. Antitakeover Statutes 45
Section 6.14. Securities Act Compliance 45
Section 6.15. Transaction Agreements 45
Section 6.16. Tax Matters 45
ARTICLE VII
CONDITIONS
Section 7.1. Conditions to Each Party's Obligation 46
(a) Shareholder Approval 46
(b) Governmental and Regulatory Consents 46
(c) Third-Party Consents 46
(d) Governmental Matters 47
(e) Tax Opinions 47
(f) Registration Statements 47
(g) The Contribution, the Distribution and
the Recapitalization 47
(h) Stock Exchange Listing 47
Section 7.2. Conditions to Obligation of Grace 48
(a) Representations and Warranties 48
(b) Performance of Obligations 48
Section 7.3. Conditions to Obligation of Sealed Air 48
(a) Representations and Warranties 48
(b) Performance of Obligations 49
(c) Letter of Credit 49
(d) Solvency Opinion 49
ARTICLE VIII
TERMINATION
Section 8.1. Termination by Mutual Consent......................... 49
Section 8.2. Termination by any Party Hereto....................... 49
Section 8.3. Termination by Grace.................................. 50
Section 8.4. Termination by Sealed Air............................. 50
Section 8.5. Effect of Termination and Abandonment................. 51
ARTICLE IX
MISCELLANEOUS AND GENERAL
Section 9.1. Survival 51
Section 9.2. Modification or Amendment 51
Section 9.3. Waiver of Conditions 51
Section 9.4. Counterparts 51
Section 9.5. Governing Law 52
Section 9.6. Notices 52
Section 9.7. Entire Agreement; Assignment. 52
Section 9.8. Definition of "Subsidiary" 53
Section 9.9. Captions 53
Section 9.10. Specific Performance 53
Section 9.11. Severability 53
Section 9.12. Third-Party Beneficiaries 54
Section 9.13. Further Assurances 54
Annex A Defined Terms
Exhibit A Form of Distribution Agreement
Exhibit B Forms of Tax Matters Certificates
Exhibit C Form of Grace Tax Opinion
Exhibit D Form of Sealed Air Tax Opinion
Exhibit E Terms of Newco Convertible Preferred Stock
Exhibit F Terms of Newco Amendment
Grace Disclosure Letter
Packaging Business Disclosure Letter
Sealed Air Disclosure Letter
AGREEMENT AND PLAN OF MERGER, dated as of August 14, 1997
(this "Agreement"), by and among W. R. GRACE & CO., a Delaware corporation
("Grace"), Packco Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Grace ("Merger Sub"), and Sealed Air Corporation, a Delaware
corporation ("Sealed Air").
RECITALS
--------
A. Defined Terms. Certain capitalized terms used herein shall
have the meanings set forth in Annex A hereto.
B. The Contribution. Prior to the Effective Time, and pursuant to
the Distribution Agreement, a form of which is attached hereto as Exhibit A (the
"Distribution Agreement"), Grace intends to contribute (the "Contribution") its
worldwide packaging business (other than the container business group) to an
indirect, newly-formed Delaware subsidiary of Grace ("Packco").
C. The Distribution. Prior to the Effective Time, Grace, New Grace
(as defined in the Distribution Agreement) and W. R. Grace & Co.-Conn.
("Grace-Conn.") intend to consummate the transactions contemplated by the
Distribution Agreement, including the distribution by Grace to the holders of
Grace Common Shares all of the common stock of New Grace (the "Distribution").
D. The Recapitalization. Immediately prior to the Effective Time,
but following the Distribution, Grace shall be recapitalized (as defined in the
Distribution Agreement, the "Recapitalization") so that the holders of Grace
Common Shares shall thereafter hold Newco Common Shares and Newco Convertible
Preferred Shares, all as provided in the Distribution Agreement.
E. The Merger. At the Effective Time, the parties intend to effect a
merger of Merger Sub with and into Sealed Air, with Sealed Air being the
surviving corporation (the "Merger"), the Certificate of Incorporation of Sealed
Air shall be amended to change the name of Sealed Air to a different name as
determined by Sealed Air, and the Certificate of Incorporation of Grace shall be
amended (the "Newco Amendment") to change the name of Grace to "Sealed Air
Corporation" (such corporation, from and after the Effective Time, is sometimes
hereinafter referred to as "Newco") and to effect the other amendments described
in Exhibit F hereto.
F. Intention of the Parties. It is the intention of the parties to
this Agreement that, for United States federal income tax purposes, the
Distribution, Recapitalization and related transactions shall be tax-free to
Grace and its shareholders under the Code and the Merger shall qualify as a
"reorganization" within the meaning of Section 368 of the Code and the Merger
will be tax-free under the Code to Grace, Sealed Air and their respective
shareholders.
G. Approvals. The Board of Directors of each party hereto has
determined that this Agreement is in the best interests of such party and its
shareholders and has duly approved this Agreement and authorized its execution
and delivery.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
ARTICLE I
THE REORGANIZATION; CLOSING; EFFECTIVE TIME
1.1. The Contribution, the Distribution, and the Recapitalization.
Subject to the terms and conditions of the Distribution Agreement, prior to the
Effective Time, the parties thereto shall effect the various transactions
contemplated thereby, including the Contribution, the Distribution and the
Recapitalization.
1.2. The Merger. At the Effective Time, Sealed Air and Merger Sub
shall consummate the Merger in which Merger Sub shall be merged with and into
Sealed Air and the separate corporate existence of Merger Sub shall thereupon
cease. Sealed Air shall be the surviving corporation of the Merger (the
"Surviving Corporation") and shall continue to be governed by the laws of the
State of Delaware.
1.3. Effective Time. Provided that this Agreement shall not have
been terminated in accordance with its terms, as promptly as practicable after
all of the conditions to the Merger shall have been satisfied or waived (or on
such later date as the parties hereto may agree in writing), the parties hereto
shall cause the Merger to be consummated by filing a certificate of merger (the
"Merger Certificate") with the Secretary of State of the State of Delaware in
such form as required by, and executed in accordance with, Section 251 of the
Delaware General Corporation Law (the "DGCL"). The Merger shall become effective
upon the date and at the time (the "Effective Time") on which the Merger
Certificate has been duly filed with the Secretary of State of the State of
Delaware, or at such later date and time as set forth therein.
1.4. Closing. The closing of the Reorganization (the "Closing")
shall take place at the offices of Wachtell, Lipton, Rosen & Katz, New York, New
York, at 10:00 A.M. on the first business day on which all the conditions set
forth in Article VII can be fulfilled or are waived, or at such other place
and/or time as the parties hereto may agree. The date upon which the Closing
shall occur is herein called the "Closing Date."
ARTICLE II
CERTIFICATE OF INCORPORATION AND BY-LAWS
2.1. Certificates of Incorporation. The certificate of incorporation
of Merger Sub, as in effect at the Effective Time, shall be the certificate of
incorporation of the Surviving Corporation (the "S.C. Certificate of
Incorporation"), until duly amended in accordance with the terms thereof and the
DGCL. At the Effective Time, the Certificate of Incorporation of Grace (the
"Grace Certificate of Incorporation") shall be amended as set forth in the Newco
Amendment.
2.2. Surviving Corporation By-laws. The By-laws of Merger Sub, as in
effect at the Effective Time, shall be the By-laws of the Surviving Corporation
until duly amended in accordance with the terms thereof, the S.C.
Certificate of Incorporation and the DGCL.
ARTICLE III
DIRECTORS AND OFFICERS
3.1. Newco Directors. Immediately after the Effective Time, the
directors of Newco shall be the seven directors of Sealed Air immediately prior
to the Effective Time and four independent directors selected by Grace from the
existing Grace Board.
3.2. Newco Officers. Immediately after the Effective Time, the
officers of Newco shall be the Chief Executive Officer of Sealed Air, the Chief
Operating Officer of Sealed Air, the current President of Grace Packaging and
such other officers as may be named in the Joint Proxy Statement or duly
appointed or elected by the Board of Directors of Newco.
3.3. Surviving Corporation Directors. Immediately after the
Effective Time, the directors of the Surviving Corporation shall be as
designated by Newco.
3.4. Surviving Corporation Officers. Immediately after the
Effective Time, the officers of Sealed Air shall be the officers of the
Surviving Corporation.
ARTICLE IV
MERGER CONSIDERATION; CONVERSION OR
CANCELLATION OF SHARES IN THE MERGER
4.1. Merger Consideration; Conversion or Cancellation of Capital
Stock of Sealed Air and Merger Sub. At the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any capital stock of
Sealed Air or Merger Sub:
(a) Each Sealed Air Common Share issued and outstanding immediately
prior to the Effective Time (other than any Sealed Air Common Share owned
by Grace or its subsidiaries or any Sealed Air subsidiary or held in
Sealed Air's treasury) shall be converted into and become at the Effective
Time one Newco Common Share.
(b) Each Newco Common Share and each Newco Convertible Preferred
Share issued and outstanding immediately prior to the Effective Time shall
remain issued and outstanding and shall be unchanged by the Merger.
(c) All Sealed Air Common Shares shall cease to be outstanding,
shall be cancelled and retired and shall cease to exist.
(d) Each Sealed Air Common Share issued and outstanding immediately
prior to the Effective Time and owned by Grace or its subsidiaries or any
Sealed Air subsidiary or held in Sealed Air's treasury shall cease to be
outstanding, shall be cancelled and retired without payment of any
consideration therefor and shall cease to exist.
(e) Each share of Merger Sub Common Stock issued and outstanding
immediately prior to the Effective Time shall be converted into and become
one share of common stock of the Surviving Corporation.
4.2. Exchange of Old Certificates for New Certificates. (a)
Appointment of Exchange Agent. From and after the Effective Time until the end
of the six-month period following the Effective Time, Newco shall make available
or cause to be made available to an exchange agent appointed prior to the
Effective Time with the approval of each of Grace and Sealed Air (the "Exchange
Agent") Newco Certificates in amounts sufficient to allow the Exchange Agent to
make all deliveries of Newco Certificates that are requested by holders of Old
Sealed Air Certificates in exchange for Old Sealed Air Certificates pursuant to
this Article IV. In its discretion, Newco may elect to evidence ownership of
Newco Common Shares through a book-entry transfer agent, in which case the
Exchange Agent shall deliver, upon compliance by a former Sealed Air shareholder
with the provisions of Section 4.2(b), a book-entry account statement evidencing
the ownership of Newco Common Shares (or, at the request of a former Sealed Air
shareholder, a Newco Certificate evidencing such ownership). In the event Newco
so elects, references herein to Newco Certificates shall be deemed to include
references to the book-entry account statements relating to the ownership of
Newco Common Shares.
(b) Exchange Procedures. Promptly after the Effective Time, Newco
shall cause the Exchange Agent to mail or deliver to each person who was, at the
Effective Time, a holder of record of Sealed Air Common Shares a letter of
transmittal (the terms of which shall be mutually agreed upon by the parties
hereto prior to the Effective Time) containing instructions for use by holders
of Sealed Air Common Shares who may, in their discretion, desire to surrender
their Old Sealed Air Certificates in exchange for Newco Certificates pursuant to
this Article IV. Upon surrender to the Exchange Agent of an Old Sealed Air
Certificate for cancellation together with such letter of transmittal, duly
executed and completed in accordance with the instructions thereto, the holder
of such Old Sealed Air Certificate shall be entitled to receive in exchange
therefor a Newco Certificate representing the Newco Common Shares and the Old
Sealed Air Certificate so surrendered shall forthwith be cancelled. If any Newco
Certificate is to be issued in a name other than that in which the Old Sealed
Air Certificate surrendered in exchange therefor is registered, it shall be a
condition of such exchange that the person requesting such exchange shall pay
any transfer or other taxes required by reason of the issuance of such in a name
other than that of the registered holder of the Old Sealed Air Certificate
surrendered, or shall establish to the satisfaction of Newco that any such taxes
have been paid or are not applicable. Six months after the Effective Time, Newco
shall be entitled to cause the Exchange Agent to deliver to it any applicable
Newco Certificates made available to the Exchange Agent that are unclaimed by
the former shareholders of Sealed Air. Any such former shareholders who have not
theretofore exchanged their Old Sealed Air Certificates for Newco Certificates
pursuant to this Article IV who desires to do so shall thereafter be entitled to
look exclusively to Newco and only as general creditors thereof to obtain Newco
Certificates to which they become entitled upon exchange of their Old Sealed Air
Certificates pursuant to this Article IV. Newco shall pay all applicable charges
and expenses in connection with the exchange of Newco Certificates for Old
Sealed Air Certificates as contemplated hereby.
(c) No Transfers. At or after the Effective Time, there shall be no
transfers on the stock transfer books of the Surviving Corporation of Sealed Air
Common Shares which were outstanding immediately prior to the Effective Time.
(d) No Liability. If any Old Sealed Air Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen or destroyed and, if
required by Newco, the posting by such person of a bond in such reasonable
amount as Newco may direct as indemnity against any claim that may be made
against it with respect to such Old Sealed Air Certificate, Newco shall, in
exchange for such lost, stolen or destroyed Old Sealed Air Certificates, issue
or cause to be issued the Newco Certificate deliverable in respect thereof
pursuant to this Article IV. No party hereto, nor the Exchange Agent, shall be
liable to any holder of former Sealed Air Common Shares for any cash delivered
to a public official pursuant to any applicable abandoned property, escheat or
similar law.
(e) Withholding Rights. Newco shall be entitled to deduct and
withhold from the consideration otherwise payable pursuant to this Agreement to
any holder of former Sealed Air Common Shares such amounts as may be required to
be deducted and withheld with respect to the making of such payment under the
Code, or under any provision of state, local or foreign tax law. To the extent
that amounts are so withheld and paid over to the appropriate taxing authority,
such withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the former Sealed Air Common Shares in respect
of which such deduction and withholding was made.
(f) Sealed Air Contingent Stock and Restricted Stock Plans. The
Sealed Air Stock Plans shall be amended in accordance with their terms and
applicable law, with the effect that as of the Effective Time, among other
things, (i) all of the rights and obligations of Sealed Air under the Sealed Air
Stock Plans, including with respect to awards outstanding at the Effective Time,
shall be rights and obligations of Newco following the Effective Time and (ii)
each unexercised right granted under the Sealed Air Stock Plans to purchase a
Sealed Air Common Share shall constitute a right to purchase a Newco Common
Share in accordance with the terms and conditions of the applicable Sealed Air
Stock Plans, as amended from time to time.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1. Representations and Warranties of Grace. Grace hereby
represents and warrants to Sealed Air that, except as set forth in a letter
delivered to Sealed Air simultaneously with the execution and delivery of this
Agreement (the "Grace Disclosure Letter"):
(a) Capital Stock. (i) Grace. The authorized capital stock of Grace
consists of 300,010,165 Grace Common Shares, par value $.01 per share, of
which 73,409,932 were outstanding as of August 1, 1997, and 53,000,000
Grace Preferred Shares, par value $.01 per share, of which, as of August
1, 1997, none was outstanding. As of August 1, 1997, 6,224,234 Grace
Common Shares were held in the treasury of Grace. As of the Effective
Time, there will be no Grace Common Shares held in the treasury of Grace.
As of August 1, 1997, there were outstanding under the Grace 1996 Stock
Incentive Plan, the Grace 1994 Stock Incentive Plan, the Grace 1989 Stock
Incentive Plan, the Grace 1986 Stock Incentive Plan, the Grace 1981 Stock
Incentive Plan, and the Grace 1997 Stock Retainer Plan for Nonemployee
Directors and any other plan for employees or directors of Grace
(collectively, the "Grace Stock Plans") options to acquire an aggregate of
5,655,954 Grace Common Shares (subject to adjustment on the terms set
forth in the Grace Stock Plans) at an average exercise price of $34.65 per
share (the "Grace Options"). Such Grace Options include options to acquire
an aggregate of 669,887 Grace Common Shares at an average exercise price
of $40.81 per share held by Packco Employees (based on information
regarding the identity of such employees as of the date hereof and as
defined in the Benefits Agreement). As of August 1, 1997, there were no
shares of capital stock of Grace reserved for issuance, other than
3,000,000 Grace Preferred Shares reserved for issuance in connection with
the Grace Rights and 12,189,285 Grace Common Shares reserved for issuance
under the Grace Stock Plans. All outstanding Grace Common Shares have been
duly authorized and validly issued and are fully paid and nonassessable,
and all Grace Common Shares issuable under the Grace Stock Plans have been
duly authorized and will, upon issuance in accordance with the Grace Stock
Plans and any agreements thereunder, be validly issued, fully paid and
nonassessable. Except for the Grace Common Shares, Grace has outstanding
no bonds, debentures, notes or other obligations or securities the holders
of which have the right to vote (or are convertible or exchangeable into
or exercisable for securities having the right to vote) with the
shareholders of Grace on any matter. Except as set forth above, except for
Grace Common Shares issued after August 1, 1997 pursuant to the terms of
options, securities or plans referred to above and except in connection
with the Transaction Agreements, there are no shares of capital stock of
Grace authorized, issued or outstanding and there are no preemptive rights
or any outstanding subscriptions, options, puts, calls, warrants, rights,
convertible or exchangeable securities or other agreements or commitments
of Grace or any of its subsidiaries of any character relating to the
issued or unissued capital stock or other securities of Grace or any of
its subsidiaries (including, without limitation, the issuance, sale,
purchase, redemption, conversion, exchange, redemption, voting or transfer
thereof). The Newco Common Shares to be issued in the Recapitalization and
the Merger or upon exercise of the Grace Options after the
Recapitalization and the Newco Preferred Shares to be issued in the
Recapitalization will, upon such issuance, be duly authorized, fully paid,
validly issued and nonassessable.
(ii) Merger Sub. The authorized capital stock of Merger Sub consists
of 1,000 shares of common stock, par value $.01 per share, of Merger Sub
(the "Merger Sub Common Stock"). As of the date of this Agreement, 1,000
shares of Merger Sub Common Stock are issued and outstanding, all of which
are duly authorized, validly issued, fully paid and nonassessable. Each
issued and outstanding share of Merger Sub Common Stock is owned by Grace,
free and clear of all liens, pledges, security interests, claims, proxies,
preemptive or subscriptive rights and or other encumbrances or
restrictions of any kind. No shares of Merger Sub Common Stock are held in
the treasury of Merger Sub. There are no options, warrants or other
rights, agreements, arrangements or commitments of any character relating
to the issued or unissued capital stock of Merger Sub or obligating Grace
or any of its subsidiaries to issue or sell any shares of capital stock,
or other equity interest in, Merger Sub. As of the Effective Time, all of
the outstanding shares of capital stock of the Surviving Corporation will
be duly authorized, validly issued, fully paid and nonassessable, and will
be owned by Grace, free and clear of all liens, pledges, security
interests, claims, proxies, preemptive or subscriptive rights and or other
encumbrances or restrictions of any kind. Merger Sub was formed for the
purpose of effecting the Merger and has no other business activity.
(b) Corporate Organization and Qualification. Each of Grace and
Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of Delaware and is in good standing (if recognized
in such jurisdiction, or, if not, duly qualified) as a foreign corporation
in each jurisdiction where the properties owned, leased or operated, or
the business conducted, by it or its subsidiaries require such
qualification, except for any such failure so to qualify or be in good
standing which, when taken together with all other such failures, is not
reasonably likely to have a Material Adverse Effect with respect to Grace.
Each of Grace and Merger Sub has the requisite corporate power and
authority and all material governmental licenses and approvals to carry on
its businesses as they are now being conducted. Grace has made available
to Sealed Air a complete and correct copy of the Certificate of
Incorporation and By-laws of Grace and Merger Sub, each as amended to date
and currently in full force and effect.
(c) Corporate Authority. Subject only to the receipt of the
requisite approval of its shareholders necessary to consummate the
Reorganization, each of Grace, Merger Sub and each other subsidiary of
Grace that is or will be a party to a Transaction Agreement has the
requisite corporate power and authority and has taken all corporate action
necessary in order to execute, deliver and perform each Transaction
Agreement to which it is a party and to consummate the transactions
contemplated hereby and thereby, including, without limitation, the
approval of the Grace Board and the resolution of the Grace Board to
recommend, subject to their fiduciary duties, the transactions
contemplated hereby and thereby for approval by Grace shareholders. Each
Transaction Agreement to which Grace, Merger Sub or any of Grace's
subsidiaries is a party is, or when executed and delivered shall be, a
valid and binding agreement of such person enforceable in accordance with
its terms. The affirmative votes of the holders of a majority of the
outstanding Grace Common Shares in favor of the Merger and related
transactions (including the amendments to the Grace Certificate of
Incorporation) and the Distribution are the only votes of the holders of
Grace's capital stock necessary in connection with the consummation of the
Reorganization.
(d) Governmental Filings; No Violations. (i) Other than as may be
required under the HSR Act and similar statutes in other countries, the
Exchange Act, the Securities Act, state securities laws, no notices,
reports or other filings are required to be made by Grace or any Grace
subsidiary with, nor are any consents, registrations, approvals, permits
or authorizations required to be obtained by it or any such subsidiary
from, any governmental or regulatory authority, agency, court, commission
or other entity, domestic or foreign ("Governmental Entity"), in
connection with the execution, delivery or performance of each Transaction
Agreement to which it or any such subsidiary is a party and the
consummation by it or any such subsidiary of the transactions contemplated
hereby and thereby, except for such matters as would not, individually or
in the aggregate, have a Material Adverse Effect with respect to the New
Grace Group or the Packco Group or prevent or materially delay or enable
any person to enjoin consummation of the transactions contemplated hereby
and thereby.
(ii) The execution, delivery and performance by Grace or any Grace
subsidiary of each Transaction Agreement to which it is a party does not
or will not, and the consummation by it of any of the transactions
contemplated hereby and thereby will not, constitute or result in (with or
without the giving of notice, the lapse of time or both) (A) a breach or
violation of, or a default under, its certificate of incorporation or
by-laws or comparable governing instruments, or (B) a breach or violation
of, or a default under, or an acceleration or termination of or change in
the rights or obligations of any party under, or the creation of a lien,
pledge, security interest or other encumbrance on any assets pursuant to,
any provision of any agreement, lease, contract, note, mortgage,
indenture, arrangement or other obligation or commitment ("Contracts") of
it or any of its subsidiaries or any law, rule, ordinance or regulation or
judgment, decree, order, award or governmental or non-governmental permit
or license to which it or any of its subsidiaries is subject, except, in
the case of clause (B) above, for such breaches, violations, defaults,
accelerations or changes that are disclosed in the Grace Disclosure Letter
or, individually or in the aggregate, are not reasonably likely to have a
Material Adverse Effect with respect to the New Grace Group or the Packco
Group or prevent or materially delay or enable any person to enjoin
consummation of the Reorganization.
(e) SEC Documents; Financial Statements; No Undisclosed Liabilities.
(i) Grace has filed all forms, reports and documents required to be filed
by it under the Exchange Act or the Securities Act since December 31,
1994. As of its filing date, each SEC Document filed, and each SEC
Document that will be filed by it or its subsidiaries prior to the
Effective Time, as amended or supplemented, if applicable, pursuant to the
Exchange Act or the Securities Act (A) complied or will comply in all
material respects with the applicable requirements of the Exchange Act or
the Securities Act and (B) did not or will not contain any untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. Each of Grace's
consolidated balance sheets included in or incorporated by reference into
its SEC Documents (including the related notes and schedules) fairly
presents in all material respects the consolidated financial position of
it and its subsidiaries as of the dates set forth therein and each of the
consolidated statements of operations, cash flows and shareholders' equity
included in or incorporated by reference into its SEC Documents (including
any related notes and schedules) fairly presents in all material respects
the consolidated results of operations, cash flows and retained earnings,
as the case may be, of it and its subsidiaries for the periods set forth
therein (subject, in the case of unaudited statements, to normal year-end
audit adjustments), in each case in accordance with US GAAP (applied on a
consistent basis).
(ii) Except as disclosed in its SEC Documents filed with the SEC prior
to the date hereof, neither Grace nor any of its subsidiaries has any
liabilities of any kind whatsoever, whether or not accrued, contingent or
otherwise, that, individually or in the aggregate, are reasonably likely
to have a Material Adverse Effect with respect to the Packco Group or the
New Grace Group.
(f) Absence of Certain Events and Changes. Except (i) as disclosed
in its SEC Documents filed with the SEC prior to the date hereof, and (ii)
as contemplated by the Transaction Agreements, since December 31, 1996,
Grace and its subsidiaries have conducted their respective businesses only
in the ordinary and usual course of such businesses, and there has not
been any change or development or combination of changes or developments
(including any worsening of any condition currently existing) which,
individually or in the aggregate, is reasonably likely to result in a
Material Adverse Effect with respect to the New Grace Group.
(g) Takeover Statutes; Rights Plan. The execution, delivery and
performance of this Agreement and consummation of the transactions
contemplated hereby will not cause to be applicable to Grace, Section 203
of the DGCL or any similar provision (a "Takeover Statute") (after giving
effect to any actions that will be taken prior to the Effective Time). The
Grace Board has taken, or prior to the Effective Time will take, all
requisite action in order to amend the Grace Rights Agreement so as to
render the Grace Rights inapplicable to the Merger, the Recapitalization,
and the Distribution and to terminate or redeem the Grace Rights at or
prior to the Effective Time.
(h) Brokers and Finders. Neither Grace nor any of its subsidiaries
or any of their respective officers, directors or employees has employed
any broker or finder or incurred any liability for any brokerage fees,
commissions or finders' fees in connection with the transactions
contemplated herein, except pursuant to arrangements disclosed in writing
to the other parties hereto prior to the date hereof.
(i) Contribution. The Packco Assets represent the worldwide
Packaging Business of Grace and its subsidiaries and all of their assets
used or held for use in the conduct of Grace's worldwide Packaging
Business as presently conducted or as conducted at the Effective Time, as
the case may be.
(j) Tax Matters. Except as reflected in its SEC Documents filed with
the SEC prior to the date hereof and except for such matters that,
individually or in the aggregate, are not reasonably likely to have a
Material Adverse Effect with respect to the Packco Group or the New Grace
Group: (i) all federal, state, local and foreign tax returns required to
be filed by or on behalf of Grace or any of its subsidiaries have been
timely filed, or requests for extensions have been timely filed and have
been granted and have not expired, and all such filed returns are complete
and accurate in all respects; (ii) all taxes shown as due and payable on
returns filed by Grace or any of its subsidiaries have been paid in full;
(iii) there is no outstanding audit examination, deficiency or refund
litigation with respect to any taxes of Grace; (iv) all taxes, interest,
additions, and penalties due with respect to completed and settled
examinations or concluded litigation relating to Grace have been paid in
full or have been recorded as a liability on its balance sheet (in
accordance with US GAAP); (v) neither Grace nor any of its subsidiaries is
a party to any tax sharing or similar agreement pursuant to which it or
any of its subsidiaries has indemnified another party with respect to
taxes; and (vi) neither Grace nor any of its subsidiaries has waived any
applicable statute of limitations with respect to any taxes. At the
Effective Time, the representations set forth in the Tax Matters
Certificates of Grace-Conn., substantially in the form of Exhibit B (the
"Grace Tax Matters Certificate"), will be true and correct in all
respects, and such representations are hereby incorporated herein by
reference with the same effect as if set forth herein in their entirety.
(k) Disclosure. The representations and warranties of Grace
contained in this Agreement or in any written instrument, exhibit or
certificate furnished or to be furnished by Grace to Sealed Air pursuant
hereto or in connection herewith, do not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make
the statements contained therein not misleading.
5.2. Representations and Warranties for the Packaging Business.
Grace hereby represents and warrants to Sealed Air that, except as set forth in
a letter delivered to Sealed Air simultaneously with the execution and delivery
of this Agreement (the "Packaging Business Disclosure Letter"):
(a) Corporate Organization and Qualification. At the Effective Time,
Packco and each Packco Subsidiary will be duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization
and will be in good standing (if recognized in such jurisdiction, or, if
not, duly qualified) as a foreign corporation in each jurisdiction where
the properties owned, leased or operated, or the business conducted, by
Packco or such Packco Subsidiary require such qualification, except for
any such failure so to qualify or be in good standing which, when taken
together with all other such failures, is not reasonably likely to have a
Material Adverse Effect with respect to the Packco Group or the Packaging
Business. At the Effective Time, Packco and each Packco Subsidiary will
have the requisite corporate power and authority and all material
governmental licenses and approvals to carry on its business as now being
conducted.
(b) Corporate Authority. At the Effective Time, Packco and each
Packco Subsidiary will have the requisite corporate power and authority
and will have taken all corporate action necessary in order to consummate
the transactions contemplated hereby and by the other Transaction
Agreements.
(c) Capitalization. All issued and outstanding shares of capital
stock of Packco and each Packco Subsidiary (except for an immaterial
number of shares held by officers and directors of Grace and its
subsidiaries as required by applicable law) will, as of the Effective
Time, be owned of record and beneficially by Grace, Packco or another
Packco Subsidiary, free and clear of all liens, pledges, security
interests, claims, proxies, preemptive or subscriptive rights or other
encumbrances or restrictions of any kind. There are no options, warrants
or other rights, agreements, arrangements or commitments of any character
relating to the issued or unissued capital stock of Packco or any Packco
Subsidiary or obligating Packco or any Packco Subsidiary to issue or sell
any shares of capital stock of, or other equity interests in, Packco or
any Packco Subsidiary. There are no outstanding contractual obligations of
Packco or any Packco Subsidiary to repurchase, redeem or otherwise acquire
any capital stock of Packco or any Packco Subsidiary or to provide funds
to make any investment (in the form of a loan, capital contribution or
otherwise) in Packco or any Packco Subsidiary or any other entity. As of
the Effective Time, each of the outstanding shares of capital stock of
Packco, and each Packco Subsidiary will be duly authorized, validly
issued, fully paid and nonassessable.
(d) Financial Statements; No Undisclosed Liabilities. (i) Included
in the Packaging Business Disclosure Letter are unaudited special purpose
consolidated and combined balance sheets as of December 31, 1995 and 1996
and June 30, 1997, and special purpose consolidated and combined
statements of earnings before interest and taxes for the three years ended
December 31, 1996 and the six months ended June 30, 1997 for the Packaging
Business (such financial statements, the "Packaging Business Disclosure
Letter Financial Statements," and the balance sheet as of December 31,
1996 included therein, the "Packaging Business Disclosure Letter Balance
Sheet"). The balance sheets included in the Packaging Business Disclosure
Letter Financial Statements (including and subject to the Basis of
Presentation) fairly present in all material respects, and the special
purpose consolidated and combined balance sheet to be included in the
Packaging Business Financial Statements (including any related notes and
schedules) shall fairly present in all material respects, the consolidated
financial position of the Packaging Business, in each case as of the dates
set forth therein; and each of the special purpose consolidated and
combined statements of earnings before interest and taxes included in the
Packaging Business Disclosure Letter Financial Statements (including and
subject to the Basis of Presentation) fairly presents in all material
respects, and each consolidated statement of operations, cash flows and
shareholders' equity to be included in the Packaging Business Financial
Statements (including any related notes and schedules) shall fairly
present in all material respects, the consolidated results of operations,
cash flows and retained earnings, as the case may be, of the Packaging
Business for the periods set forth therein, in each case in accordance
with US GAAP applied on a consistent basis (subject, in the case of
interim financial statements, to normal year-end adjustments).
(ii) Except as disclosed on the Packaging Business Disclosure Letter
Balance Sheet or in the Basis of Presentation thereto, the Packco Group
does not have any liabilities of any kind whatsoever, whether or not
accrued, contingent or otherwise, that, individually or in the aggregate,
are reasonably likely to have a Material Adverse Effect with respect to
the Packco Group or the Packaging Business (other than liabilities to be
incurred in connection with the Grace Credit Agreement).
(e) Absence of Certain Events and Changes. Except (i) as disclosed
in the Packaging Business Disclosure Letter, and (ii) as contemplated by
the Transaction Agreements, since December 31, 1996, the Packaging
Business has been conducted only in the ordinary and usual course of
business and there has not been any change or development or combination
of changes or developments (including any worsening of any condition
currently existing) which, individually or in the aggregate, is reasonably
likely to result in a Material Adverse Effect with respect to the Packco
Group or the Packaging Business.
(f) Compliance with Laws. Grace and its subsidiaries (with respect
to the Packaging Business) have complied with all applicable federal,
state, local and foreign statutes, laws, regulations, ordinances, rules,
judgments, orders or decrees applicable thereto, except where the failure
to comply is not reasonably likely, individually and in the aggregate, to
have a Material Adverse Effect with respect to the Packco Group or the
Packaging Business. Grace and its subsidiaries (with respect to the
Packaging Business) have, and immediately after the Contribution will
have, all permits, licenses, certificates of authority, orders, and
approvals of, and has and will have made all filings, applications, and
registrations with, federal, state, local, and foreign Governmental
Entities that are required in order to permit the Packco Group to carry on
the Packaging Business as it is presently conducted by Grace and its
subsidiaries, except for such permits, licenses, certificates, orders,
filings, applications and registrations, the failure to have or make
which, individually or in the aggregate, are not reasonably likely to have
a Material Adverse Effect with respect to the Packco Group or the
Packaging Business.
(g) Title to Assets. Effective as of the Distribution Date and
subject to the provisions of Article II of the Distribution Agreement or
as disclosed in the Packaging Business Disclosure Letter, one or more
members of the Packco Group will:
(i) have good and valid title to the Packco Assets (as defined
in the Distribution Agreement) (including, without limitation, all
assets reflected on the Packaging Business Disclosure Letter Balance
Sheet or Packco Assets acquired after December 31, 1996, except for
such assets as were sold since December 31, 1996 in the ordinary
course of business and not in violation of this Agreement), free and
clear of any Liens; and
(ii) own or have adequate rights to use all assets used or
held for use in the Packaging Business as conducted by Grace and its
subsidiaries as of the Distribution Date, and such rights are
sufficient to permit the Packco Group to continue to operate the
Packaging Business as conducted by Grace and its subsidiaries as of
the Distribution Date;
in each case except for such matters as would not, individually or in the
aggregate, have a Material Adverse Effect on the Packaging Business or the
Packco Group. As used herein, "Lien" shall mean, with respect to any
asset, any mortgage, lien, pledge, charge, security interest, encumbrance
or other adverse claim of any kind in respect of such asset.
(h) Litigation. There are no civil, criminal or administrative
actions, suits, claims, hearings or proceedings pending or, to the
knowledge of its executive officers, threatened, or investigations
pending, against Grace or its subsidiaries with respect to the Packaging
Business, Packco or any Packco Subsidiary that, individually or in the
aggregate, are reasonably likely to have a Material Adverse Effect with
respect to the Packco Group or the Packaging Business. There are no
judgments or outstanding orders, writs, injunctions, decrees, stipulations
or awards (whether rendered or issued by a court or Governmental Entity,
or by arbitration) against Grace or its subsidiaries with respect to the
Packaging Business, Packco or any Packco Subsidiary, or any of their
respective properties or businesses, which are reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect with
respect to the Packco Group or the Packaging Business.
(i) Taxes. Except as reflected in Grace's SEC Documents filed with
the SEC prior to the date hereof and except for such matters that,
individually or in the aggregate, are not reasonably likely to have a
Material Adverse Effect with respect to the Packco Group or the Packaging
Business: (i) all federal, state, local and foreign tax returns required
to be filed with respect to the Packaging Business, Packco or any Packco
Subsidiary have been timely filed or requests for extensions have been
timely filed and any such extension shall have been granted and not
expired, and all such filed returns are complete and accurate in all
material respects; (ii) all taxes shown as due and payable on returns
filed with respect to the Packaging Business, Packco or any Packco
Subsidiary have been paid in full; (iii) there is no outstanding audit
examination, deficiency or refund litigation with respect to any taxes
with respect to the Packaging Business, Packco or any Packco Subsidiary;
(iv) all taxes, interest, additions, and penalties due with respect to
completed and settled examinations or concluded litigation with respect to
the Packaging Business, Packco or any Packco Subsidiary have been paid in
full or have been recorded as a liability on the Packaging Business
Disclosure Letter Balance Sheet (in accordance with the Basis of
Presentation set forth therein); (v) neither Grace, Packco nor any Packco
Subsidiary is a party to any tax sharing or similar agreement pursuant to
which the Packaging Business has indemnified another party with respect to
taxes; and (vi) neither Grace (with respect to the Packaging Business),
Packco nor any of the Packco Subsidiaries has waived any applicable
statute of limitations with respect to any taxes.
(j) Environmental Matters. Except as disclosed in the Grace SEC
Documents filed prior to the date hereof and except for such matters that,
individually and in the aggregate, are not reasonably likely to have a
Material Adverse Effect with respect to the Packco Group or the Packaging
Business, (i) Grace and its subsidiaries, with respect to the Packaging
Business, Packco and the Packco Subsidiaries are and have been in
compliance with all applicable Environmental Laws; (ii) Grace and its
subsidiaries, with respect to the Packaging Business, Packco and the
Packco Subsidiaries hold and have held all permits under any Environmental
Law required for the operation of the Packaging Business as presently
conducted and are in compliance with the terms of such permits; and (iii)
neither Grace nor any of its subsidiaries, with respect to the Packaging
Business, Packco, nor any of the Packco Subsidiaries has received any
outstanding written notices, demand letters, claims or requests for
information, nor has any complaint been filed, penalty assessed, nor is
any investigation, action, claim, suit, proceeding or review pending (with
respect to which Grace has been provided notice), or, to the knowledge of
the executive officers of Grace, threatened by any Governmental Entity or
any third party that assert that Grace or any of its subsidiaries, with
respect to the Packaging Business, Packco, or any of the Packco
Subsidiaries may be in violation of, or liable under, any Environmental
Law (including as an indemnitor in connection with any threatened or
asserted claim by any third party indemnitee, which indemnity claim may be
a Packco Liability (as defined in the Distribution Agreement)), and none
of Grace or any of its subsidiaries, with respect to the Packaging
Business, Packco, the Packco Subsidiaries or its properties is subject to
any citation, court order, administrative order or decree arising under
any Environmental Law. None of the real property owned or leased by Grace
(with respect to the Packaging Business) or any of its subsidiaries (with
respect to any Packco Asset), Packco or any Packco Subsidiary is listed
on, or, to the knowledge of the executive officers of Grace, proposed for
listing on the "National Priorities List" under CERCLA, or any similar
state, local or foreign list of sites requiring investigation or cleanup.
(k) Contracts and Commitments. Except as set forth in the Packaging
Business Disclosure Letter, and except for matters that would not,
individually or in the aggregate, have a Material Adverse Effect with
respect to the Packaging Business or the Packco Group, (i) Grace, Packco
and the Packco Subsidiaries will not, as of the Effective Time, be parties
to or bound by any Contract that materially limits the ability of Grace
after the Merger, Packco, the Surviving Corporation or any of their
respective subsidiaries to compete in any line of business or with any
person or in any geographic area, in each case with respect to the
Packaging Business or the business of Sealed Air as presently conducted;
(ii) neither Grace nor any of its subsidiaries is (with or without the
lapse of time or the giving of notice, or both) in breach or default in
any material respect under any Contract that is material to the operation
of the Packaging Business; (iii) to the knowledge of the executive
officers of Grace, none of the other parties to any Contract that is
material to the operation of the Packaging Business is (with or without
the lapse of time or the giving of notice, or both) in breach or default
in any material respect thereunder and (iv) neither Grace nor any of its
subsidiaries has received any written notice of the intention of any party
to terminate any Contract whether as a termination for convenience or for
default of Grace or any of its subsidiaries thereunder.
(l) Employee Benefit Plans. (i) The Packaging Business Disclosure
Letter includes a complete list of all material employee benefit plans,
programs, policies, practices and other arrangements (regardless of
whether they are funded or unfunded or foreign or domestic, but excluding
any such plans, programs, policies, practices and arrangements mandated or
sponsored by a Governmental Entity with respect to foreign Packco
Employees) providing benefits to any current or former Packco Employee or
beneficiary or dependent thereof, sponsored or maintained by Grace or any
of its subsidiaries, with respect to the Packaging Business, Packco or any
of the Packco Subsidiaries, or to which Grace or any of its subsidiaries,
with respect to the Packaging Business, Packco or any of the Packco
Subsidiaries contributes or is obligated to contribute (the "Packaging
Business Plans"). Without limiting the generality of the foregoing, the
term "Packaging Business Plans" includes all employee welfare benefit
plans within the meaning of Section 3(1) of ERISA and all employee pension
benefit plans within the meaning of Section 3(2) of ERISA; provided, that
such list may not be complete as of the date hereof as to Packaging
Business Plans providing benefits to foreign Packco Employees, but such
list shall be updated so as to be complete as to such Packaging Business
Plans promptly following the date hereof. The Packaging Business
Disclosure Letter also specifically identifies those Packaging Business
Plans that are sponsored, maintained or contributed to exclusively by
Packco or any of the Packco Subsidiaries exclusively for the benefit of
Packco Employees (the "Packaging Business-Only Plans").
(ii) With respect to each Packaging Business Plan providing benefits
to U.S. Packco Employees, Grace has delivered or made available to Sealed
Air and, with respect to each Packaging Business Plan providing benefits
to foreign Packco Employees, promptly following the date hereof, Grace
will deliver or make available to Sealed Air, a true, correct and complete
copy of each of the following: (A) all plan documents and the current
summary plan descriptions (if any); (B) all benefit schedules, trust
agreements and insurance contracts and other funding vehicles, if any; (C)
the most recent Annual Report (Form 5500 Series) and accompanying
schedule, if any, or any similar filing made with any foreign authority;
(D) the most recent annual financial report, if any; (E) the most recent
actuarial report, if any; and (F) the most recent determination letter
from the IRS or similar document issued by any other taxing authority, if
any. Except as specifically provided in the foregoing documents delivered
or made available to Sealed Air, there are no amendments to any Packaging
Business Plan that have been adopted or approved, nor has Grace or Packco
undertaken to make any such amendments.
(iii) The Packaging Business Disclosure Letter identifies each
Packaging Business Plan that is intended to be a "qualified plan" within
the meaning of Section 401(a) of the Code (the "Packco Qualified Plans").
The IRS has issued a favorable determination letter with respect to each
Packco Qualified Plan, in each case that has not been revoked, or an
application for such a letter has been or will be filed before the
expiration of the remedial amendment period, and Grace knows of no
existing circumstances nor any events that have occurred that could
adversely affect the qualified status of any such plan or the related
trust. No Packaging Business-Only Plan is intended to meet the
requirements of Section 501(c)(9) of the Code.
(iv) Grace and its subsidiaries and Packco and the Packco Subsidiaries
have complied, and are now in compliance, in all material respects, with
all provisions of ERISA, the Code and all other laws and regulations
applicable to the Packaging Business-Only Plans. There is not now, nor do
any circumstances exist that could give rise to, any requirement for the
posting of security with respect to any Packaging Business-Only Plan or
the imposition of any lien on the assets of Packco or a Packco Subsidiary
under ERISA or the Code. No prohibited transaction (as defined in ERISA)
has occurred with respect to any Packaging Business-Only Plan.
(v) No Packaging Business-Only Plan is a "multi-employer plan" within
the meaning of Section 4001(a)(3) of ERISA (a "Multiemployer Plan") or a
plan that has two or more contributing sponsors at least two of whom are
not under common control within the meaning of Section 4063 of ERISA (a
"Multiple Employer Plan"). There does not now exist, nor do any
circumstances exist that could result in, any liability under (A) Title IV
of ERISA, (B) Section 302 of ERISA, (C) Sections 412 and 4971 of the Code,
(D) the continuation coverage requirements of Section 601 et seq. of ERISA
and Section 4980B of the Code, or (E) corresponding or similar provisions
of foreign laws or regulations, that would be a liability of Newco, Packco
or a Packco Subsidiary following the Effective Time, other than such
liabilities that arise solely out of, or relate solely to, the Packaging
Business-Only Plans.
(vi) All contributions required to be made to any Packaging Business
Plan by applicable law or regulation or by any plan document or other
contractual undertaking, and all premiums due or payable with respect to
insurance policies funding any Packaging Business Plan, have been timely
made or paid in full. Without limiting the generality of the foregoing,
all contributions to the Hourly SIP and the Salaried SIP (each as defined
in the Benefits Agreement) have been timely made in accordance with past
practice.
(vii) All Packaging Business Plans covering foreign Packco Employees
comply with applicable local law, except when the failure to so comply,
individually or in the aggregate, would not have a Material Adverse Effect
with respect to the Packco Group or the Packaging Business.
(viii) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (either alone or
in conjunction with any other event) result in, cause the accelerated
vesting or delivery of, or increase the amount or value of, any payment or
benefit to any Packco Employee. Without limiting the generality of the
foregoing, no amount paid or payable in connection with the transactions
contemplated hereby (either solely as a result thereof or as a result of
such transactions in conjunction with any other event) will be an "excess
parachute payment" within the meaning of Section 280G of the Code.
(ix) To the knowledge of the executive officers of Grace, Grace has,
and, after the Effective Time, Packco will have, the right to amend or
terminate any Packaging Business Plan to the extent it provides
post-retirement medical and life insurance benefits under U.S. Welfare
Plans (as defined in the Benefits Agreement), other than such benefits
that the New Grace Group is responsible for providing pursuant to the
Benefits Agreement, and except as may be required by any applicable
collective bargaining agreement.
(m) Trademarks, Patents and Copyrights. Grace, Packco or a Packco
Subsidiary owns or possesses adequate licenses or other rights to use all
patents, trademarks, trade names, service marks, copyrights, licenses and
product licenses or registrations (including applications for any of the
foregoing), technology, know-how, tangible or intangible proprietary
intellectual property rights, information or material (whether conceived,
reduced to practice or under development), formulae, inventions and new
and investigational applications (including all options or other rights to
acquire any of the foregoing) as are necessary, used or held for use in
connection with the Packaging Business (the "Packaging Business
Intellectual Property"), the lack of which would reasonably be expected to
have a Material Adverse Effect with respect to the Packco Group or the
Packaging Business. None of Grace, Packco or any of its subsidiaries has
received any adverse claim by any other person with respect to the
Packaging Business Intellectual Property or is aware, to the knowledge of
the executive officers of Grace, Packco and the Packco Subsidiaries, of
any infringements with respect thereto, and there is no infringement by
Grace, Packco or any Packco Subsidiary of the intellectual property rights
of others, which, in each case, would, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect with respect to
the Packco Group or the Packco Business. Except for matters that would
not, individually or in the aggregate, have a Material Adverse Effect with
respect to the Packaging Business, immediately after the Contribution,
Grace, Packco or a Packco Subsidiary will own or possess adequate licenses
or other rights to use (subject to the terms of the Distribution
Agreement, on substantially the same basis as currently owned or possessed
by Grace and its Subsidiaries) all of the Packaging Business Intellectual
Property. Except as contemplated by Section 2.01(d) of the Distribution
Agreement, there are no Contracts, agreements or licenses pursuant to
which Grace or any subsidiaries of Grace which are not a member of the
Packco Group will retain rights or interests of any kind in or affecting
the Packaging Business Intellectual Property.
5.3. Representations and Warranties of Sealed Air. Sealed Air hereby
represents and warrants to Grace that, except as set forth in a letter delivered
to Grace simultaneously with the execution and delivery of this Agreement (the
"Sealed Air Disclosure Letter"):
(a) Capital Stock. The authorized capital stock of Sealed Air
consists of 125,000,000 Sealed Air Common Shares, par value $.01 per
share, of which 42,624,246 were outstanding as of August 14, 1997, and
1,000,000 Sealed Air Preferred Shares, no par value, none of which was
outstanding as of such date. 157,858 Sealed Air Common Shares were held in
treasury by Sealed Air and its subsidiaries as of August 14, 1997. As of
August 14, 1997, there were outstanding under the Sealed Air Amended
Contingent Stock Plan and the Sealed Air Amended Restricted Stock Plan for
Non-Employee Directors and any other plan for employees or directors of
Sealed Air (collectively, the "Sealed Air Stock Plans") no awards granting
rights to acquire Sealed Air Common Shares (subject to adjustment on the
terms set forth in the Sealed Air Stock Plans). As of August 14, 1997,
there are no shares of capital stock of Sealed Air reserved for issuance,
other than 547,050 Sealed Air Common Shares reserved for issuance pursuant
to the Sealed Air Stock Plans. All outstanding Sealed Air Common Shares
have been duly authorized and validly issued and are fully paid and
nonassessable. Except for the Sealed Air Common Shares, Sealed Air has
outstanding no bonds, debentures, notes or other obligations the holders
of which have the right to vote (or are convertible or exchangeable into
or exercisable for securities having the right to vote) with the
shareholders of Sealed Air on any matter. Each of the outstanding shares
of capital stock of each of Sealed Air's subsidiaries has been duly
authorized and validly issued and is fully paid and nonassessable and,
except for an immaterial number of shares held by officers and directors
of Sealed Air and its subsidiaries as required by applicable law, is
owned, either directly or indirectly, by Sealed Air free and clear of all
liens, pledges, security interests, claims, proxies, preemptive or
subscriptive rights or other encumbrances or restrictions of any kind.
Except as set forth above and except for awards and Sealed Air Common
Shares issued after August 14, 1997 pursuant to the terms of the Sealed
Air Profit Sharing Plan in accordance with Section 6.1(c), there are no
shares of capital stock of Sealed Air authorized, issued or outstanding
and there are no preemptive rights or any outstanding subscriptions,
options, puts, calls, warrants, rights, convertible or exchangeable
securities or other agreements or commitments of Sealed Air or any of its
subsidiaries of any character relating to the issued or unissued capital
stock or other securities of Sealed Air (including, without limitation,
the issuance, sale, purchase, redemption, conversion, exchange,
redemption, voting or transfer thereof). As of the Effective Time, the
number of Sealed Air Common Shares outstanding (including any awards
pursuant to the Sealed Air Stock Plans) shall not exceed the number
outstanding as of August 14, 1997, except to the extent that such excess
is reflected in an adjustment to the Per Share Common Consideration (as
defined in the Distribution Agreement) as provided in the definition
thereof.
(b) Corporate Organization and Qualification. Each of Sealed Air and
its subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of its or such subsidiary's jurisdiction of
organization and is in good standing (if recognized in such jurisdiction,
or, if not, duly qualified) as a foreign corporation in each jurisdiction
where the properties owned, leased or operated, or the business conducted,
by it or such subsidiary require such qualification, except for any such
failure so to qualify or be in good standing which, when taken together
with all other such failures, is not reasonably likely to have a Material
Adverse Effect with respect to Sealed Air. Each of Sealed Air and its
subsidiaries has the requisite corporate power and authority and all
material governmental licenses and approvals to carry on its businesses as
they are now being conducted. Sealed Air has made available to the other
parties hereto a complete and correct copy of its Certificate of
Incorporation and By-laws, each as amended to date and currently in full
force and effect.
(c) Corporate Authority. Subject only to the receipt of the
requisite approval of its shareholders to consummate the Merger, Sealed
Air has the requisite corporate power and authority and has taken all
corporate action necessary in order to execute, deliver and perform each
Transaction Agreement to which it is a party and to consummate the
transactions contemplated hereby and thereby, including, without
limitation, the approval of the Sealed Air Board and the resolution of the
Sealed Air Board to recommend, subject to their fiduciary duties, the
transactions contemplated hereby and thereby for approval by Sealed Air
shareholders. Each Transaction Agreement to which Sealed Air is a party
is, or when executed and delivered shall be, a valid and binding agreement
of Sealed Air enforceable in accordance with its terms. The affirmative
vote of the holders of a majority of outstanding Sealed Air Common Shares
in favor of the Merger is the only vote of the holders of Sealed Air's
capital stock necessary in connection with the consummation of the Merger.
(d) Governmental Filings; No Violations. (i) Other than as may be
required under the HSR Act and similar statutes in other countries, the
Exchange Act, the Securities Act, and state securities laws, no notices,
reports or other filings are required to be made by Sealed Air or any of
its subsidiaries with, nor are any consents, registrations, approvals,
permits or authorizations required to be obtained by it or any such
subsidiary from, any Governmental Entity in connection with the execution,
delivery or performance of each Transaction Agreement to which Sealed Air
is a party and the consummation by Sealed Air of the transactions
contemplated hereby and thereby, except for such matters as would not,
individually or in the aggregate, have a Material Adverse Effect with
respect to Sealed Air or prevent or materially delay or enable any person
to enjoin consummation of the transactions contemplated hereby and
thereby.
(ii) The execution, delivery and performance by Sealed Air of each
Transaction Agreement to which it is a party does not or will not, and the
consummation by it of any of the transactions contemplated hereby and
thereby will not, constitute or result in (with or without the giving of
notice, the lapse of time or both) (A) a breach or violation of, or a
default under, its Certificate of Incorporation or By-laws, or (B) a
breach or violation of, or a default under, or an acceleration or
termination of or change in the rights or obligations of any party under,
or the creation of a lien, pledge, security interest or other encumbrance
on any assets pursuant to, any provision of any Contracts of it or any of
its subsidiaries or any law, rule, ordinance or regulation or judgment,
decree, order, award or governmental or non-governmental permit or license
to which it or any of its subsidiaries is subject, except, in the case of
clause (B) above, for such breaches, violations, defaults, accelerations
or changes that are disclosed in the Sealed Air Disclosure Letter or,
individually and in the aggregate, are not reasonably likely to have a
Material Adverse Effect with respect to Sealed Air or prevent or
materially delay or enable any person to enjoin consummation of the
Reorganization.
(e) SEC Documents; Financial Statements; No Undisclosed Liabilities.
(i) Sealed Air has filed all forms, reports and documents required to be
filed by it under the Exchange Act or the Securities Act since December
31, 1994. As of its filing date, each such SEC Document filed, and each
SEC Document that will be filed by Sealed Air or its subsidiaries prior to
the Effective Time, as amended or supplemented, if applicable, pursuant to
the Exchange Act or the Securities Act (A) complied or will comply in all
material respects with the applicable requirements of the Exchange Act or
the Securities Act and (B) did not or will not contain any untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. Each of Sealed
Air's consolidated balance sheets included in or incorporated by reference
into its SEC Documents fairly presents in all material respects the
consolidated financial position of it and its subsidiaries as of the dates
set forth therein, and each of the consolidated statements of earnings,
cash flows and shareholders' equity included in or incorporated by
reference into its SEC Documents (including any related notes and
schedules) fairly presents in all material respects the consolidated
results of operations, cash flows and shareholders' equity, as the case
may be, of Sealed Air and its subsidiaries for the periods set forth
therein (subject, in the case of unaudited statements, to normal year-end
audit adjustments), in each case in accordance with US GAAP (applied on a
consistent basis).
(ii) Except as disclosed in its SEC Documents filed with the SEC prior
to the date hereof, neither Sealed Air nor any of its subsidiaries has any
liabilities of any kind whatsoever, whether or not accrued, contingent or
otherwise, that, individually or in the aggregate, are reasonably likely
to have a Material Adverse Effect with respect to Sealed Air.
(f) Absence of Certain Events and Changes. Except as disclosed in
its SEC Documents filed with the SEC prior to the date hereof, since
December 31, 1996, Sealed Air and its subsidiaries have conducted their
respective businesses only in the ordinary course of such businesses, and
there has not been any change or development or combination of changes or
developments (including any worsening of any condition currently existing)
which, individually or in the aggregate, is reasonably likely to result in
a Material Adverse Effect with respect to Sealed Air.
(g) Compliance with Laws. Except as disclosed in its SEC Documents
filed with the SEC prior to the date hereof, Sealed Air and its
subsidiaries have complied with all applicable federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders
or decrees applicable thereto, except where the failure to comply is not
reasonably likely, individually and in the aggregate, to have a Material
Adverse Effect with respect to Sealed Air. Sealed Air and its subsidiaries
have, and, immediately after the Merger, will have, all permits, licenses,
certificates of authority, orders, and approvals of, and has and will have
made all filings, applications, and registrations with, federal, state,
local, and foreign Governmental Entities that are required in order to
permit it or such subsidiary to carry on its business as it is presently
conducted, except for such permits, licenses, certificates, orders,
filings, applications and registrations, the failure to have or make
which, individually or in the aggregate, are not reasonably likely to have
a Material Adverse Effect with respect to Sealed Air.
(h) Title to Assets. Except as disclosed in its SEC Documents filed
with the SEC prior to the date hereof, Sealed Air or its subsidiaries have
and, immediately after the Merger, will:
(i) have good and valid title to its properties and assets
(including, without limitation, all assets reflected on the audited
1996 balance sheet of Sealed Air, except for such assets as were
sold since December 31, 1996 in the ordinary course of business and
not in violation of this Agreement), free and clear of any Liens;
and
(ii) own or have adequate rights to use all assets currently
used or held for use by Sealed Air and its subsidiaries, and such
rights are sufficient to permit Sealed Air to continue to operate
Sealed Air's business as currently conducted by Sealed Air and its
subsidiaries;
in each case except for such matters as would not, individually or in the
aggregate, have a Material Adverse Effect on Sealed Air.
(i) Litigation. Except as disclosed in Sealed Air's SEC Documents
filed with the SEC prior to the date hereof, there are no civil, criminal
or administrative actions, suits, claims, hearings or proceedings pending
or, to the knowledge of its executive officers, threatened, or
investigations pending, against Sealed Air or any of its subsidiaries
that, individually or in the aggregate, are reasonably likely to have a
Material Adverse Effect with respect to Sealed Air. There are no judgments
or outstanding orders, writs, injunctions, decrees, stipulations or awards
(whether rendered or issued by a court or Governmental Entity, or by
arbitration) against Sealed Air or any of its subsidiaries or their
respective properties or businesses, which are reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect with
respect to Sealed Air.
(j) Taxes. Except as reflected in Sealed Air's SEC Documents filed
with the SEC prior to the date hereof, and except for such matters that,
individually or in the aggregate, are not reasonably likely to have a
Material Adverse Effect with respect to Sealed Air, (i) all federal,
state, local and foreign tax returns required to be filed by or on behalf
of Sealed Air or any of its subsidiaries have been timely filed, or
requests for extensions have been timely filed and have been granted and
not expired, and all such filed returns are complete and accurate; (ii)
all taxes shown as due and payable on returns filed by Sealed Air or any
of its subsidiaries have been paid in full; (iii) there is no outstanding
audit examination, deficiency, or refund litigation with respect to any
taxes of Sealed Air or any of its subsidiaries; (iv) all taxes, interest,
additions and penalties due with respect to completed and settled
examinations or concluded litigation relating to Sealed Air or any of its
subsidiaries have been paid in full or have been recorded as a liability
on the balance sheet of Sealed Air (in accordance with US GAAP); (v)
neither Sealed Air nor any of its subsidiaries is a party to a tax sharing
or similar agreement or any agreement pursuant to which it or any of its
subsidiaries has indemnified another party with respect to taxes; and (vi)
neither Sealed Air nor any of its subsidiaries has waived any applicable
statute of limitations with respect to any taxes.
(k) Contracts and Commitments. Except as set forth in the Sealed Air
Disclosure Letter, and except for matters that would not, individually or
in the aggregate, have a Material Adverse Effect with respect to Sealed
Air, (i) Sealed Air and its subsidiaries will not, as of the Effective
Time, be parties to or bound by any Contract that materially limits the
ability of Grace after the Merger, Packco, the Surviving Corporation or
any of their respective subsidiaries to compete in any line of business or
with any person or in any geographic area; (ii) neither Sealed Air nor any
of its subsidiaries is (with or without the lapse of time or the giving of
notice, or both) in breach or default in any material respect under any
Contract that is material to the operation of Sealed Air; (iii) none of
the other parties to any Contract that is material to the operation of
Sealed Air is (with or without the lapse of time or the giving of notice,
or both) in breach or default in any material respect thereunder; and (iv)
neither Sealed Air nor any of its subsidiaries has received any written
notice of the intention of any party to terminate any such Contract
whether as a termination for convenience or for default of Sealed Air or
any of its subsidiaries thereunder.
(l) Employee Benefits. (i) The Sealed Air Disclosure Letter includes
a complete list of all material employee benefit plans, programs,
policies, practices and other arrangements (regardless of whether they are
funded or unfunded or foreign or domestic, but excluding any such plans,
programs, policies, practices and arrangements mandated or sponsored by a
Governmental Entity with respect to foreign employees) providing benefits
to any current or former employee of Sealed Air or any of its subsidiaries
(collectively, "Sealed Air Employees") or beneficiary or dependent
thereof, sponsored or maintained by Sealed Air or any of its subsidiaries,
or to which Sealed Air or any of its subsidiaries contributes or is
obligated to contribute (the "Sealed Air Plans"); provided, that such list
may not be complete as of the date hereof as to Sealed Air Plans providing
benefits to foreign Sealed Air Employees, but such list shall be updated
so as to be complete as to such Sealed Air Plans promptly following the
date hereof. Without limiting the generality of the foregoing, the term
"Sealed Air Plans" includes all employee welfare benefit plans within the
meaning of Section 3(1) of ERISA and all employee pension benefit plans
within the meaning of Section 3(2) of ERISA.
(ii) With respect to each Sealed Air Plan providing benefits to U.S.
Sealed Air Employees, Sealed Air has delivered or made available to Grace,
and with respect to each Sealed Air Plan providing benefits to foreign
Sealed Air Employees, promptly following the date hereof, Sealed Air will
deliver or make available to Grace, a true, correct and complete copy of
each of the following: (A) all plan documents, (B) all benefit schedules,
trust agreements and insurance contracts and other funding vehicles, and
the current summary plan descriptions (if any); (C) the most recent Annual
Report (Form 5500 Series) and accompanying schedule, if any, or any
similar filing made with any foreign authority; (D) the most recent annual
financial report, if any; (E) the most recent actuarial report, if any;
and (F) the most recent determination letter from the IRS or similar
document issued by any other taxing authority, if any. Except as
specifically provided in the foregoing documents delivered or made
available to each of the parties hereto, there are no amendments to any
Sealed Air Plan that have been adopted or approved, nor has Sealed Air
undertaken to make any such amendments.
(iii) The Sealed Air Disclosure Letter identifies each Sealed Air Plan
that is intended to be a "qualified plan" within the meaning of Section
401(a) of the Code ("Sealed Air Qualified Plans"). The IRS has issued a
favorable determination letter with respect to each Sealed Air Qualified
Plan, in each case that has not been revoked, or application for such a
letter has been or will be filed before the expiration of the remedial
amendment period, and Sealed Air knows of no existing circumstances nor
any events that have occurred that could adversely affect the qualified
status of any such plan or the related trust. No Sealed Air Plan is
intended to meet the requirements of Section 501(c)(9) of the Code.
(iv) Sealed Air and its subsidiaries have complied, and are now in
compliance, in all material respects with all provisions of ERISA, the
Code and all other laws and regulations applicable to the Sealed Air
Plans. There is not now, nor do any circumstances exist that could give
rise to, any requirement for the posting of security with respect to any
Sealed Air Plan or the imposition of any lien on the assets of Sealed Air
under ERISA or the Code. No prohibited transaction (as defined in ERISA)
has occurred with respect to any Sealed Air Plan.
(v) All contributions required to be made to any Sealed Air Plan by
applicable law or regulation or by any plan document or other contractual
undertaking, and all premiums due or payable with respect to insurance
policies funding any Sealed Air Plan, have been timely made or paid in
full.
(vi) No Sealed Air Plan currently sponsored or maintained by Sealed
Air, any of its subsidiaries or any of their respective ERISA Affiliates
is subject to Title IV or Section 302 of ERISA or Section 412 or 4971 of
the Code. Without limiting the generality of the foregoing, no Sealed Air
Plan is a Multiemployer Plan or a Multiple Employer Plan, nor has Sealed
Air or any ERISA Affiliate of Sealed Air, at any time since September 2,
1974, contributed to or been obligated to contribute to any Multiemployer
Plan or Multiple Employer Plan. There does not now exist, nor do any
circumstances exist that could result in, any liability under (A) Title IV
of ERISA, (B) Section 302 of ERISA, (C) Sections 412 and 4971 of the Code,
(D) the continuation coverage requirements of Section 601 et seq. of ERISA
and Section 4980B of the Code, or (E) corresponding or similar provisions
of foreign laws or regulations, that would be a liability of Sealed Air or
any of its subsidiaries following the Effective Time, other than such
liabilities that arise solely out of, or relate solely to, the Sealed Air
Plans.
(vii) Neither Sealed Air nor any of its subsidiaries has any
obligations for retiree health and life benefits under any Sealed Air
Plan.
(viii) All Sealed Air Plans covering foreign Sealed Air Employees comply
with applicable local law, except when the failure to so comply,
individually or in the aggregate, would not have a Material Adverse Effect
with respect to Sealed Air.
(ix) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (either alone or
in conjunction with any other event) result in, cause the accelerated
vesting or delivery of, or increase the amount or value of, any payment or
benefit to any Sealed Air Employee. Without limiting the generality of the
foregoing, no amount paid or payable in connection with the transactions
contemplated hereby (either solely as a result thereof or as a result of
such transactions in conjunction with any other event) will be an "excess
parachute payment" within the meaning of Section 280G of the Code. Sealed
Air and its subsidiaries have not entered into any change-of-control
agreements under which Sealed Air will be obligated to make
change-of-control payments following the Merger.
(m) Environmental Matters. Except as disclosed in its SEC Documents
filed prior to the date hereof and except for such matters that,
individually and in the aggregate, are not reasonably likely to have a
Material Adverse Effect with respect to Sealed Air, (i) Sealed Air and its
subsidiaries are and have been in compliance with all applicable
Environmental Laws; (ii) Sealed Air and its subsidiaries hold and have
held all permits under any Environmental Law required for the operation of
their respective businesses as presently conducted and are in compliance
with the terms of such permits; and (iii) neither Sealed Air nor any of
its subsidiaries has received any outstanding written notices, demand
letters, claims or requests for information, nor has any complaint been
filed, penalty assessed, nor is any investigation, action, claim, suit,
proceeding or review pending (with respect to which Sealed Air has been
provided notice), or, to the knowledge of the executive officers of Sealed
Air, threatened by any Governmental Entity or any third party that assert
that Sealed Air or any of its subsidiaries may be in violation of, or
liable under, any Environmental Law (including as an indemnitor in
connection with any threatened or asserted claim by any third party
indemnitee), and none of Sealed Air, its subsidiaries or its properties is
subject to any citation, court order, administrative order or decree
arising under any Environmental Law. None of the real property owned or
leased by Sealed Air or any of its subsidiaries is listed on, or, to the
knowledge of Sealed Air's executive officers, proposed for listing on the
"National Priorities List" under CERCLA, or any similar state, local or
foreign list of sites requiring investigation or cleanup.
(n) Takeover Statutes; Rights Plans. The execution, delivery and
performance of this Agreement and consummation of the transactions
contemplated hereby will not cause to be applicable to Sealed Air any
Takeover Statute (after giving effect to any actions that will be taken
prior to the Effective Time). Sealed Air does not have any preferred share
purchase rights plan or similar rights plan in effect.
(o) Brokers and Finders. Neither Sealed Air nor any of its
subsidiaries or any of their respective officers, directors or employees
has employed any broker or finder or incurred any liability for any
brokerage fees, commissions or finders' fees in connection with the
transactions contemplated herein, except pursuant to arrangements
disclosed in writing to the other parties hereto prior to the date hereof.
(p) Trademarks, Patents and Copyrights. Sealed Air and its
subsidiaries own or possess adequate licenses or other rights to use all
patents, trademarks, trade names, service marks, copyrights, licenses and
product licenses or registrations (including applications for any of the
foregoing), technology, know-how, tangible or intangible proprietary
intellectual property rights, information or material (whether conceived,
reduced to practice or under development), formulae, inventions and new
and investigational applications (including all options or rights to
acquire any of the foregoing) as are necessary, used or held for use in
connection with its business (the "Sealed Air Intellectual Property"), the
lack of which would reasonably be expected to have a Material Adverse
Effect with respect to Sealed Air. None of Sealed Air or any of its
subsidiaries has received any adverse claim by any other person with
respect to the Sealed Air Intellectual Property or is aware, to the
knowledge of the executive officers of Sealed Air and its subsidiaries, of
any infringement with respect thereto, and there is no infringement by
Sealed Air or its subsidiaries of the intellectual property rights of
others, which, in each case, would, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect with respect to
Sealed Air. Except for matters that would not, individually or in the
aggregate, have a Material Adverse Effect with respect to Sealed Air,
immediately after the Merger, the Surviving Corporation and its
subsidiaries will own or possess adequate licenses or other rights to use
(on substantially the same basis as currently owned or possessed by Sealed
Air and its subsidiaries) all of the Sealed Air Intellectual Property.
(q) Tax Matters. At the Effective Time, the representations set
forth in the Tax Matters Certificates of Sealed Air, substantially in the
form of Exhibit B (the "Sealed Air Tax Matters Certificate"), will be true
and correct in all respects, and such representations are hereby
incorporated herein by reference with the same effect as if set forth
herein in their entirety.
(r) Disclosure. The representations and warranties of Sealed Air
contained in this Agreement or in any written instrument, exhibit or
certificate furnished or to be furnished by Sealed Air to Grace pursuant
hereto or in connection herewith do not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make
the statements contained therein not misleading.
ARTICLE VI
COVENANTS
6.1. Interim Operations. Each of Grace and Sealed Air covenants and
agrees as to itself and its subsidiaries that, from and after the date hereof
until the Effective Time, except insofar as the other parties shall otherwise
consent or except as otherwise contemplated by this Agreement, the Transaction
Agreements or its Disclosure Letters (provided that, as used in this Section,
all references to Grace (and/or its Affiliates) shall be deemed to refer to
Grace and all of the Subsidiaries of Grace (in each case only with respect to
the Packaging Business), the Packco Group and the Packaging Business except as
otherwise specifically provided):
(a) The business of it and its subsidiaries will be conducted only
in the ordinary and usual course and it and its subsidiaries will use all
reasonable efforts to preserve their business organization intact and
maintain their existing relations with customers, suppliers, employees and
business associates.
(b) It will not (i) sell or pledge or agree to sell or pledge any
stock owned, directly or indirectly, by it in any of its subsidiaries,
(ii) amend its Certificate of Incorporation or By-laws (or similar
organizational document); (iii) split, combine or reclassify any
outstanding capital stock; or (iv) declare, set aside or pay any dividend
payable in stock or property with respect to any of its capital stock
(other than, in the case of Grace, regular quarterly cash dividends
consistent with Grace's current practice, and intercompany dividends).
(c) Neither it nor any of its subsidiaries will issue, sell, pledge,
dispose of or encumber, or authorize or propose the issuance, sale,
pledge, disposition or encumbrance of, any shares of, or securities
convertible or exchangeable for, or options, puts, warrants, calls,
commitments or rights of any kind to acquire, any shares of its capital
stock of any class other than common shares issuable pursuant to options,
awards, warrants and other convertible securities outstanding on the date
hereof and disclosed herein, provided that notwithstanding the foregoing
(A) Grace may grant options to acquire Grace Common Shares so long as such
options will not, after the Recapitalization, be or become options to
purchase capital stock or other securities of Newco or any of its
subsidiaries, and (B) in the ordinary course of business, Sealed Air may
grant awards to acquire Sealed Air Common Shares or make all or part of
its contribution to the Sealed Air Profit Sharing Plan in the form of
Sealed Air Common Shares.
(d) Neither it nor any of its subsidiaries will (i) other than in
the ordinary course of business, transfer, lease, license, guarantee,
sell, mortgage, pledge or dispose of any property or assets or encumber
any property or assets, or make any material acquisition of, or investment
in, assets, stock or other securities of any other person or entity (other
than its wholly-owned subsidiaries); or (ii) transfer, license, sell,
pledge or dispose of any material Intellectual Property rights.
(e) Except as required or contemplated by agreements or arrangements
disclosed in its SEC Documents or its Disclosure Letter, neither it nor
any of its subsidiaries will grant any severance or termination pay to, or
enter into, extend or amend any employment, consulting, severance or other
compensation agreement with, any director or officer or, other than in the
ordinary course of business consistent with past practice, other
employees, except that the foregoing shall not prohibit Grace from
entering into any such agreement or arrangement that will not be binding
upon Newco or any of its subsidiaries after the Reorganization.
(f) Except as may be required to satisfy contractual obligations
existing as of the date hereof (and disclosed in its Disclosure Letter)
and the requirements of applicable law, and except in the ordinary and
usual course of business, neither it nor any of its subsidiaries will
establish, adopt, enter into, make, amend or make any elections under any
collective bargaining, bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, employee stock ownership,
deferred compensation, employment, termination, severance or other plan,
agreement, trust, fund, policy or arrangement for the benefit of any
directors, officers or employees that would be binding on Newco or any of
its subsidiaries after the Reorganization.
(g) It will not implement any change in its accounting principles,
practices or methods, other than as may be required by US GAAP, and other
than as may be necessary or advisable in connection with the
Reorganization.
(h) Neither Sealed Air nor Grace will adopt or propose any change in
its certificate of incorporation or bylaws.
(i) Grace agrees to use its reasonable best efforts to cause each
person that holds any shares of a Packco Subsidiary constituting directors
qualifying shares to deliver at the Effective Time such shares at the
direction of Sealed Air.
(j) Neither it nor any of its subsidiaries (including in the case of
Grace, all members of the New Grace Group) shall intentionally take any
action knowing that such action would cause a breach of a representation
or warranty herein.
(k) It and its subsidiaries will conduct cash management operations
(including the collection of accounts receivable and realization of cash
from other assets and the payment of trade payables and other liabilities)
only in the ordinary and usual course of business, consistent with past
practices, and, except as contemplated by the Transaction Agreements, all
transactions between the Packco Group or the Packaging Business, on the
one hand, and the New Grace Group or the New Grace Business, on the other,
shall only be in the ordinary and usual course of business, consistent
with the past practices.
(l) Neither it nor any of its subsidiaries will authorize or enter
into an agreement to take any of the actions referred to in paragraphs (a)
through (k) above.
6.2. Certain Transactions.
(a) It is understood and agreed by the parties hereto that, pursuant
to the Distribution Agreement, at the time of the Reorganization and subject to
Section 2.02 of the Distribution Agreement, neither Grace nor any member of the
Packco Group shall have cash or marketable securities, it being contemplated
that, in connection with the Reorganization, such cash and marketable securities
shall be provided to Grace-Conn.
(b) Prior to the Distribution, Grace shall cause each of the parties
to the Distribution Agreement, the Tax Sharing Agreement and the Benefits
Agreement to duly enter into such agreements, which agreements shall not be
amended without the consent of Sealed Air, which will not be unreasonably
withheld.
6.3. Acquisition Proposals. Each party hereto agrees that neither it
nor any of its subsidiaries nor any of its respective officers and directors or
the officers and directors of its subsidiaries shall, and it shall each direct
and use its best efforts to cause its employees, agents and representatives
(including, without limitation, any investment banker, attorney or accountant
retained by it or any of its subsidiaries) not to, initiate, solicit or
encourage, directly or indirectly, any inquiries or the making or implementation
of any proposal or offer with respect to a merger, acquisition, consolidation,
business combination, recapitalization or similar transaction involving, or any
purchase of all or any significant portion of the assets or any equity
securities of, it or any of its subsidiaries (any such proposal or offer being
hereinafter referred to as an "Acquisition Proposal") or provide any
confidential information or data to, or have any discussions or engage in any
negotiations with, any person relating to an Acquisition Proposal; provided,
however, that the Grace Board or the Sealed Air Board may furnish or cause to be
furnished information (pursuant to confidentiality arrangements) and may
participate in such discussions and negotiations directly or through its
representatives if (i) the failure to provide such information or participate in
such negotiations and discussions would, in the opinion of its outside counsel,
cause the members of the Grace Board or the Sealed Air Board, as the case may
be, to breach their fiduciary duties under applicable law or (ii) another person
makes a written offer or written proposal that was not solicited and did not
otherwise result from a breach of this Section 6.3 and which, based upon the
identity of the person making such offer or proposal, the terms thereof and the
availability of adequate financing therefor, the Grace Board or the Sealed Air
Board, as the case may be, believes, in the good faith exercise of its business
judgment and based upon advice of its outside legal and financial advisors,
could reasonably be expected to be consummated and represents a transaction more
favorable to its shareholders than the Reorganization (a "Higher Offer");
provided further, however, that the term "Acquisition Proposal" shall not
include a proposal exclusively involving all or part of the stock or assets of
New Grace and the New Grace Business so long as any such proposal (and the
consummation thereof) will not adversely affect the transactions contemplated
hereby. Grace or Sealed Air, as the case may be, shall notify the other party
hereto as soon as practicable if any such inquiries or proposals are received
by, any such information is requested from, or any such negotiations or
discussions are sought to be initiated or continued with it, which notice shall
include the identity of the interested person and the material terms and
conditions of any inquiry, request for information, offer or proposal.
Thereafter, the party giving the notice shall keep the other reasonably informed
of the status and details of any such inquiry, request for information, offer or
proposal, discussion or negotiations.
6.4. Information Supplied. Each of the parties hereto agrees that
none of the information supplied or to be supplied by it for inclusion or
incorporation by reference in any Registration Statement, the Joint Proxy
Statement or Schedule 14A, or any amendment or supplement thereto, will, in the
case of a Registration Statement, at the time such Registration Statement and
each amendment and supplement thereto becomes effective under the Securities
Act, or, in the case of a Joint Proxy Statement or Schedule 14A, at the time
such Joint Proxy Statement or Schedule 14A and each amendment and supplement
thereto is filed in definitive form with the SEC or mailed to shareholders and
at the time of the applicable Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading. All
documents that either party is responsible for filing with the SEC in connection
with the Reorganization will comply as to form and substance in all material
respects with the applicable requirements of the Exchange Act.
6.5. Shareholder Approvals. Each of Grace and Sealed Air agrees to
take, in accordance with applicable law and its Certificate of Incorporation and
By-laws, all action necessary to convene a meeting of holders of Grace Common
Shares and Sealed Air Common Shares, respectively, as promptly as practicable
after the Registration Statements are declared effective, and the Joint Proxy
Statement is cleared, by the SEC, to consider and vote upon the approval of the
transactions contemplated by the Transaction Agreements (including, without
limitation, the Grace Amendment). Subject to the remainder of this Section 6.5,
each of the Grace Board and the Sealed Air Board shall recommend such adoption
and approval and shall take all lawful action to solicit such approval by
shareholders. The Grace Board or the Sealed Air Board, as the case may be, may
fail to make such a recommendation, or withdraw, modify, or change any such
recommendation, or recommend another offer or proposal, if (i) the making of
such recommendation or failing to withdraw, modify or change its recommendation
or to recommend another offer or proposal would, in the opinion of its outside
counsel, cause the members of the Grace Board or the Sealed Air Board, as the
case may be, to breach their fiduciary duties under applicable law, or (ii)
there is a Higher Offer. In such event, notwithstanding anything contained in
this Agreement to the contrary, any such failure to recommend, withdrawal,
modification or change of recommendation or recommendation of such other offer
or proposal, or the entering by Grace or Sealed Air into an agreement with
respect to a Higher Offer (provided that Grace or Sealed Air, as the case may
be, shall have provided the other party with at least four days' prior notice of
its intention to enter into such agreement and the identity of the other party
thereto and the material terms and conditions of the agreement to be entered
into with such person), shall not constitute a breach of this Agreement by Grace
or Sealed Air, as the case may be.
6.6. Filings; Other Actions. (a) Subject to the obligations of
consultation contained herein, Grace and Sealed Air shall promptly prepare for
filing the Grace Registration Statement and the Joint Proxy Statement to be
mailed to their shareholders, and Grace shall prepare the New Grace Registration
Statement (and related prospectus forming a part thereof to be mailed to the
Grace shareholders), in each case in connection with the Reorganization. In
connection with the foregoing, Grace shall prepare audited annual and unaudited
interim financial statements prepared in accordance with US GAAP and in
compliance with Regulation S-K under the Securities Act for the Packaging
Business (including Grace after giving effect to the Distribution) and for the
New Grace Business, and such financial statements shall be included in the
Registration Statements and the Joint Proxy Statement as may be appropriate.
Each party hereto shall use its reasonable efforts, after consultation with the
other parties hereto, to respond promptly to any comments made by the SEC with
respect to such filings, to have such filings declared effective or cleared, as
the case may be, and cause such filings to be mailed at the earliest reasonably
practicable time. Each party hereto and its counsel shall be given a reasonable
opportunity to review and comment on each version of such filings prior to the
filing thereof with the SEC. Each party hereto also shall use its reasonable
efforts to obtain all necessary state securities law or blue sky permits and
approvals required to carry out the transactions contemplated hereby and shall
furnish all information as may be reasonably requested in connection with any
such action.
(b) Each party hereto shall cooperate with the other parties hereto,
subject to the terms and conditions set forth herein, use its reasonable efforts
promptly to prepare and file all necessary documentation, to effect all
necessary applications, notices, petitions, filings and other documents, and to
obtain as promptly as reasonably practicable all necessary permits, consents,
orders, approvals and authorizations of, or any exemption by, all third parties
and Governmental Entities necessary or advisable to consummate the transactions
contemplated hereby. Each party hereto shall consult with the other parties
hereto with respect to the obtaining of all permits, consents, approvals and
authorizations of all third parties and Governmental Entities necessary or
advisable to consummate the transactions contemplated hereby, and each party
shall keep the other parties hereto apprised of the status of matters relating
to completion of the transactions contemplated hereby.
(c) Each party hereto shall, upon reasonable request and except as
otherwise may be required by applicable law, furnish the other parties hereto
with all information concerning itself, its subsidiaries, directors, officers,
shareholders and other Affiliates and such other matters as may be reasonably
necessary or advisable in connection any statement, filing, notice or
application made by or on behalf of such other party or any of its Affiliates to
any Governmental Entity in connection with any transactions contemplated by this
Agreement.
(d) Each party hereto shall, subject to applicable laws relating to
the disclosure and exchange of information, promptly furnish the other parties
hereto with copies of written communications received by each such party or any
of its subsidiaries, from, or delivered by any of the foregoing to, any
Governmental Entity in respect of the transactions contemplated hereby.
(e) Each party hereto shall cooperate with each other party hereto
and shall use reasonable efforts to take or cause to be taken all actions and do
or cause to be done all things reasonably necessary, proper or advisable to
obtain favorable review of the proposed transaction under the HSR Act and any
foreign antitrust or competition laws.
6.7. Audited Financial Statements; Comfort Letters. (a) Grace shall
prepare, as promptly as practicable, audited annual and unaudited interim
financial statements with respect to each of the New Grace Group and the Packco
Group, as described in Section 6.6(a) hereto. Grace shall deliver to Sealed Air
copies of any such financial statements relating to the Packaging Business,
which shall be certified without qualification by Price Waterhouse LLP or other
nationally recognized accounting firm reasonably acceptable to Sealed Air (the
"Packaging Business Financial Statements").
(b) Each of Grace and Sealed Air shall use all reasonable efforts to
cause to be delivered to the other party, as appropriate, and its directors
letters of its independent accountants, dated (i) the date on which each
Registration Statement shall become effective and (ii) a date shortly prior to
the Effective Time, and addressed to such other party and its directors, in form
and substance customary for "comfort" letters delivered by independent
accountants in connection with registration statements.
6.8. Access. Upon reasonable notice, and except as may otherwise be
required by applicable law, each party hereto shall afford each other party's
Representatives access, during normal business hours throughout the period until
the Effective Time, to its properties, books, Contracts and records and, during
such period, shall (and shall cause each of its subsidiaries to) furnish
promptly to the other party all information concerning its business, properties
and personnel as may reasonably be requested; provided that no investigation
pursuant to this Section 6.8 shall affect or be deemed to modify any
representation or warranty made by the party furnishing such information;
provided further that with respect to the work papers of independent accountants
or any other contract, document, information or other material the provision of
which is not permitted without the consent of a third party, the provision of
access shall be subject to the permission of such independent accountants or
such third party, and each party hereto shall use reasonable efforts to secure
such permission for the other. Each party hereto shall not, and shall cause its
respective Representatives not to, use any information obtained pursuant to this
Section 6.8 for any purpose unrelated to the consummation of the transactions
contemplated by the Transaction Agreements. All information obtained pursuant to
this paragraph shall be subject to the provisions of the written confidentiality
arrangements existing among the parties hereto.
6.9. Notification of Certain Matters. Each party shall give prompt
notice to the other party of (i) any material inaccuracy in any representation
or warranty made by it in this Agreement, (ii) any material failure by it to
comply with any of its covenants or agreements under this Agreement and (iii)
any change or event that is reasonably likely to result in any Material Adverse
Effect or to delay, in any substantial respect, or prevent consummation of the
Reorganization, in each case to the knowledge of the executive officers.
6.10. Publicity. The initial press release relating hereto shall be
a joint press release and, thereafter, each party hereto shall consult with each
other party hereto prior to issuing any press releases or otherwise making
public statements with respect to the transactions contemplated hereby and prior
to making any filings with any Governmental Entity or stock exchange with
respect thereto; provided that, if a party shall be advised by counsel that any
such press release, statement or filing is required by applicable law and it
shall not be practicable to consult with the other parties prior to the time
such press release, statement or filing is required, a party may make such press
release, statement or filing and shall promptly notify the other parties
thereof.
6.11. Employee Benefits; Headquarters Employees. (a) Grace and
Sealed Air covenant and agree that from and after the Effective Time, Grace,
Packco and the Surviving Corporation, as the case may be, shall maintain either
employee benefits plans and programs that are, in the aggregate, at least
substantially comparable to the plans and programs in effect with respect to
Packco Employees at the Effective Time or other plans that are, in the
aggregate, at least substantially comparable to the plans and programs in effect
from time to time with respect to comparable Sealed Air employees.
(b) As a result of the Merger, Sealed Air acknowledges that it will
need to add employees to its corporate staff and related support services,
including in the areas of legal, tax, human resources, accounting, risk
management, cash management, investor relations, information systems and
internal audit. In seeking to fill these needs, Sealed Air shall work with Grace
to identify, prior to the Effective Time, appropriate people located at Grace's
Boca Raton headquarters and shall give such individuals preferential
consideration.
6.12. Expenses. (a) Except as set forth in paragraphs (b) and (c)
below, Section 8.04 of the Distribution Agreement and in the Other Agreements,
all costs and expenses, including without limitation, legal, investment banking,
financial, accounting and other professional fees and expenses, incurred by
Grace or its subsidiaries in connection with the Transaction Agreements and the
transactions contemplated thereby shall be paid by New Grace (or if the
Reorganization is not consummated, Grace) and all such costs and expenses
incurred by Sealed Air or its subsidiaries shall be paid by Newco (or if the
Reorganization is not consummated, Sealed Air); provided, however, that the
costs and expenses of printing and mailing the Joint Proxy Statement and the
Grace Registration Statement, and all filing fees paid to the SEC in connection
therewith, shall be evenly divided between New Grace (or if the Reorganization
is not consummated, Grace) and Sealed Air. The payments under this Section 6.12
shall not be in limitation of the rights of the parties hereto under Sections
8.5 and 9.10 hereof.
(b) In the event that:
(i) this Agreement shall be terminated pursuant to:
(A) Section 8.2(iii) (due to a Higher Offer with respect to
Grace);
(B) Section 8.2(ii) if, after an Acquisition Proposal with
respect to Grace has been publicly disclosed or announced, the Grace
shareholders do not approve the matters required by Section 7.1(a)
and, within one year after termination of this Agreement, Grace
consummates or enters into a written agreement to consummate an
Acquisition Proposal (except that, for this purpose, the reference
to "significant portion" in the definition thereof in Section 6.3
shall mean 20%) or any person (other than an employee stock or
similar plan for the benefit of Grace employees) or group of
affiliated persons shall acquire beneficial ownership (as defined in
Rule 13d-3 under the Exchange Act) of at least 35% of the
outstanding Grace Common Shares;
(C) Section 8.4(ii) and, within one year after termination of
this Agreement, Grace consummates or enters into a written agreement
to consummate an Acquisition Proposal (except that, for this
purpose, the reference to "significant portion" in the definition
thereof in Section 6.3 shall mean 20%) or any person (other than an
employee stock or similar plan for the benefit of Grace employees)
or group of affiliated persons shall acquire beneficial ownership
(as defined in Rule 13d-3 under the Exchange Act) of at least 35% of
the outstanding Grace Common Shares; or
(D) Section 8.2(ii) (due to a failure to obtain Grace
shareholder approval at the Grace Meeting other than in the
circumstances described in clause (B)); and
(ii) at the time of such termination, Sealed Air shall not be in
material breach of its covenants or agreements contained in this
Agreement;
then, Grace shall pay to Sealed Air, in exchange for a complete release of any
liabilities of Grace hereunder, the amount of (1) $150 million plus actual out
of pocket expenses incurred to third parties in connection with the transactions
contemplated hereby after the date of this Agreement, in the case of an event
described in clauses (i)(A) or (i)(C) above, (2) in the case of clause (i)(B),
$25 million at the time of termination and $125 million plus the expenses
described above upon the occurrence of the additional event described in clause
(i)(B) or (3) $25 million, in the event of termination described in clause
(i)(D) above. The amounts payable under this Section shall be paid by wire
transfer of immediately available funds within 24 hours to the account specified
by Sealed Air in writing.
(c) In the event that:
(i) this Agreement shall be terminated pursuant to:
(A) Section 8.2(iii) (due to a Higher Offer with respect to
Sealed Air);
(B) Section 8.2(ii), if, after an Acquisition Proposal with
respect to Sealed Air has been publicly disclosed or announced, the
Sealed Air shareholders do not approve the matters required by
Section 7.1(a), and, within one year after termination of this
Agreement, Sealed Air consummates or enters into a written agreement
to consummate an Acquisition Proposal (except that, for this
purpose, the reference to "significant portion" in the definition
thereof in Section 6.3 shall mean 20%) or any person (other than an
employee stock or similar plan for the benefit of Sealed Air
employees) or group of affiliated persons shall acquire beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act) of at
least 35% of the outstanding Sealed Air Common Shares;
(C) Section 8.3(ii) and, within one year after termination of
this Agreement, Sealed Air consummates or enters into a written
agreement to consummate an Acquisition Proposal (except that, for
this purpose, the reference to "significant portion" in the
definition thereof in Section 6.3 shall mean 20%) or any person
(other than an employee stock or similar plan for the benefit of
Sealed Air employees) or group of affiliated persons shall acquire
beneficial ownership (as defined in Rule 13d-3 under the Exchange
Act) of at least 35% of the outstanding Sealed Air Common Shares; or
(D) Section 8.2(ii) (due to a failure to obtain Sealed Air
shareholder approval at the Sealed Air Meeting other than in the
circumstances described in clause (B)); and
(ii) at the time of such termination, Grace shall not be in material
breach of its covenants or agreements contained in this Agreement;
then, Sealed Air shall pay to Grace, in exchange for a complete release of any
liabilities of Sealed Air hereunder, the amount of (1) $75 million plus actual
out of pocket expenses incurred to third parties in connection with the
transactions contemplated hereby after the date of this Agreement, in the case
of an event described in clauses (i)(A) or (i)(C) above, (2) in the case of
clause (i)(B), $25 million at the time of termination and $50 million plus the
expenses described above upon occurrence of the additional event described in
clause (i)(B) or (3) $25 million, in the event of termination described in
clause (i)(D) above. The amounts payable under this Section shall be paid by
wire transfer of immediately available funds within 24 hours to the account
specified by Grace in writing.
6.13. Antitakeover Statutes. If any Takeover Statute is or may
become applicable to the transactions contemplated hereby, each of the parties
hereto and the members of its Board of Directors shall grant such approvals and
take such actions as are necessary so that the transactions contemplated by this
Agreement may be consummated as promptly as practicable on the terms
contemplated hereby and otherwise act to eliminate or minimize the effects of
any Takeover Statute on any of the transactions contemplated by this Agreement.
6.14. Securities Act Compliance. As soon as practicable after the
date of the Meetings, each party hereto shall identify all persons who were, at
the time of the Meetings, possible Affiliates, shall use its reasonable efforts
to obtain a written agreement in the usual and customary form from each person
who is so identified as a possible Affiliate and shall deliver such written
agreements to Grace or Newco as soon as practicable after the Meetings.
6.15. Transaction Agreements. (a) Prior to the Effective Time,
the parties shall consummate any transactions to be consummated prior to the
Effective Time pursuant to the Distribution Agreement or the Other Agreements.
(b) The parties shall not waive or amend any terms of the
Distribution Agreement or the Other Agreements without the consent of the other
parties hereto, which consent shall not be unreasonably withheld.
6.16. Tax Matters. Each party agrees to report the Distribution as a
tax-free distribution under the Code and the Merger as a tax-free reorganization
under the Code on all tax returns and other filings, and take no position
inconsistent therewith, except where, in the opinion of nationally recognized
tax counsel to such party, there is not "substantial authority," as defined in
Section 6662 of the Code, to support such a position.
ARTICLE VII
CONDITIONS
7.1. Conditions to Each Party's Obligation. The respective
obligation of each party hereto to consummate the Reorganization is subject to
the fulfillment of each of the following conditions:
(a) Shareholder Approval. To the extent required by law or stock
exchange regulations, the transactions contemplated by the Transaction
Agreements shall have been duly approved by the shareholders of Sealed Air
and Grace in accordance with applicable law.
(b) Governmental and Regulatory Consents. The waiting periods
applicable to the consummation of the Merger under the HSR Act shall have
expired or been terminated; and all filings required to be made prior to
the Closing by any party hereto or any of its respective subsidiaries
with, and all consents, approvals and authorizations required to be
obtained prior to the Closing by any party hereto or any of its respective
subsidiaries from, any Governmental Entity in connection with the
execution, delivery and performance of this Agreement, the Distribution
Agreement and the Other Agreements and the consummation of the
transactions contemplated hereby and thereby (to the extent such
transactions are required to be consummated prior to the Effective Time)
shall have been made or obtained, except where the failure to obtain such
consents, approvals and authorizations (i) is not reasonably likely to
have a Material Adverse Effect on (A) the New Grace Group (with respect to
the condition for Grace) or (B) the Packco Group or Sealed Air (with
respect to the condition for Sealed Air), and (ii) could not reasonably be
expected to subject the parties hereto or their Affiliates or any
directors or officers of any of the foregoing to criminal liability.
(c) Third-Party Consents. All consents or approvals of all persons
(other than Governmental Entities) required for or in connection with the
execution, delivery and performance of this Agreement, the Distribution
Agreement and the Other Agreements and the consummation of the
transactions contemplated hereby and thereby shall have been obtained and
shall be in full force and effect, except for those the failure of which
to obtain would not have a Material Adverse Effect with respect to (i) the
New Grace Group (with respect to the condition for Grace), or (ii) the
Packco Group or Sealed Air (with respect to the condition for Sealed Air).
(d) Governmental Matters. No Governmental Entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered
any statute, rule, regulation, judgment, decree, injunction or other order
(whether temporary, preliminary or permanent) which is in effect and
prohibits consummation of the transactions contemplated hereby or by the
Distribution Agreement or the Other Agreements.
(e) Tax Opinions. Grace shall have received the opinion of Wachtell,
Lipton, Rosen & Katz, dated the date of the Effective Time, substantially
in the form of Exhibit C hereto. In rendering such opinion, such firm may
receive and rely upon representations contained in certificates of Grace,
Merger Sub and Sealed Air and others, including, without limitation, the
Grace Tax Matters Certificate and the Sealed Air Tax Matters Certificate.
Sealed Air shall have received the opinion of Davis Polk & Wardwell, dated
the date of the Effective Time, substantially in the form of Exhibit D
hereto. In rendering such opinion, such firm may receive and rely upon
representations contained in certificates of Grace, Merger Sub and Sealed
Air and others, including, without limitation, the Grace Tax Matters
Certificate and the Sealed Air Tax Matters Certificate.
(f) Registration Statements. The Registration Statements shall have
become effective under the Securities Act or Exchange Act (as applicable),
and no stop order suspending the effectiveness of the Registration
Statements shall have been issued and no proceedings for that purpose
shall have been initiated or threatened by the SEC.
(g) The Contribution, the Distribution and the Recapitalization. The
Contribution, the Distribution and the Recapitalization shall have been
consummated as provided in the Distribution Agreement, and the conditions
to consummation of such transactions set forth in Section 8.01 of the
Distribution Agreement shall have been satisfied or, to the reasonable
satisfaction of Sealed Air, shall have been waived.
(h) Stock Exchange Listing. The Newco Common Shares and Newco
Convertible Preferred Shares to be issued in the Recapitalization and the
Merger shall have been authorized for listing on the NYSE, subject to
official notice of issuance.
7.2. Conditions to Obligation of Grace. The obligation of Grace to
consummate the Reorganization is also subject to the fulfillment or waiver by
Grace prior to the Closing of each of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Sealed Air set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement, and
such representations and warranties shall be true and correct as of the
Closing Date as though made on and as of the Closing Date (except that
representations and warranties that by their terms speak as of the date of
this Agreement or some other date shall be true and correct in all
material respects as of such date) disregarding with respect to the
Closing Date all qualifications and exceptions contained therein relating
to materiality or Material Adverse Effect, except for such matters as
would not in the aggregate reasonably be expected to have a Material
Adverse Effect with respect to Sealed Air, and Grace shall have received a
certificate signed on behalf of Sealed Air by an officer to such effect.
(b) Performance of Obligations. Sealed Air shall have performed in
all material respects all obligations required to be performed by it under
this Agreement or the other Transaction Agreements at or prior to the
Closing Date, and Grace shall have received a certificate signed on behalf
of Sealed Air by an officer to such effect.
7.3. Conditions to Obligation of Sealed Air. The obligation of
Sealed Air to consummate the Reorganization is also subject to the fulfillment
or waiver by Sealed Air prior to the Closing of each of the following
conditions:
(a) Representations and Warranties. The representations and
warranties of Grace set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement, and the
representations and warranties set forth in Section 5.1 shall be true and
correct in all material respects as of the Closing Date as though made on
and as of the Closing Date (except that representations and warranties
that by their terms speak as of the date of this Agreement or some other
date shall be true and correct in all material respects as of such date),
and the representations and warranties set forth in Section 5.2 shall be
true and correct as of the Closing Date as though made on and as of the
Closing Date (or in the case of representations and warranties that speak
of some other date, as of such date), disregarding all qualifications and
exceptions contained therein relating to materiality or Material Adverse
Effect, except for such matters as would not in the aggregate reasonably
be expected to have a Material Adverse Effect with respect to the
Packaging Business or the Packco Group, and Sealed Air shall have received
a certificate signed on behalf of Grace by an officer to such effect.
(b) Performance of Obligations. Grace shall have performed in all
material respects all obligations required to be performed by it under
this Agreement or the other Transaction Agreements at or prior to the
Closing Date, and Sealed Air shall have received a certificate signed on
behalf of Grace by an officer to such effect.
(c) Letter of Credit. New Grace or another member of the New Grace
Group shall have obtained the letter of credit contemplated by Section
2.06(b) of the Distribution Agreement (to the extent required thereby).
(d) Solvency Opinion. The Sealed Air Board shall have received the
opinion referred to in Section 8.01(a)(ix)(A) of the Distribution
Agreement regarding New Grace and Grace-Conn. and shall be entitled to
rely on such opinion as if it were addressed to it.
ARTICLE VIII
TERMINATION
8.1. Termination by Mutual Consent. This Agreement may be
terminated, and the Reorganization may be abandoned, at any time prior to the
Effective Time, before or after the approval by the shareholders of Grace and/or
Sealed Air, by the mutual consent of each party hereto, which consent shall be
effected by action of its Board of Directors.
8.2. Termination by any Party Hereto. This Agreement may be
terminated, and the Reorganization may be abandoned, by action of the Board of
Directors of any party hereto, if (i) the Reorganization shall not have been
consummated by April 30, 1998, provided that the right to terminate this
Agreement pursuant to this clause (i) shall not be available to any party whose
breach of any provision of this Agreement results in the failure of the
Reorganization to be consummated by such date, (ii) at the Grace Meeting or at
any adjournment thereof, the approval of Grace's shareholders required by
Section 7.1(a), or, at the Sealed Air Meeting or any adjournment thereof, the
approval of Sealed Air's shareholders required by Section 7.1(a) shall not have
been obtained, or (iii) Grace or Sealed Air shall have entered into an agreement
with respect to a Higher Offer in a manner permitted by Section 6.5.
8.3. Termination by Grace. This Agreement may be terminated and the
Reorganization may be abandoned at any time prior to the Effective Time, before
or after the adoption and approval by shareholders of Grace referred to in
Section 7.1(a), by action of the Grace Board, if (i) Sealed Air shall have
failed to comply in any material respect with any of the covenants or agreements
contained herein to be performed by it at or prior to the time of termination,
which failure (a) is not capable of being cured prior to April 30, 1998 and with
respect to which Grace has provided 15 days' written notice; or (b) is capable
of being cured prior to such date but with respect to such failure Sealed Air
has not made, or has ceased to make, diligent efforts to cure within 15 days of
written notice from Grace; (ii) the Sealed Air Board shall have failed to
recommend to its shareholders the approval of the transactions contemplated
hereby or shall have withdrawn, modified or changed in a manner materially
adverse to Grace its approval or recommendation of this Agreement; or (iii) the
average closing sales price of one Sealed Air Common Share for NYSE composite
transactions, as reported in The Wall Street Journal, for the twenty trading
days ending on the last trading day immediately preceding the day of the
Effective Time (but for this clause) is less than $37.00 per share.
8.4. Termination by Sealed Air. This Agreement may be terminated and
the Reorganization may be abandoned at any time prior to the Effective Time,
before or after the adoption and approval by shareholders of Sealed Air referred
to in Section 7.1(a), by action of the Sealed Air Board, if (i) Grace shall have
failed to comply in any material respect with any of the covenants or agreements
contained herein to be performed by it at or prior to the time of termination,
which failure (a) is not capable of being cured prior to April 30, 1998 and with
respect to which Sealed Air has provided 15 days' written notice; or (b) is
capable of being cured prior to such date but with respect to such failure Grace
has not made, or has ceased to make, diligent efforts to cure within 15 days of
written notice from Sealed Air; (ii) the Grace Board shall have failed to
recommend to its shareholders the approval of the transactions contemplated
hereby or shall have withdrawn, modified or changed in a manner materially
adverse to Sealed Air its approval or recommendation of this Agreement; or (iii)
the average closing sales price of one Grace Common Share for NYSE composite
transactions, as reported in The Wall Street Journal, for the twenty trading
days ending on the last trading day immediately preceding the day of the
Effective Time (but for this clause) is less than $45.375 per share.
8.5. Effect of Termination and Abandonment. In the event of
termination of this Agreement and the abandonment of the Reorganization pursuant
to this Article VIII, no party hereto (or any of its directors or officers)
shall have any liability or further obligation to any other party, except as set
forth in Section 6.12 and except that nothing herein will relieve any party from
liability for any material and willful breach of any covenant contained herein.
ARTICLE IX
MISCELLANEOUS AND GENERAL
9.1. Survival. Only those agreements and covenants of the parties
which by their express terms apply in whole or in part after the Effective Time
shall survive the Effective Time. All other representations, warranties,
agreements and covenants shall be deemed only to be conditions of the
Reorganization and shall not survive the Effective Time.
9.2. Modification or Amendment. Subject to the applicable provisions
of the DGCL, at any time prior to the Effective Time, the parties hereto may
modify or amend this Agreement, by written agreement executed and delivered by
duly authorized officers of the respective parties.
9.3. Waiver of Conditions. The conditions to each party's obligation
to consummate the Reorganization and the Merger are for the sole benefit of such
party and may be waived by such party in whole or in part to the extent
permitted by applicable law.
9.4. Counterparts. For the convenience of the parties hereto, this
Agreement may be executed in any number of separate counterparts signed by one
or more of the parties hereto, each such counterpart being deemed to be an
original instrument, and all such counterparts shall together constitute the
same agreement.
9.5. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
9.6. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
telegram, telex or other standard form of telecommunications, or by registered
or certified mail, postage prepaid, return receipt requested, addressed as
follows:
(a) If to Grace or Merger Sub:
W. R. Grace & Co.
One Town Center Road
Boca Raton, Florida 33486-1010
Attention: Secretary
Fax: (561) 362-1970
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Attention: Andrew R. Brownstein, Esq.
Fax: (212) 403-2000
(b) If to Sealed Air:
Sealed Air
Park 80 East
Saddle Brook, New Jersey 07663
Attention: President
Fax: (201) 703-4152
with a copy to:
Davis Polk & Wardwell
450 Lexington Ave.
New York, NY 10017
Attention: Christopher Mayer, Esq.
Fax: (212) 450-4800
or to such other address as any party hereto may have furnished to the other
parties by a notice in writing in accordance with this Section.
9.7. Entire Agreement; Assignment. This Agreement (and the Exhibits
and Disclosure Letters hereto) (a) constitute the entire agreement, and
supersede all other prior agreements, understandings, representations and
warranties, both written and oral, among the parties, with respect to the
subject matter hereof other than the written confidentiality arrangements
existing among the parties hereto, which shall survive, and (b) shall not be
assignable by operation of law or otherwise.
9.8. Definition of "Subsidiary." When a reference is made in this
Agreement to a subsidiary of a party, the term "subsidiary" means any
corporation or other organization whether incorporated or unincorporated of
which at least a majority of the securities or interests having by the terms
thereof ordinary voting power to elect at least a majority of the board of
directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled
by such party or by any one or more of its subsidiaries, or by such party and
one or more of its subsidiaries.
9.9. Captions. The Article, Section and paragraph captions herein
are for convenience of reference only, do not constitute part of this Agreement,
and shall not be deemed to limit or otherwise affect any of the provisions
hereof.
9.10. Specific Performance. In the event of any actual or threatened
default in, or breach of, any of the terms, conditions and provisions of this
Agreement, the party or parties who are or are to be thereby aggrieved shall
have the right of specific performance and injunctive relief giving effect to
its or their rights under this Agreement, in addition to any and all other
rights and remedies at law or in equity, and all such rights and remedies shall
be cumulative. The parties agree that the remedies at law for any breach or
threatened breach, including monetary damages, are inadequate compensation for
any loss and that any defense in any action for specific performance that a
remedy at law would be adequate is waived.
9.11. Severability. If any provision of this Agreement or the
application thereof to any person or circumstance is determined by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof, or the application of such provision to persons or
circumstances other than those as to which it has been held invalid or
unenforceable, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby, so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party.
9.12. Third-Party Beneficiaries. Nothing contained in this
Agreement, expressed or implied, is intended to confer upon any person or
entity, other than the parties hereto, any benefit, right or remedies.
9.13. Further Assurances. In addition to the actions specifically
provided for elsewhere in this Agreement, but subject to Section 9.1 hereof,
each of the parties hereto shall use reasonable efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, all things reasonably
necessary, proper or advisable under applicable laws, regulations and agreements
to consummate and make effective the transactions contemplated by this
Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto on the date
first hereinabove written.
W. R. GRACE & CO.
By: /s/ Albert J. Costello
---------------------------------
Name: Albert J. Costello
Title: Chairman, President and
Chief Executive Officer
SEALED AIR CORPORATION
By: /s/ T.J. Dermot Dunphy
---------------------------------
Name: T.J. Dermot Dunphy
Title: Chairman of the Board
and Chief Executive Officer
PACKCO ACQUISITION CORP.
By: /s/ Larry Ellberger
---------------------------------
Name: Larry Ellberger
Title: President
Annex A
DEFINED TERMS
Acquisition Proposal: as defined in Section 6.3 hereof.
Affiliate: as defined in Rule 12b-2 under the Exchange Act.
Agreement: as defined in the Preamble hereof.
Benefits Agreement: the executed agreement in the form of Exhibit
A to the Distribution Agreement.
CERCLA: the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended.
Closing: as defined in Section 1.4 hereof.
Closing Date: as defined in Section 1.4 hereof.
Code: the Internal Revenue Code of 1986, as amended.
Contracts: as defined in Section 5.1(d)(ii).
Contribution: as defined in Recital B hereof.
DGCL: as defined in Section 1.3 hereof.
Disclosure Letters: the Sealed Air Disclosure Letter and the
Grace Disclosure Letter.
Distribution: as defined in Recital C hereof.
Distribution Agreement: as defined in Recital B hereof.
Effective Time: as defined in Section 1.3 hereof.
Environmental Law: any federal, state, foreign or local law,
statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, common law, legal doctrine, order, judgment, decree,
injunction, requirement or agreement with any government entity or other third
party, (a) relating to the pollution, protection, preservation, investigation or
restoration of the environment (including, without limitation, air, water vapor,
surface water, groundwater, drinking water supply, surface land, subsurface
land, plant and animal life or any other natural resource), or to human health
or safety, or (b) the exposure to, or the use, storage, recycling, treatment,
generation, transportation, processing, handling, labeling, production, release
or disposal of Hazardous Substances.
ERISA: the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
ERISA Affiliate: with respect to any entity, trade or business, any
other entity, trade or business that is a member of a group described in Section
414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA that includes
the first entity, trade or business, or that is a member of the same "controlled
group" as the first entity, trade or business pursuant to Section 4001(a)(14) of
ERISA.
Exchange Act: the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
Exchange Agent: as defined in Section 4.2(a) hereof.
Governmental Entity: as defined in Section 5.1(d)(i) hereof.
Grace: as defined in the Preamble hereof.
Grace Board: the Board of Directors of Grace.
Grace Certificate of Incorporation: as defined in Section 2.1
hereof.
Grace Common Shares: shares of common stock, par value $.01 per
share, of Grace (including the associated Grace Rights).
Grace-Conn.: as defined in Recital C hereof.
Grace Credit Agreement: as defined in the Distribution Agreement.
Grace Disclosure Letter: as defined in Section 5.1 hereof.
Grace Meeting: a duly convened meeting of holders of Grace Common
Shares called to vote on and approve the transactions contemplated hereby
(including the transactions contemplated by the Distribution Agreement).
Grace Options: as defined in Section 5.1(a)(i) hereof.
Grace Preferred Shares: shares of preferred stock, par value $.01
per share, of Grace.
Grace Registration Statement: the registration statement to be filed
by Grace with the SEC in connection with the issuance of Newco Common Shares and
Newco Convertible Preferred Shares in the Merger and the Recapitalization, which
shall include therein the Joint Proxy Statement.
Grace Rights: the preferred share purchase rights of Grace issued
pursuant to the Grace Rights Agreement.
Grace Rights Agreement: the Rights Agreement, dated as of
September 25, 1996, by and between Grace and The Chase Manhattan Bank, as
Rights Agent.
Grace Savings Plan: the W.R. Grace & Co. Salaried Employees
Savings and Investment Plan.
Grace Stock Plans: as defined in Section 5.1(a)(i) hereof.
Grace Tax Matters Certificate: as defined in Section 5.1(j)
hereof.
Hazardous Substance: any substance, waste or material listed,
defined, designated or classified as a pollutant or contaminant, or as
ignitable, corrosive, reactive or hazardous, toxic, radioactive or dangerous, or
otherwise regulated under any Environmental Law, whether by type or by quantity,
including any substance containing any such substance as a component.
Higher Offer: as defined in Section 6.3 hereof.
HSR Act: the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
IRS: the United States Internal Revenue Service.
Joint Proxy Statement: the joint proxy statement (including all
proxy solicitation materials constituting a part thereof) to be prepared by the
parties hereto and mailed to the Grace shareholders or Sealed Air shareholders,
as the case may be, in connection with the Reorganization.
knowledge of executive officers: shall mean, in the case of Grace or
Sealed Air, as the case may be, the knowledge of each officer of such party
subject to Section 16 of the Exchange Act pursuant to Rule 16a-2 under the
Exchange Act.
Lien: as defined in Section 5.2(g) hereof.
material: with respect to any party, material to such party and
its subsidiaries, taken as a whole.
Material Adverse Effect: with respect to any party, an effect
which would be materially adverse to the properties, business, financial
condition, results of operations or prospects of such party and its
subsidiaries taken as a whole.
Meetings: the Grace Meeting and the Sealed Air Meeting.
Merger: as defined in Recital E hereof.
Merger Certificate: as defined in Section 1.3 hereof.
Merger Sub: as defined in the Preamble hereof.
Merger Sub Common Stock: as defined in Section 5.1(a)(ii) hereof.
Multiemployer Plan: as defined in Section 5.2(l)(v) hereof.
Multiple Employer Plan: as defined in Section 5.2(l)(v) hereof.
Newco: as defined in Recital E hereto.
Newco Amendment: as defined in Recital E hereof, the terms of
which are attached hereto as Exhibit F.
Newco Certificate: a certificate evidencing Newco Common Shares.
Newco Common Shares: the shares of common stock of Newco, par
value $.10 per share.
Newco Convertible Preferred Shares: the shares of Series A
Convertible Preferred Stock of Newco, par value $.10 per share, the terms of
which are set forth in Exhibit E hereto.
New Grace: as defined in the Distribution Agreement.
New Grace Business: as defined in the Distribution Agreement.
New Grace Group: as defined in the Distribution Agreement.
New Grace Registration Statement: the registration statement to
be filed with the SEC by New Grace in connection with the Distribution.
NYSE: the New York Stock Exchange, Inc.
Old Sealed Air Certificate: a certificate evidencing Sealed Air
Common Shares.
Other Agreements: as defined in the Distribution Agreement.
Packaging Business: as defined in the Distribution Agreement.
Packaging Business Disclosure Letter: as defined in Section 5.2
hereof.
Packaging Business Disclosure Letter Balance Sheet: as disclosed
in Section 5.2(d)(i) hereof.
Packaging Business Disclosure Letter Financial Statements: as
defined in Section 5.2(d)(i) hereof.
Packaging Business Financial Statements: as defined in Section
6.7(a) hereof.
Packaging Business Intellectual Property: as defined in Section
5.2(m) hereof.
Packaging Business Plans: as defined in Section 5.2(l)(i) hereof.
Packaging Business-Only Plans: as defined in Section 5.2(l)(i)
hereof.
Packco: as defined in Recital B hereof.
Packco Assets: as defined in the Distribution Agreement.
Packco Employees: as defined in the Benefits Agreement.
Packco Group: as defined in the Distribution Agreement.
Packco Qualified Plans: as defined in Section 5.2(l)(iii) hereof.
Packco Subsidiary: as defined in the Distribution Agreement.
Recapitalization: as defined in the Distribution Agreement.
Registration Statements: the Grace Registration Statement and the
New Grace Registration Statement.
Reorganization: the Contribution, the Recapitalization, the
Distribution and the Merger and other transactions contemplated by the
Transaction Agreements.
Representatives: with respect to any party, such party's
officers, employees, counsel, accountants and other authorized representatives.
S.C. Certificate of Incorporation: as defined in Section 2.1
hereof.
Schedules 14A: the Schedule 14A to be filed by Grace or Sealed Air,
as the case may be, in connection with the Reorganization, including the related
Joint Proxy Statement.
Sealed Air: as defined in the Preamble hereof.
Sealed Air Board: the Board of Directors of Sealed Air.
Sealed Air Common Shares: shares of common stock, par value $.01
per share, of Sealed Air.
Sealed Air Disclosure Letter: as defined in Section 5.3 hereof.
Sealed Air Employees: as defined in Section 5.3(l)(i) hereof.
Sealed Air Intellectual Property: as defined in Section 5.3(p)
hereof.
Sealed Air Meeting: a duly convened meeting of holders of Sealed
Air Common Shares called to vote on and approve the transactions contemplated
hereby.
Sealed Air Plans: as defined in Section 5.3(l)(i) hereof.
Sealed Air Qualified Plans: as defined in Section 5.3(l)(iii).
Sealed Air Stock Plans: as defined in Section 5.3(a) hereof.
Sealed Air Tax Matters Certificate: as defined in Section 5.3(q)
hereof.
SEC: the Securities and Exchange Commission.
SEC Documents: with respect to any party, all filings made by such
party or its subsidiaries with the SEC since December 31, 1994, including notes,
schedules, amendments and exhibits thereto.
Securities Act: the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
subsidiary: as defined in Section 9.8 hereof.
Surviving Corporation: as defined in Section 1.2 hereof.
Takeover Statute: as defined in Section 5.1(g) hereof.
Tax Sharing Agreement: the executed agreement in the form of
Exhibit B to the Distribution Agreement.
Transaction Agreements: this Agreement, the Distribution
Agreement and the Other Agreements.
US GAAP: United States generally accepted accounting principles
consistently applied.
ANNEX B
FORM OF
DISTRIBUTION AGREEMENT
by and among
W. R. GRACE & CO.
W. R. GRACE & CO.-CONN,
and
GRACE SPECIALTY CHEMICALS, INC.
(to be renamed "W. R. Grace & Co.")
Dated as of [ ], 1997
TABLE OF CONTENTS
Page
----
I. Definitions................................................ 2
1.01 General........................................ 2
1.02 References to Time............................. 17
II. Certain Transactions Prior to the
Distribution Date....................................... 18
2.01 Transfer of Packco Assets; Assumption
of Packco Liabilities........................ 18
2.02 Certain Foreign Transfers...................... 20
2.03 Certificate of Incorporation;
By-laws; Rights Plan......................... 23
2.04 Issuance of Stock.............................. 23
2.05 Other Agreements; Shared Facilities............ 23
2.06 Financing...................................... 24
2.07 Grace Recapitalization......................... 26
2.08 Registration and Listing....................... 27
2.09 Grace and New Grace Boards..................... 28
2.10 Transfers Not Effected Prior to the
Distribution; Transfers Deemed
Effective as of the Distribution
Date......................................... 28
2.11 Intercompany Accounts and
Distribution Payments........................ 29
III. The Distribution........................................... 29
3.01 Record Date and Distribution Date.............. 29
3.02 The Agent...................................... 29
3.03 Delivery of Share Certificates to the
Agent........................................ 29
3.04 The Distribution............................... 30
IV. Survival and Indemnification............................... 30
4.01 Survival of Agreements......................... 30
4.02 Indemnification................................ 30
4.03 Procedures for Indemnification for
Third-Party Claims........................... 31
4.04 Remedies Cumulative............................ 33
V. Certain Additional Covenants............................... 34
5.01 Notices to Third Parties....................... 34
5.02 Licenses and Permits........................... 34
5.03 Intercompany Agreements........................ 34
5.04 Guarantee Obligations.......................... 35
5.05 Further Assurances............................. 36
5.06 Environmental Claims Cooperation............... 36
VI. Access to Information...................................... 36
6.01 Provision of Corporate Records................. 36
6.02 Access to Information.......................... 37
6.03 Production of Witnesses........................ 39
6.04 Retention of Records........................... 39
6.05 Confidentiality................................ 40
6.06 Cooperation with Respect to
Government Reports and Filings............... 40
VII. No Representations or Warranties........................... 41
7.01 No Representations or Warranties............... 41
VIII. Miscellaneous.............................................. 42
8.01 Conditions to Obligations...................... 42
8.02 Use of Grace Name and Mark..................... 43
8.03 Complete Agreement............................. 44
8.04 Expenses....................................... 44
8.05 Governing Law.................................. 45
8.06 Notices........................................ 45
8.07 Amendment and Modification..................... 46
8.08 Successors and Assigns; No Third-Party
Beneficiaries................................ 46
8.09 Counterparts................................... 46
8.10 Interpretation................................. 46
8.11 Severability................................... 47
8.12 References; Construction....................... 47
8.13 Termination.................................... 47
8.14 SAC Reasonable Consent......................... 47
SIGNATURES 48
Schedules to Distribution Agreement
Exhibit A Form of Employee Benefits Allocation Agreement
Exhibit B Form of Tax Sharing Agreement
Exhibit C Form of New Grace Certificate of Incorporation [to be
provided prior to signing of this Agreement]
Exhibit D Form of New Grace Bylaws [to be provided prior to signing of
this Agreement]
Exhibit E Form of New Grace Preferred Share Purchase Rights Plan [to
be provided prior to signing of this Agreement]
DISTRIBUTION AGREEMENT
This DISTRIBUTION AGREEMENT (this "Agreement"), dated as of [
], 1997, by and among W. R. Grace & Co., a Delaware corporation ("Grace"),
W. R. Grace & Co.-Conn., a Connecticut corporation and a wholly owned subsidiary
of Grace ("Grace-Conn.") and Grace Specialty Chemicals, Inc., a Delaware
corporation and a wholly owned subsidiary of Grace ("New Grace").
RECITALS
--------
A. The Merger Agreement. Grace and Sealed Air Corporation, a
Delaware corporation ("SAC"), have entered into an Agreement and Plan of Merger,
dated as of August 14, 1997 (the "Merger Agreement"), pursuant to which, at the
Effective Time (as defined therein), a wholly owned subsidiary of Grace will
merge with and into SAC, with SAC being the surviving corporation (the
"Merger"), and Grace being renamed "Sealed Air Corporation".
B. The Distribution Agreement. This Agreement and the Other
Agreements (as defined herein) set forth certain transactions that SAC has
required as a condition to its willingness to consummate the Merger, and the
purpose of this Agreement is to make possible the Merger by divesting Grace of
the businesses and operations to be conducted by New Grace and its subsidiaries,
including Grace-Conn.
C. The Contribution. Prior to the Effective Time, and subject to the
terms and conditions set forth in this Agreement, Grace intends to cause the
transfer to a wholly owned subsidiary of Grace-Conn. ("Packco") of certain
assets and liabilities of Grace and its subsidiaries predominantly related to
the Packaging Business (the "Contribution"), as contemplated by this Agreement
and the Other Agreements.
D. Financing. It is the intention of the parties hereto that, prior
to the Distribution: (i) Grace and/or Packco shall enter into new financing
arrangements and shall make, or cause to be made, the New Grace Capital
Contribution (as defined herein); and (ii) the parties shall cooperate with one
another with respect to the foregoing.
E. The Distribution. Following the Contribution and prior to the
Effective Time, subject to the conditions set forth in this Agreement, (i) the
capital stock of Packco will be distributed to Grace (the "Intragroup Spinoff"),
(ii) the capital stock of Grace-Conn. will be contributed to New Grace and (iii)
all of the issued and outstanding shares of the common stock of New Grace
(together with the New Grace Rights, "New Grace Common Stock") will be
distributed on a pro rata basis (the "Distribution") to the holders as of the
Record Date of the common stock of Grace, par value $.01 per share ("Grace
Common Stock"), other than shares held in the treasury of Grace.
F. The Recapitalization. Following the Distribution and immediately
prior to the Effective Time, Grace intends to consummate the Recapitalization in
which each holder of a share of Grace Common Stock shall hold, immediately
thereafter, the Per Share Common Consideration and the Per Share Preferred
Consideration.
G. Intention of the Parties. It is the intention of the parties (i)
to this Agreement that, for United States federal income tax purposes, the
Contribution and associated transactions shall qualify as a tax-free transaction
under Section 351 of the Internal Revenue Code of 1986, as amended (the "Code"),
the Contribution and the Intragroup Spinoff (and associated transactions) shall
qualify as a tax-free transaction under Sections 355 and 368 of the Code, the
Distribution and associated transactions shall qualify as a tax-free transaction
under Sections 355 and 368 of the Code, and the Recapitalization shall be
tax-free to Grace and its shareholders under the Code, and (ii) to this
Agreement and the Merger Agreement that the Merger shall qualify as a
"reorganization" within the meaning of Section 368 of the Code and the Merger
will be tax free under the Code to Grace, SAC and their respective shareholders.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 General. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
Adjusted Foreign Transfer Taxes: as defined in Section 2.02(c)
hereof.
Affiliate: with respect to any specified Person, a Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified Person; provided,
however, that, for purposes of this Agreement, no member of either Group shall
be deemed to be an Affiliate of any member of the other Group.
Agent: the distribution agent to be appointed by Grace to
distribute the shares of New Grace Common Stock pursuant to the Distribution.
Agreement: as defined in the preamble to this Agreement.
Asset: any and all assets and properties, tangible or intangible,
including, without limitation, the following: (i) cash, notes and accounts and
notes receivable (whether current or non-current); (ii) certificates of deposit,
banker's acceptances, stock, debentures, evidences of indebtedness, certificates
of interest or participation in profit-sharing agreements, collateral-trust
certificates, preorganization certificates or subscriptions, transferable
shares, investment contracts, voting-trust certificates, fractional undivided
interests in oil, gas or other mineral rights, puts, calls, straddles, options
and other securities of any kind; (iii) intangible property rights, inventions,
discoveries, know-how, United States and foreign patents and patent
applications, trade secrets, confidential information, registered and
unregistered trademarks, service marks, service names, trade styles and trade
names and associated goodwill; statutory, common law and registered copyrights;
applications for any of the foregoing, rights to use the foregoing and other
rights in, to and under the foregoing; (iv) rights under leases, contracts,
licenses, permits, distribution arrangements, sales and purchase agreements,
other agreements and business arrangements; (v) real estate and buildings and
other improvements thereon; (vi) leasehold improvements, fixtures, trade
fixtures, machinery, equipment (including transportation and office equipment),
tools, dies and furniture; (vii) office supplies, production supplies, spare
parts, other miscellaneous supplies and other tangible property of any kind;
(viii) computer equipment and software; (ix) raw materials, work-in-process,
finished goods, consigned goods and other inventories; (x) prepayments or
prepaid expenses; (xi) claims, causes of action, choses in action, rights under
express or implied warranties, rights of recovery and rights of setoff of any
kind; (xii) the right to receive mail, payments on accounts receivable and other
communications; (xiii) lists of customers, records pertaining to customers and
accounts, personnel records, lists and records pertaining to customers,
suppliers and agents, and books, ledgers, files and business records of every
kind; (xiv) advertising materials and other printed or written materials; (xv)
goodwill as a going concern and other intangible properties; (xvi) employee
contracts, including any rights thereunder to restrict an employee from
competing in certain respects; and (xvii) licenses and authorizations issued by
any governmental authority.
Benefits Agreement: the Employee Benefits Allocation Agreement to
be entered into prior to the Distribution between Grace and New Grace,
substantially in the form of Exhibit A hereto, with such changes as are
acceptable to Grace, New Grace, Grace-Conn. and SAC.
Business: the New Grace Business or the Packaging Business.
Code: as defined in the Recitals to this Agreement.
Contribution: as defined in the Recitals to this Agreement.
Debt Costs: as defined in Section 2.06(b) hereof.
Deemed Foreign Tax Credits: as defined in Section 2.02(c) hereof.
Deemed Repatriations: as defined in Section 2.02(c) hereof.
Distribution: as defined in the Recitals to this Agreement.
Distribution Date: the date as of which the Distribution shall be
effected, to be determined by, or under the authority of, the Board of
Directors of Grace consistent with this Agreement and the Merger Agreement.
Effective Time: as defined in the Merger Agreement.
Environmental Law: as defined in the Merger Agreement.
Excess Short-Term Payables: as defined in Section 2.02(c) hereof.
Excess Shares: as defined in Section 2.07(b) hereof.
Exchange Act: the Securities Exchange Act of 1934, as amended,
together with the rules and regulations promulgated thereunder.
Exchange Agent: the exchange agent to be retained in connection
with effecting the Recapitalization (which may also be the Exchange Agent with
respect to the Merger and/or the Agent).
Foreign Exchange Rate: with respect to any currency other than
United States dollars as of any date, the rate on such date at which such
currency may be exchanged for United States dollars as quoted in The Wall Street
Journal.
Foreign New Grace Subsidiaries: as defined in the Tax Sharing
Agreement.
Foreign NOLs: as defined in Section 2.02(c) hereof.
Foreign Packco Subsidiaries: as defined in the Tax Sharing
Agreement.
Foreign Tax Credits: as defined in Section 2.02(c) hereof.
Foreign Transfer Taxes: as defined in Section 2.02(c) hereof.
Foreign Transfers: as defined in Section 2.02(a) hereof.
Grace: as defined in the preamble to this Agreement.
Grace Certificate of Incorporation: as defined in the Merger
Agreement.
Grace Common Stock: as defined in the Recitals to this Agreement.
Grace-Conn.: as defined in the preamble to this Agreement.
Grace-Conn. Assets: all of the Assets owned by Grace or its
Subsidiaries immediately prior to the Distribution, other than any Packco
Assets.
Grace-Conn. Liabilities: all of the Liabilities of Grace or its
Subsidiaries immediately prior to the Distribution, other than Packco
Liabilities.
Grace-Conn. Public Debt: (i) the outstanding indebtedness of
Grace-Conn. under its 8.0% Notes Due 2004, 7.4% Notes Due 2000 and 7.75% Notes
Due 2002 (other than any such indebtedness owned by Grace-Conn. or another
member of the New Grace Group) and (ii) with respect to any indebtedness
described in clause (i), any amendments, modifications, refinancings,
extensions, renewals, refundings or replacements of, or indebtedness exchanged
for, such indebtedness which in each case is guaranteed by Grace (other than
any such indebtedness owned by Grace-Conn. or another member of the New Grace
Group).
Grace Credit Agreement: the credit agreement or other financing
agreements or arrangements to be entered into by Grace and/or Packco prior to
the Distribution Date to fund the New Grace Capital Contribution and fees and
expenses of Packco (or Grace) in connection with the transactions contemplated
hereby and to provide Packco with working capital.
Group: the Packco Group or the New Grace Group.
Indemnifiable Losses: all losses, Liabilities, damages, claims,
demands, judgments or settlements of any nature or kind, including all
reasonable costs and expenses (legal, accounting or otherwise as such costs are
incurred) relating thereto, suffered (and not actually reimbursed by insurance
proceeds) by an Indemnitee, including any reasonable costs or expenses of
enforcing any indemnity hereunder.
Indemnifying Party: a Person who or which is obligated under this
Agreement to provide indemnification.
Indemnitee: a Person who or which may seek indemnification under
this Agreement.
Indemnity Payment: an amount that an Indemnifying Party is
required to pay to or in respect of an Indemnitee pursuant to Article IV.
Information: all records, books, contracts, instruments, computer
data and other data and information.
Intragroup Spinoff: as defined in Recital E to this Agreement.
Joint Proxy Statement: as defined in the Merger Agreement.
Liabilities: all debts, liabilities and obligations, whether
absolute or contingent, matured or unmatured, liquidated or unliquidated,
accrued or unaccrued, known or unknown, whenever arising, and whether or not the
same would properly be reflected on a balance sheet.
Litigation Matters: actual, threatened or future litigations,
investigations, claims or other legal matters that have been or may be asserted
against, or otherwise adversely affect, Grace and/or New Grace (or members of
either Group).
Merger: as defined in the Recitals to this Agreement.
Merger Agreement: as defined in the Recitals to this Agreement.
Net Benefit Amount: the amount (whether positive or negative)
equal to (i) minus (ii), where (i) is the sum of the U.S. Plan Assets and the
Foreign Plan Assets (each as defined below) and (ii) is the sum of the U.S.
Benefit Plan Liabilities and the Foreign Benefit Plan Liabilities (each as
defined below).
"U.S. Plan Assets" means the aggregate fair market value, as of the
Distribution Date, of the assets of the Union Retirement Plan (as defined
in the Benefits Agreement) and the assets that will be transferred to the
Packco Hourly Non-Union Retirement Plan (as defined in the Benefits
Agreement) pursuant to Section 4.01(d) of the Benefits Agreement, in each
case as reasonably determined by Actuarial Sciences Associates ("ASA").
"Foreign Plan Assets" means the aggregate fair market value, as of the
Distribution Date, of the assets that will be, pursuant to the Foreign
Plans Agreement (as defined in the Benefits Agreement), transferred from a
Noninsured Foreign Pension Plan (as defined in the Benefits Agreement)
that is a New Grace Benefit Plan (as defined in the Benefits Agreement) (a
"Transferring New Grace Foreign Plan") to a Packco Benefit Plan or
retained by a Noninsured Foreign Pension Plan that is a Packco Benefit
Plan (a "Retained Grace Foreign Plan"), in each case as reasonably
determined by the Local Actuary (as defined in the Benefits Agreement) for
the relevant Transferring New Grace Foreign Plan or Retained Grace Foreign
Plan.
"U.S. Benefit Plan Liabilities" means the sum of the Accrued
Benefit Obligation, calculated in accordance with FAS 87 ("ABO"), for (i)
benefits of Packco Participants (as defined in the Benefits Agreement)
under the Union Retirement Plan and (ii) benefits of Packco Participants
under the Hourly Non-Union Retirement Plan (as defined in the Benefits
Agreement) that are assumed by the Packco Hourly Non-Union Retirement Plan
pursuant to Section 4.01(d) of the Benefits Agreement. "Foreign Benefit
Plan Liabilities" means the greater of (i) the sum of the ABOs for the
Assumed Foreign Benefits (as defined below) plus $10 million and (ii) the
sum of the Projected Benefit Obligations, calculated in accordance with
FAS 87 ("PBO"), for the Assumed Foreign Benefits. The "Assumed Foreign
Benefits" means the aggregate amount of the retirement benefits of Packco
Participants under each Noninsured Foreign Pension Plan that are, pursuant
to the Foreign Benefits Agreement, either assumed by a Packco Benefit Plan
from a Transferring New Grace Foreign Plan or retained by a Retained Grace
Foreign Plan.
The determination of U.S. Benefit Plan Liabilities shall be made by
ASA in accordance with the actuarial and other assumptions set forth on Schedule
1.01(f). The determination of the ABOs and PBOs for the Assumed Foreign Benefits
shall in each case be made by AON Consulting ("AON") as of the Distribution Date
based upon the actuarial and other assumptions used by AON to determine the ABO
or PBO (as applicable) of the relevant Transferring New Grace Foreign Plan or
Retained Grace Foreign Plan for purposes of Grace's fiscal 1996 year-end
financial disclosures, if such ABO or PBO is reported thereon, which actuarial
and other assumptions are set forth on Schedule 1.01(f), provided, in the case
of the assumptions relating to each Noninsured Foreign Pension Plan, that such
assumptions are reasonable. To the extent that the ABO or PBO for a particular
Transferring New Grace Foreign Plan or Retained Grace Foreign Plan was not so
reported, such assumptions shall be reasonable assumptions developed by AON in
the manner most typically used by AON to develop assumptions for determining ABO
or PBO for FAS 87 purposes for substantially similar plans in the applicable
jurisdiction.
ASA, the Local Actuaries and AON (collectively, the "Actuaries")
shall initially make the determinations called for by this definition on a
good-faith estimated basis not later than December 31, 1997 or such other date
as the parties hereto shall request. In making such initial determinations, the
local Actuaries shall be entitled to rely upon the advice of Grace and New Grace
with respect to the anticipated terms and conditions of the Foreign Plans
Agreement (if it has not yet been signed) and the manner in which its terms and
conditions will be implemented. Final determinations shall be made by the
Actuaries as and when the asset transfers and assumptions of liabilities
contemplated by the Foreign Plans Agreement and Section 4.01(d) of the Benefits
Agreement are completed, and the New Grace Capital Contribution shall be
adjusted as necessary to reflect the Net Benefit Amount as so finally
determined. Grace and New Grace agree to cooperate in supplying the Actuaries
with all information reasonably requested by them in connection with making such
determinations, including, without limitation, information concerning Plan
participants, assets and benefits. Grace, New Grace and SAC shall be entitled to
review and comment on the Actuaries' analyses as the Actuaries are in the
process of making their determinations.
New Grace: as defined in the preamble to this Agreement.
New Grace Business: all of the businesses and operations
conducted by Grace and its Subsidiaries at any time, whether prior to, on or
after the Distribution Date, other than the Packaging Business.
New Grace Capital Contribution: the capital contribution,
distribution or other transfer to be received by Grace-Conn. at or shortly
prior to the Distribution, in the aggregate amount of:
(a) $1,200,000,000;
plus (b) the aggregate amount of cash held by Packco or any Packco
Subsidiaries immediately prior to the Distribution;
minus (c) the amount by which
(i) the aggregate amount of (x) withholding Taxes
that would be imposed by foreign jurisdictions
on a deemed distribution to Packco by each
Foreign Packco Subsidiary immediately following
the Distribution, of an amount of cash equal to
the excess of (I) the amount of cash held by such
Foreign Packco Subsidiary immediately prior to
the Distribution over (II) the sum of (A) the
amount of debt that may be repaid without penalty
plus current accrued but unpaid Taxes of such
Subsidiary as of the Distribution Date and (B)
Excess Short-Term Payables of such Subsidiary;
provided, however, that such amount of cash
shall be determined taking into account the
principles, as applied to Packco, set forth in
the proviso in Section 2.02(c)(v), and (y) Taxes
that would be imposed by the United States or
any political subdivision thereof in excess of
the Foreign Tax Credits of Packco in respect of
Taxes paid by Packco or deemed paid by Packco as
a result of such deemed distributions of such
cash;
exceeds (ii) the aggregate amount of Packco Repatriation Tax Costs;
plus (d) the Net Benefit Amount; and
plus (e) the aggregate amount of Transaction Costs, if any, payable
by Grace to New Grace pursuant to Section 8.04 of this
Agreement, as of the Distribution Date.
New Grace Common Stock: as defined in the Recitals to this
Agreement.
New Grace Group: New Grace, Grace-Conn. and the other New Grace
Subsidiaries.
New Grace Group Excess Cash: as defined in Section 2.02(c) hereof.
New Grace Indemnitees: New Grace, each Affiliate of Grace-Conn.
(other than members of the Packco Group) and each of their respective
Representatives and each of the heirs, executors, successors and assigns of
any of the foregoing.
New Grace Repatriation Tax Costs: as defined in Section 2.02(c)
hereof.
New Grace Rights: the preferred share purchase rights of New
Grace.
New Grace Subsidiaries: all direct and indirect Subsidiaries of
Grace, including foreign subsidiaries of Grace-Conn. to be formed pursuant to
the Tax Sharing Agreement or Section 2.02 hereof, other than Packco and any
Packco Subsidiary.
Newco Common Stock: the shares of common stock, par value $.10
per share, of Grace.
Newco Convertible Preferred Stock: the Series A Convertible
Preferred Stock of Grace, par value $.10 per share, the terms of which are
described in Exhibit E to the Merger Agreement.
NYSE: New York Stock Exchange, Inc.
Other Agreements: the Benefits Agreement, the Tax Sharing Agreement,
an insurance procedures agreement, an intellectual property license agreement,
an interim services agreement, the shared facilities agreements and the other
agreements entered into or to be entered into in connection with the
Distribution as contemplated by Article II of this Agreement.
Packaging Business: all of the worldwide packaging businesses,
operations and investments conducted or owned by Grace and its Subsidiaries at
any time, whether prior to, on or after the Distribution Date, including
Cryovac([Registered])flexible plastic packaging systems, Omicron ([Registered])
rigid plastic cups and tubs for dairy foods and Formpac([Registered]) foam trays
for supermarket and institutional food service, provided that the Packaging
Business shall not include the worldwide businesses, operations and investments
at or prior to the Distribution Date conducted or owned by Grace and its
Subsidiaries of its container business group (which was, until 1996, operated as
a separate business unit known as Grace Container Products and any extensions of
such former business unit since such time and through the Distribution Date),
including, without limitation, Darex([Registered]) container sealants and
coatings.
Packco: as defined in the Recitals to this Agreement.
Packco Assets: collectively and except as otherwise provided in any
of the Other Agreements, (i) all of the right, title and interest immediately
prior to the time of the Distribution of Grace and its Subsidiaries in all
Assets that are predominantly used or held for use in or predominantly relating
to or to the extent arising from the Packaging Business; (ii) the rights to use
shared Assets as provided in Article II; (iii) all other Assets of Grace and its
Subsidiaries to the extent specifically assigned to or retained by any member of
the Packco Group pursuant to this Agreement or any Other Agreement; (iv) the
capital stock of Packco and all Packco Subsidiaries; and (v) the Assets set
forth on Schedule 1.01(a) hereto; provided that
(a) all cash and marketable securities held by any member
of the Packco Group immediately prior to the Distribution shall be
Grace-Conn. Assets;
(b) intellectual property rights shall be Packco Assets in the
form and to the extent provided in Section 2.01(d);
(c) with respect to leased or owned real property included in
the Packco Assets that is not used exclusively by the Packaging
Business, Packco Assets shall include only real property used or
held for use in the Packaging Business as of the Distribution Date
and shall not include any vacant or unoccupied property otherwise
owned or leased by Grace or any of its Subsidiaries (except in the
case of vacant or unoccupied property (I) on a site that is engaged
predominantly in the Packaging Business, to provide a reasonable
buffer area for such operations, to the extent practicable or (II)
that is used or held for use in the Packaging Business);
(d) other than as provided herein or in the Other Agreements,
Packco Assets shall not include any general corporate or corporate
service operations of Grace conducted in its Boca Raton, Florida
headquarters and the other locations set forth on Schedule 1.01(b)
hereto;
(e) all right, title and interest of Grace and its
Subsidiaries in the real property identified on Schedule 1.01(a)
shall be Packco Assets; and
(f) Packco Assets shall not include (I) the Woburn, MA Grace
facility or the Scuffletown Rd., South Carolina facility previously
used by the Packaging Business (or any Assets located at or relating
to such facilities); (II) Assets relating to any divested business
or product line of Grace or any of its Subsidiaries (including
rights to payment and indemnification thereunder, but Packco Assets
shall include rights to indemnification relating to amounts paid by
the Packco Group pursuant to clause (a)(II) of the definition of
Packco Liabilities); (III) any interim service or tolling agreements
entered into in connection with any divestiture by Grace or any of
its Subsidiaries prior to the Distribution Date; and (IV) the Assets
set forth on Schedule 1.01(c).
Packco Group: Grace, Packco and the Packco Subsidiaries.
Packco Group Excess Cash: as defined in Section 2.02(c) hereof.
Packco Indemnitees: Grace, Packco, each Affiliate of Packco and
each of their respective Representatives and each of the heirs, executors,
successors and assigns of any of the foregoing.
Packco Liabilities: collectively, and in each case except to the
extent otherwise provided in any Other Agreement, (i) all Liabilities of Grace
and its Subsidiaries to the extent relating to or arising from the Packaging
Business or the Packco Assets; (ii) all Liabilities of Grace and its
Subsidiaries to the extent assigned to or assumed by Grace and Packco under this
Agreement or any Other Agreement; (iii) all Liabilities of Grace and/or Packco
under the Grace Credit Agreement; and (iv) all Liabilities set forth on Schedule
1.01(d) hereto, provided that Packco Liabilities shall not, in any event,
include:
(a) Liabilities of Grace and its Subsidiaries (I) arising
under any Environmental Law relating to any facility or Asset that
was used or held for use in the Packaging Business prior to but not
on or after the Distribution Date (including formerly owned or
leased facilities and former offsite disposal facilities) or (II)
relating to any business or product line that was part of, or any
facility or Asset that was used or held for use in, the Packaging
Business that, in each case, has been divested prior to the
Distribution Date; provided that, except as otherwise provided
below, 25% of such Liabilities described in this clause not to
exceed $10 million in the aggregate shall be Packco Liabilities;
(b) Liabilities arising under any Environmental Law relating
to or arising from the Woburn, MA Grace facility or the Scuffletown
Road, SC facility;
(c) Liabilities for any indebtedness, other than indebtedness
under the Grace Credit Agreement and indebtedness to unaffiliated
persons outstanding on the date hereof;
(d) Liabilities of Grace or any of its Subsidiaries relating
to or arising from any interim service or tolling agreements entered
into in connection with any divestiture by Grace or any of its
Subsidiaries;
(e) Liabilities, whether such Liabilities relate to events,
occurrences or circumstances occurring or existing, or whether such
Liabilities arise, before, on or after the Distribution Date,
relating to asbestos or asbestos-containing materials manufactured
and/or sold (collectively, "Asbestos Activities") by Grace,
Grace-Conn. or any of their respective Subsidiaries, affiliates or
predecessors (but this clause shall not include such Liabilities to
the extent relating to Asbestos Activities, if any, conducted after
the Distribution Date of any member of the Packco Group or any of
their Affiliates after the Distribution Date);
(f) Liabilities relating to or arising from any violation or
alleged violation on or prior to the Distribution Date by Grace,
Grace-Conn. or any of their respective Subsidiaries, affiliates or
predecessors of any federal, state or foreign securities laws; and
(g) Liabilities relating to or arising from any breach or
alleged breach of fiduciary duties by any director or executive
officer of Grace, Grace-Conn. or any of their respective
Subsidiaries, affiliates or predecessors prior to the Distribution
Date.
Packco Repatriation Tax Costs: as defined in Section 2.02(c)
hereof.
Packco Subsidiaries: all direct and indirect Subsidiaries of Grace
to be transferred to or formed by Packco in connection with the Contribution or
the Foreign Transfers (including any such Subsidiary to be formed pursuant to
the Tax Sharing Agreement or Section 2.02).
Per Share Common Consideration: the shares (or fraction of a
share) of Newco Common Stock issuable in the Recapitalization per share of
Grace Common Stock outstanding as of the Record Date, such amount to be
determined by dividing (a) the amount equal to (I) 40,895,000, increased by
the product, if any, of (x) 1.7027 and (y) the net increase in outstanding
Sealed Air Common Shares between August 14, 1997 and the Distribution Date,
minus (II) the Net Option Number, by (b) the aggregate number of shares of
Grace Common Stock outstanding as of the Record Date, the result being rounded
to the nearest one-thousandth (or, in the event there is no nearest number,
rounded up to the next one-thousandth). "Net Option Number" means
(i) the aggregate number of shares of Newco Common Stock
into which all outstanding options to purchase shares
of Grace Common Stock outstanding as of the
Distribution Date and held by Packco Employees are or
may be exercisable (whether or not then exercisable)
immediately after the Effective Time (such number
calculated as provided in the Benefits Agreement, the
"Newco Options"), multiplied by the amount by which:
(I) the average of the arithmetic mean between the
highest and lowest sales prices of a share of
Newco Common Stock on the New York Stock Exchange
Composite Tape on each of the five trading days
beginning on the ex-dividend date for the
Distribution (the "SAC Stock Price")
exceeds (II) the weighted average per-share exercise price
for the Newco Options, calculated as provided in
the Benefits Agreement;
divided by (ii) the SAC Stock Price.
Fractional shares otherwise issuable to a Grace shareholder shall be treated as
provided in Section 2.07(b). In the event that shares of Grace Common Stock are
issued between the Record Date and the Effective Time, including pursuant to the
exercise of stock options granted by Grace (but not including issuances in the
Recapitalization), such Consideration shall be appropriately adjusted.
Per Share Preferred Consideration: the shares (or fraction of a
share) of Newco Convertible Preferred Stock issuable in the Recapitalization per
share of Grace Common Stock outstanding as of the Record Date, such amount to be
calculated by dividing 36,000,000 by the aggregate number of shares of Grace
Common Stock outstanding as of the Record Date, the result being rounded to the
nearest one-thousandth (or, in the event there is no nearest number, rounded up
to the next one-thousandth). Fractional shares otherwise issuable to a Grace
shareholder shall be treated as provided in Section 2.07(b). In the event that
shares of Grace Common Stock are issued between the Record Date and the
Effective Time, including pursuant to the exercise of stock options granted by
Grace (but not including issuances in the Recapitalization), such Consideration
shall be appropriately adjusted.
Person: an individual, a partnership, a joint venture, a
corporation, a limited liability company, a trust, an unincorporated
organization or a government or any department or agency thereof.
Pre-Distribution Period: as defined in the Tax Sharing Agreement.
Privileged Information: with respect to either Group, Information
regarding a member of such Group, or any of its operations, Assets or
Liabilities (whether in documents or stored in any other form or known to its
employees or agents) that is or may be protected from disclosure pursuant to the
attorney-client privilege, the work product doctrine or other applicable
privileges, that a member of the other Group may come into possession of or
obtain access to pursuant to this Agreement or otherwise.
Recapitalization: as defined in Section 2.07 hereof.
Record Date: the close of business on the date to be determined by
the Board of Directors of Grace as the record date for determining shareholders
of Grace entitled to receive the Distribution and the Recapitalization, which
date shall be the day of, or the business day immediately preceding the day of,
the Effective Time.
Registration Statements: a registration statement on Form 10 (or, if
such form is not appropriate, the appropriate form pursuant to the Securities
Act) to be filed by New Grace with the SEC to effect the registration of the New
Grace Common Stock and the New Grace Rights pursuant to the Exchange Act (or, if
applicable, pursuant to the Securities Act) and the registration statement to be
filed by Grace with the SEC in connection with the Recapitalization and the
Merger pursuant to the Securities Act.
Representative: with respect to any Person, any of such Person's
directors, officers, employees, agents, consultants, advisors, accountants,
attorneys and representatives.
SAC: as defined in the Recitals to this Agreement.
SEC: the Securities and Exchange Commission.
Securities Act: the Securities Act of 1933, as amended, together
with the rules and regulations promulgated thereunder.
Severance Costs: as defined in Section 8.04 hereof.
Shared Facilities: other than Shared Regional Headquarters, any
production, manufacturing, sales office or other facility (whether owned or
leased) of Grace or any of its subsidiaries in which operations of both the
Packaging Business and the New Grace Business are conducted as of the
Distribution Date, including the facilities listed on Schedule 1.01(e) hereto.
Shared Regional Headquarters: regional headquarters of Grace in
which services are provided, as of the Distribution Date, to both the
Packaging Business and the New Grace Business.
Subsidiary: with respect to any specified Person, any corporation or
other legal entity of which such Person or any of its subsidiaries controls or
owns, directly or indirectly, more than 50% of the stock or other equity
interest entitled to vote on the election of members to the board of directors
or similar governing body.
Subsidiary Excess Cash: as defined in Section 2.02(c) hereof.
Tax: as defined in the Tax Sharing Agreement.
Tax Benefit: as defined in the Tax Sharing Agreement.
Tax Sharing Agreement: the Tax Sharing Agreement to be entered
into prior to the Distribution between Grace and New Grace, substantially in
the form of Exhibit B hereto, with such changes as are acceptable to Grace,
New Grace, Grace-Conn. and SAC.
Third-Party Claim: any claim, suit, derivative suit, arbitration,
inquiry, proceeding or investigation by or before any court, any governmental or
other regulatory or administrative agency or commission or any arbitration
tribunal asserted by a Person who or which is neither a party hereto nor an
Affiliate of a party hereto.
Transaction Agreements: as defined in the Merger Agreement.
Transaction Costs: as defined in Section 8.04 hereof.
Withholding Taxes: as defined in Section 2.02(c) hereof.
SECTION 1.02 References to Time. All references in this Agreement to
times of the day shall be to New York City time.
ARTICLE II
CERTAIN TRANSACTIONS PRIOR TO THE DISTRIBUTION DATE
SECTION 2.01 Transfer of Packco Assets; Assumption of Packco
Liabilities. (a) Prior to the Distribution Date but subject to Section 2.02,
Grace shall transfer, or cause to be transferred to Packco or, at Packco's
option, to a Packco Subsidiary effective as of the Distribution Date all of the
Packco Assets. Immediately prior to the Distribution, the capital stock of
Packco shall be distributed to Grace. Grace shall also transfer, or cause to be
transferred, the capital stock of any Subsidiary such that, as of the
Distribution Date, the Packco Subsidiaries shall be wholly owned (except for
shares held by directors or officers to comply with applicable law) by a member
of the Packco Group and the New Grace Subsidiaries shall be wholly owned (except
for shares held by directors or officers to comply with applicable law) by a
member of the New Grace Group. Effective as of the Distribution Date, the
transfers described in this Section will result in Packco or another member of
the Packco Group obtaining all of the rights, title and interests of Grace and
its Subsidiaries in the Packco Assets, subject to Sections 2.05 and 2.10.
(b) Effective as of the Distribution Date and subject to Section
2.02, Packco shall, or shall cause a Packco Subsidiary to, assume, pay, perform,
and discharge in due course all of the Packco Liabilities.
(c) Separation of Assets. The Packco Assets and Grace-Conn. Assets
(including Assets that are, or are contained in, the Shared Facilities) shall,
to the extent reasonably practicable (including taking into account the costs of
any actions taken), be severed, divided or otherwise separated from each other
so that a member of the respective Group will own and control their respective
Assets as of the Distribution Date, provided that neither Grace nor New Grace
shall be obligated to make significant expenditures to effect such separation
prior to the Distribution Date. Actions taken and expenditures incurred to
separate the Shared Facilities shall be subject to the agreement of Grace, New
Grace and SAC. Such separation may include subdivision of real property,
subleasing or other division of shared buildings or premises and allocation of
shared working capital, equipment and other Assets. Such separation shall be
effected in a manner that does not unreasonably disrupt either the Packaging
Business or the New Grace Business and minimizes, to the extent practicable,
current and future costs (and losses of tax or other economic benefits) of the
respective Businesses. With respect to any Asset that cannot reasonably be
separated or otherwise allocated as provided above, (i) all right, title and
interest of Grace and its Subsidiaries shall be allocated to the Group as to
which such Asset is predominantly used or held for use or predominantly relates
and (ii) the other Group shall have a right to use such Assets in its Business
in a manner consistent with past practice for a period which is coterminous with
the life of the Asset described in (i) (and the coextensive obligation to pay
its allocable share of any costs or expenses related to such Asset pursuant to
the last sentence of this Section 2.01(c)). To the extent the separation of
Assets cannot be achieved in a reasonably practicable manner, the parties will
enter into appropriate arrangements regarding the shared Asset. Any costs
related to the use of a shared Asset that is not separated as of the
Distribution Date shall be allocated, with respect to the two-year period
beginning immediately after the Distribution Date, based on the methodology
historically used by Grace, and, for any period thereafter, using such
reasonable manner as agreed by New Grace and Grace.
(d) Intellectual Property. Notwithstanding the foregoing or anything
else contained herein, any intellectual property rights of Grace or any of its
Subsidiaries that are Packco Assets shall be licensed to or transferred to
Packco, as the case may be, as follows. With respect to intellectual property
rights used or held for use solely in connection with the Packaging Business,
Packco shall have full ownership (to the extent of Grace's rights therein) of
such rights. Except as otherwise provided in Schedule 2.01(d), with respect to
intellectual property rights that are used or held for use in both the Packaging
Business and the New Grace Business, title to such rights shall be owned by the
New Grace Group and the Packco Group shall have an exclusive, worldwide, fully
paid, perpetual, royalty-free license to use the intellectual property rights
for the field of use described in the next sentence hereof. The field of use
shall be (i) the businesses engaged in by Packco and the Packco Group as of the
Distribution Date and the businesses of SAC as of the Distribution Date,
including, in each case, reasonable extensions thereof, provided, however, that
such field of use shall not include the field described in the proviso to the
definition of "Packaging Business" as well as (to the extent not described in
such proviso) the business of (A) closures, closure sealant compositions and
multifunctional can ends which are used on or with rigid containers and (B)
coatings, sealants, compositions and equipment used or held for use in the
manufacture of cans and other rigid containers, in each case including
reasonable extensions thereof; and (ii) notwithstanding (i), with respect to
reasonable extensions referred to in the first part of clause (i) that overlap
with the reasonable extensions described in the proviso in clause (i), the field
of use shall include such overlap but the license therefor shall be
non-exclusive and the New Grace Group shall also have title to use such
intellectual property in the area of overlap. Such licenses shall not unduly
restrict the subsequent transfer or license (within the applicable field of use)
of the intellectual property. Such arrangements shall not restrict or limit in
any way the rights of SAC to use any intellectual property that is not a Packco
Asset.
(e) The costs (and other out-of-pocket losses) attributable to the
separation of the Assets, including, without limitation, the Shared Facilities,
shall be allocated pursuant to Section 8.04.
SECTION 2.02 Certain Foreign Transfers. (a) Prior to the
Distribution Date, Grace shall use its reasonable best efforts to effect the
legal separation of the Packco Assets and Packco Liabilities, on the one hand,
from the Grace-Conn. Assets and Grace-Conn. Liabilities, on the other hand, that
are located in jurisdictions outside the United States. Such separation may
include asset transfers, stock transfers, spin-offs, mergers, reorganizations,
consolidations or other transfers which may be effected before, simultaneously
with or after the Distribution (collectively, the "Foreign Transfers"). Any
Foreign Transfer that occurs after the Distribution shall be effected pursuant
to a binding commitment in existence prior to the Distribution Date.
(b) The Adjusted Foreign Transfer Taxes shall be allocated between
the New Grace Group and the Packco Group as provided in Section 8.04. Each party
shall reimburse the other to the extent that such other party pays Foreign
Transfer Taxes in excess of the amount of Adjusted Foreign Transfer Taxes
allocable to such other party pursuant to Section 8.04. Such payment shall, for
Tax purposes, be characterized as an adjustment of the New Grace Capital
Contribution.
(c) (i) "Adjusted Foreign Transfer Taxes" shall mean the excess, if
any, of (I) the sum of the Foreign Transfer Taxes, Packco Repatriation Tax Costs
and New Grace Repatriation Tax Costs over (II) the present value using a
discount rate of 5% (or, in the case of value added taxes, the gross value) of
any Tax Benefits (including foreign tax credits for United States federal income
tax purposes ("Foreign Tax Credits") other than Foreign Tax Credits attributable
to Foreign Transfer Taxes or Withholding Taxes that in the aggregate do not
exceed the Tax imposed by the United States and any political subdivision
thereof on the Deemed Repatriation) that may or would arise as a result of the
Foreign Transfers, the payment of the Foreign Transfer Taxes or the Deemed
Repatriations. Such Tax Benefits shall be presumed to be utilized in the first
year in which they arise (or are deemed to arise). All amounts relating to the
calculation of Adjusted Foreign Transfer Taxes and the amount calculated
pursuant to clause (c) of the definition of "New Grace Capital Contribution"
shall be calculated in local currency and translated into U.S. Dollars at the
Foreign Exchange Rate for such currency as of the Distribution Date.
(ii) "Foreign Transfer Taxes" shall mean net Taxes that may be imposed
by any jurisdiction other than the United States or any political subdivision
thereof in connection with the Foreign Transfers (and any Tax net of associated
foreign tax credits imposed by the United States or a political subdivision
thereof on the Foreign Transfer in Venezuela) on any member of the New Grace
Group or the Packco Group; provided, however, that the Foreign NOLs shall be
taken into account in calculating the amount of Foreign Transfer Taxes.
(iii) "Packco Repatriation Tax Costs" and "New Grace Repatriation Tax
Costs", respectively, shall mean the sum of the (I) withholding Taxes that would
be imposed by a foreign jurisdiction on a deemed distribution of Packco Group
Excess Cash to Packco or of New Grace Group Excess Cash to New Grace,
respectively (the "Deemed Repatriations"), on the day immediately following the
Distribution ("Withholding Taxes") and (II) Taxes that would be imposed by the
United States or any political subdivision thereof on a Deemed Repatriation
(without taking into account any net operating loss or other deduction) in
excess of the Foreign Tax Credits of Packco or Grace-Conn., respectively, in
respect of Taxes paid or deemed paid by Packco or Grace-Conn., respectively, as
a result of such Deemed Repatriation ("Deemed Foreign Tax Credits").
(iv) "Packco Group Excess Cash" and "New Grace Group Excess Cash",
respectively, shall mean the sum of the amount of Subsidiary Excess Cash for all
Foreign Packco Subsidiaries or Foreign New Grace Subsidiaries.
(v) "Subsidiary Excess Cash" shall mean the cash transferred to a
Foreign Packco Subsidiary or Foreign New Grace Subsidiary pursuant to a Foreign
Transfer in excess of the sum of (I) the amount of debt that may be repaid
without penalty plus current accrued unpaid Taxes of such Subsidiary as of the
Distribution Date and (II) the excess of trade and other short-term payables
over trade and other short-term receivables of such Subsidiary ("Excess
Short-Term Payables"); provided, however, that each party shall take steps
(including causing the Subsidiary to loan cash to an Affiliate organized in a
foreign jurisdiction to the extent that such Affiliate can use such cash to
repay its debt or to pay current accrued unpaid Taxes and Excess Short-Term
Payables) and cooperate in good faith to minimize the amount of Subsidiary
Excess Cash, taking into account Tax and financial considerations as if each
party were bearing the full amount of its respective Repatriation Tax Cost.
(vi) The "Foreign NOLs" shall mean net operating losses for German
income tax purposes of Grace GmbH and Grace Multiflex GmbH, and net operating
losses for other foreign income tax purposes of any other Foreign Packco
Subsidiary, attributable to the Pre-Distribution Period to the extent, in either
case, that such net operating losses would be an Overall Tax Benefit (or
Hypothetical Pre-Distribution Overall Tax Benefit), calculated without regard to
any Tax Item arising on the Foreign Transfer involving such Subsidiary, that
does not exceed the amount of income or gain arising, for purposes of the
applicable foreign income tax, on the Foreign Transfer involving such
Subsidiary.
(d) In connection with the Foreign Transfers, certain Assets
(including cash) or Liabilities that, without the agreement of the parties as
required by this Section 2.02(d), would be Grace-Conn. Assets or Grace-Conn.
Liabilities, as the case may be, may be retained by Packco or a Packco
Subsidiary (or Assets or Liabilities that, without the agreement of the parties
as required by this Section 2.02(d), would be Packco Assets or Packco
Liabilities, may be retained by New Grace or a New Grace Subsidiary) if agreed
between Grace and New Grace and reasonably satisfactory to SAC.
(e) Neither SAC nor any member of the Packco Group or the New Grace
Group shall take any action, or fail or omit to take any action where the taking
of such action or the failure or omission to take such action would disturb the
tax treatment assumed by the parties in calculating the Foreign Transfer Taxes
and cause any Indemnifiable Loss to a member of the other Group, including an
increase in the amount of Adjusted Foreign Transfer Taxes borne by the other
Group. Grace agrees to indemnify and hold the Grace-Conn. Indemnitees harmless,
and Grace-Conn. agrees to indemnify and hold the Packco Indemnitees harmless,
from and against any such Indemnifiable Loss without regard to any limitation
contained in Section 8.04.
(f) Adjusted Foreign Transfer Taxes shall be recalculated upon any
audit adjustment, Final Determination or any other change (i) of a Foreign
Transfer Tax or another foreign Tax or Tax Item that would change the amount of
Deemed Foreign Tax Credit or otherwise alter Packco Repatriation Tax Costs or
New Grace Repatriation Tax Costs or (ii) that changes the amount of a Foreign
NOL. Appropriate payment shall be made between the parties such that Foreign
Transfer Taxes, as so redetermined, and Adjusted Foreign Transfer Taxes, as so
recalculated, are shared according to the principles of Section 2.02(b).
SECTION 2.03 Certificate of Incorporation; By-laws; Rights Plan.
(a) Prior to the Distribution Date, Grace shall contribute the capital stock
of Grace-Conn. to New Grace, as well as the capital stock of any other
Subsidiary of Grace formed in connection with the Foreign Transfers that is
not a Packco Subsidiary. In addition, prior to the Distribution Date, the
parties hereto shall take all action necessary so that, at the Distribution
Date, New Grace's name shall be "W. R. Grace & Co."
(b) Prior to the Distribution Date, Grace and New Grace shall take
all action necessary so that the certificate of incorporation and by-laws of New
Grace and the preferred share purchase rights plan of New Grace shall be in
effect as specified by New Grace, each in the form of Exhibits C, D and E
hereto, respectively (with such changes as Grace and New Grace may find
appropriate).
(c) Prior to the Distribution Date, Grace and Packco shall take all
action necessary so that the certificate of incorporation and by-laws of Packco
shall be substantially similar to the customary form of certificate of
incorporation and by-laws for a wholly owned Delaware subsidiary and reasonably
acceptable to SAC.
SECTION 2.04 Issuance of Stock. Prior to the Distribution Date, the
parties hereto shall take all steps necessary so that the number of shares of
New Grace Common Stock outstanding and held by Grace shall equal the number of
shares of Grace Common Stock outstanding on the Record Date.
SECTION 2.05 Other Agreements; Shared Facilities. (a) Each of Grace
and New Grace shall, prior to the Distribution Date, enter into, or cause the
appropriate members of the Group of which it is a member to enter into, the
Other Agreements in connection with the Distribution, including, without
limitation, agreements with respect to (i) insurance procedures, (ii) interim
services (including, without limitation, services to be provided by the Shared
Regional Headquarters consistent with current operations of the respective
Businesses, and services to be provided by country organizations to operations
of the other Business consistent with past practice), which shall be charged at
allocated cost based on Grace's historical methodology, subject to applicable
tax laws in any jurisdiction, (iii) intellectual property licenses as
contemplated by Section 2.01, (iv) and other matters as may be advisable. The
Other Agreements (or, in the case of the forms of agreement attached hereto, any
amendments thereto) shall be on terms reasonably acceptable to Grace, New Grace
and SAC. Agreements regarding interim services (including country services)
shall generally have a term not to exceed 24 months (subject to earlier
termination on six months' notice (or such shorter period as does not impose
additional costs on the providing party) by the party receiving the services)
and will provide, in the case of agreements pursuant to which Packco is to
provide services to New Grace, for services at least as extensive as any
obligations contained in interim service and tolling agreements entered into
prior to the Distribution Date between Grace and a third party. Such Agreements
regarding interim services (including country services) will also provide that
any value added taxes imposed on such services shall be paid and borne, as
between the parties, by the party receiving such services. The parties shall use
reasonable efforts to conclude the Other Agreements prior to the time the other
conditions to the Distribution have been satisfied.
(b) The parties acknowledge and agree that operation by members of
the Packco Group or New Grace Group of the Shared Facilities after the
Distribution Date may continue to require the joint occupation or use by the
parties of certain related premises or facilities (such as waste disposal,
utilities, security and other matters). The parties shall enter into appropriate
arrangements regarding cost allocation and service provision with respect to
these matters, which allocation shall be as described in Section 2.01(c) and
2.05(a), as applicable. The agreements described in this paragraph (b) shall be
included in the Other Agreements.
SECTION 2.06 Financing. (a) Prior to the Distribution Date, Grace
and/or Packco shall enter into the Grace Credit Agreement, which shall be on
terms reasonably acceptable to Grace and SAC, and Grace and/or Packco shall
contribute, or cause to be contributed, the New Grace Capital Contribution to
Grace-Conn., all as described in this Section. No member of the New Grace Group
shall have any Liability or obligation with respect to the Grace Credit
Agreement. At the election of New Grace and subject to the consent of Grace and
SAC, which will not be unreasonably withheld, a portion of the New Grace Capital
Contribution may be contributed to foreign Subsidiaries of New Grace. It is
contemplated that the New Grace Capital Contribution shall be effected as
follows; provided, however, that Packco shall not borrow an amount in excess of
the tax basis, for U.S. federal income tax purposes, of Grace-Conn. in the stock
of Packco: (i) each of Grace and Packco shall borrow agreed-upon amounts; (ii)
Packco distributes a portion of the New Grace Capital Contribution to
Grace-Conn. which uses such funds to pay creditors; (iii) the Intragroup Spinoff
occurs; (iv) Grace contributes the remaining amount of the New Grace Capital
Contribution to New Grace as well as the capital stock of Grace-Conn.; and (v)
New Grace loans the amount described in clause (iv) to Grace-Conn. in the form
of a security.
(b) Prior to the Distribution, Grace-Conn. may consummate a cash
tender offer in accordance with applicable securities laws for any and all
Grace-Conn. Public Debt. Grace-Conn. may also elect, in its discretion, to
defease or otherwise acquire any portion of the Grace-Conn. Public Debt. To the
extent that upon consummation of the Distribution, there remains outstanding
(other than to the extent owned by Grace-Conn. or New Grace) in excess of $50
million in principal amount of the Grace-Conn. Public Debt, New Grace or
Grace-Conn. shall obtain an "evergreen" letter of credit, with an initial
expiration date no sooner than 364 days after the Effective Time, from a
financial institution or group of financial institutions reasonably acceptable
to Grace and SAC for the benefit of Grace with respect to such outstanding
amount from time to time in excess of $50 million.
The letter of credit shall be in form and substance reasonably
acceptable to SAC and shall entitle Grace to draw thereunder if Grace shall be
required to make (and makes) any payment pursuant to the terms of its guarantee
of any Grace-Conn. Public Debt. The expiration date of such letter of credit
shall be automatically extended for successive 364-day periods, with an absolute
expiration date on the date that is the 91st day after the date on which the
outstanding principal amount of the Grace-Conn. Public Debt shall have been
reduced to no more than $50 million, unless, prior to such 91st day, any
payments shall have been made that are subject to avoidance pursuant to a
bankruptcy or similar proceeding, in which case such letter of credit shall be
extended (with respect to the applicable payments) until such payments are no
longer subject to such avoidance, unless notice of termination is given by the
issuing bank or banks, in which case Grace shall be entitled to draw thereunder
(whether or not any demand for payment in respect of its guarantee shall have
been made), provided that, to the extent such funds are not used to make
payments on the Grace-Conn. Public Debt, Grace shall hold such proceeds separate
in an interest-bearing escrow account with a financial institution and pursuant
to escrow arrangements reasonably acceptable to Grace-Conn. To the extent that
the amount held in such escrow account is greater than (i) the outstanding
Grace-Conn. Public Debt minus (ii) $50 million, Grace shall remit such excess
amount to Grace-Conn. The amount of the letter of credit may be reduced from
time to time, but shall not at any time be less than the amount by which the
outstanding principal amount of the Grace-Conn. Public Debt (other than such
debt owned by a member of the New Grace Group) exceeds $50 million.
"Debt Costs" shall mean the costs incurred by Grace or Grace-Conn.
in connection with a tender offer, defeasance, retirement or other acquisition
of Grace-Conn. Public Debt, which costs shall consist of (i) any incremental
costs, fees, expenses and payments incurred in connection with such action, and
in the case of a tender offer shall include all costs, fees, expenses and
payments incurred in connection with a tender offer that are, in the aggregate,
in excess of the outstanding principal amount and accrued interest of the
Grace-Conn. Public Debt so acquired; plus (ii) any costs associated with
terminating or re-negotiating any related interest rate swap agreements with
respect to the amount of Grace-Conn. Public Debt acquired, defeased or retired;
and plus (iii) the costs of the letter of credit described above.
SECTION 2.07 Grace Recapitalization. (a) Immediately prior to the
Effective Time, Grace shall consummate a recapitalization of the Grace Common
Stock, such that each share of Grace Common Stock outstanding as of the Record
Date shall be exchanged for the Per Share Common Consideration and the Per Share
Preferred Consideration (the "Recapitalization"). Options to purchase shares of
Grace Common Stock previously granted by Grace or a predecessor and outstanding
as of the time of the Recapitalization shall be treated as provided in the
Benefits Agreement. In connection with the Recapitalization and the Merger, the
Grace Certificate of Incorporation shall be amended so that the par value of the
Newco Common Stock will be $.10 per share, as well as otherwise provided in the
Merger Agreement. Grace shall retain an Exchange Agent or transfer agent as
appropriate and take other appropriate actions to effect the Recapitalization,
including customary procedures with respect to the exchange of share
certificates.
(b) No fractional shares of Newco Common Stock or Newco Convertible
Preferred Stock shall be issued in the Recapitalization. In lieu of any such
fractional shares, each person who would otherwise have been entitled to a
fraction of a share of Newco Common Stock or Newco Convertible Preferred Stock
upon surrender of former shares of Grace Common Stock for exchange pursuant to
the Recapitalization shall be paid an amount in cash (without interest) equal to
such holder's proportionate interest in the net proceeds from the sale or sales
in the open market by the Exchange Agent, on behalf of all such holders, of the
aggregate fractional shares of Newco Common Stock or Newco Convertible Preferred
Stock issued pursuant to this paragraph. As soon as practicable following the
Distribution Date, the Exchange Agent shall determine the excess of (i) the
number of full shares of Newco Common Stock or Newco Convertible Preferred
Stock, as the case may be, delivered to the Exchange Agent over (ii) the
aggregate number of full shares of Newco Common Stock or Newco Convertible
Preferred Stock to be distributed in respect of Grace Common Shares (such
excess, the "Excess Shares"), and the Exchange Agent, as agent for the former
holders of such Grace Common Shares, shall sell the Excess Shares at the
prevailing prices on the open market. The sale of the Excess Shares by the
Exchange Agent shall be executed on a public exchange through one or more firms
and shall be executed in round lots to the extent practicable. Grace shall pay
all commissions, transfer taxes and other out-of-pocket transaction costs,
including the expenses and compensation of the Exchange Agent, incurred in
connection with such sale of Excess Shares. Until the net proceeds of such sale
or sales have been distributed, the Exchange Agent shall hold such proceeds in
trust for such former stockholders. As soon as practicable after the
determination of the amount of cash to be paid in lieu of any fractional
interests, the Exchange Agent shall make available in accordance with this
Agreement such amounts to such former stockholders.
SECTION 2.08 Registration and Listing. Prior to the Distribution
Date:
(a) The parties shall take such efforts regarding the Registration
Statements and the Joint Proxy Statement as is provided in the Merger Agreement.
After such Registration Statements become effective, Grace shall cause the Joint
Proxy Statement and the information statement (or prospectus, as the case may
be) for the New Grace Common Stock forming a part of the Registration Statement
for New Grace to be delivered to all holders of record of Grace Common Stock as
of the record date for the meeting of Grace shareholders to which the Joint
Proxy Statement relates.
(b) The parties hereto shall use reasonable efforts to take all such
action as may be necessary or appropriate under state securities and blue sky
laws in connection with the transactions contemplated by this Agreement.
(c) New Grace and Grace shall prepare, and New Grace and Grace shall
file and seek to make effective, an application for the listing of the New Grace
Common Stock on the NYSE, and an application for the listing on the NYSE of the
Newco Common Stock and the Newco Convertible Preferred Stock to be issued in
connection with the Recapitalization and the Merger, in each case subject to
official notice of issuance.
(d) The parties hereto shall cooperate in preparing, filing with the
SEC and causing to become effective any registration statements or amendments
thereto which are necessary or appropriate in order to effect the transactions
contemplated hereby or to reflect the establishment of, or amendments to, any
employee benefit plans contemplated hereby or by the Employee Benefits Agreement
requiring registration under the Securities Act.
SECTION 2.09 Grace and New Grace Boards. The parties hereto shall
take all steps necessary so that, effective immediately after the Distribution,
the Board of Directors of each of Grace and New Grace, so long as the common
stock of such company is registered under Section 12 of the Exchange Act, shall
at all times be comprised of a majority of independent directors (other than due
to temporary vacancies).
SECTION 2.10 Transfers Not Effected Prior to the Distribution;
Transfers Deemed Effective as of the Distribution Date. To the extent that any
transfers contemplated by this Article II shall not have been consummated on the
Distribution Date, including, without limitation, any Foreign Transfers, the
parties shall cooperate to effect such transfers as promptly following the
Distribution Date as shall be practicable. Nothing herein shall be deemed to
require the transfer of any Assets or the assumption of any Liabilities which by
their terms or operation of law cannot be transferred or assumed; provided,
however, that Grace and New Grace and their respective Subsidiaries shall
cooperate to obtain any necessary consents or approvals for the transfer of all
Assets and Liabilities contemplated to be transferred pursuant to this Article
II. In the event that any such transfer of Assets or Liabilities has not been
consummated, effective as of and after the Distribution Date, the party
retaining such Asset or Liability shall thereafter hold such Asset in trust for
the use and benefit of the party entitled thereto (at the expense of the party
entitled thereto) and retain such Liability for the account of the party by whom
such Liability is to be assumed pursuant hereto, and take such other action as
may be reasonably requested by the party to which such Asset is to be
transferred, or by whom such Liability is to be assumed, as the case may be, in
order to place such party, insofar as reasonably possible, in the same position
as would have existed had such Asset or Liability been transferred as
contemplated hereby. As and when any such Asset or Liability becomes
transferable, such transfer shall be effected forthwith. The parties agree that,
as of the Distribution Date, each party hereto shall be deemed to have acquired
complete and sole beneficial ownership over all of the Assets, together with all
rights, powers and privileges incident thereto, and shall be deemed to have
assumed in accordance with the terms of this Agreement all of the Liabilities,
and all duties, obligations and responsibilities incident thereto, which such
party is entitled to acquire or required to assume pursuant to the terms of this
Agreement.
SECTION 2.11 Intercompany Accounts and Distribution Payments. After
the Distribution Date, the parties shall be obligated to pay only those
intercompany accounts between members of the New Grace Group and members of the
Packco Group that arose in connection with transfers of goods and services in
the ordinary course of business, consistent with past practices (which the
parties shall use reasonable efforts to settle prior to the Distribution Date),
and all other intercompany accounts shall be settled without transfer of
non-financial assets as of the Distribution Date.
ARTICLE III
THE DISTRIBUTION
SECTION 3.01 Record Date and Distribution Date. Subject to the
satisfaction of the conditions set forth in Section 8.01(a), the Board of
Directors of Grace, in its sole discretion and consistent with the Merger
Agreement, shall establish the Record Date and the Distribution Date and any
appropriate procedures in connection with the Distribution.
SECTION 3.02 The Agent. Prior to the Distribution Date, New Grace
shall enter into an agreement with the Agent providing for, among other things,
the payment of the Distribution to the holders of Grace Common Stock in
accordance with this Article III.
SECTION 3.03 Delivery of Share Certificates to the Agent. Prior to
the Distribution Date, Grace shall deliver to the Agent a share certificate
representing (or authorize the related book-entry transfer of) all of the
outstanding shares of New Grace Common Stock to be distributed in connection
with the payment of the Distribution. After the Distribution Date, upon the
request of the Agent, New Grace shall provide all certificates for shares (or
book-entry transfer authorizations) of New Grace Common Stock that the Agent
shall require in order to effect the Distribution.
SECTION 3.04 The Distribution. Subject to the terms and conditions
of this Agreement, New Grace shall instruct the Agent to distribute, as of the
Distribution Date, one share of New Grace Common Stock in respect of each share
of Grace Common Stock held by holders of record of Grace Common Stock on the
Record Date.
ARTICLE IV
SURVIVAL AND INDEMNIFICATION
SECTION 4.01 Survival of Agreements. All covenants and agreements of
the parties hereto contained in this Agreement shall survive the Distribution
Date.
SECTION 4.02 Indemnification. (a) Except as specifically otherwise
provided in the Other Agreements, the New Grace Group shall indemnify, defend
and hold harmless the Packco Indemnitees from and against (i) all Indemnifiable
Losses arising out of or due to the failure or alleged failure of any member of
the New Grace Group (x) to pay any Grace-Conn. Liabilities (including, without
limitation, all Liabilities specifically excluded from the definition of Packco
Liabilities herein), whether such Indemnifiable Losses relate to events,
occurrences or circumstances occurring or existing, or whether such
Indemnifiable Losses are asserted, before or after the Distribution Date, or (y)
to perform any of its obligations under this Agreement (including the obligation
to effect the transfers as provided in the last sentence of Section 2.01(a));
(ii) all Indemnifiable Losses arising out of or based upon any untrue statement
or alleged untrue statement of a material fact, or omission or alleged omission
to state a material fact required to be stated, in the Registration Statements
or the Joint Proxy Statement or any preliminary or final form thereof or any
amendment thereto, or necessary to make the statements therein not misleading,
except that such indemnifications shall not apply to any Indemnifiable Losses
that arise out of or are based upon any statement or omission, or alleged
statement or omission, in any of the portions of the Registration Statements or
the Joint Proxy Statement, or any preliminary or final form thereof or any
amendment thereto, solely with respect to information relating to SAC supplied
by SAC specifically for use in the preparation thereof or relating to Newco
after the Merger; and (iii) all Indemnifiable Losses arising from or relating to
all existing litigation brought by pre-Merger shareholders of Grace acting in
such capacity and all litigation to be brought by pre-Merger shareholders of
Grace acting in such capacity and relating to any events or transactions
occurring prior to the Effective Time or to the transactions contemplated by the
Transaction Agreements.
(b) Except as specifically otherwise provided in the Other
Agreements, the Packco Group shall indemnify, defend and hold harmless the New
Grace Indemnitees from and against (i) all Indemnifiable Losses arising out of
or due to the failure or alleged failure of any member of the Packco Group to
pay any Packco Liabilities or to perform any of its obligations under this
Agreement after the Distribution Date; and (ii) all Indemnifiable Losses arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact, or omission or alleged omission to state a material fact required
to be stated, in any portion of the Registration Statements or the Joint Proxy
Statement (or any preliminary or final form thereof or any amendment thereto)
solely with respect to information relating to SAC supplied by SAC specifically
for use in the preparation thereof or relating to Newco after the Merger
(including the pro forma financial information relating to Newco contained in
the Registration Statements (other than the historical information relating to
Grace and the Packaging Business)), or necessary to make the statements therein
not misleading.
(c) If any Indemnity Payment required to be made hereunder or under
any Other Agreement is denominated in a currency other than United States
dollars, such payment shall be made in United States dollars and the amount
thereof shall be computed using the Foreign Exchange Rate for such currency
determined as of the date on which such Indemnity Payment is made.
(d) Notwithstanding anything to the contrary set forth herein,
indemnification relating to any arrangements between any member of the Packco
Group and any member of the New Grace Group for the provision after the
Distribution of goods and services in the ordinary course shall be governed by
the terms of such arrangements and not by this Section or as otherwise set forth
in this Agreement and the Other Agreements.
SECTION 4.03 Procedures for Indemnification for Third-Party Claims.
(a) Grace shall, and shall cause the other Packco Indemnitees to, notify New
Grace in writing promptly after learning of any Third-Party Claim for which any
Packco Indemnitee intends to seek indemnification from New Grace under this
Agreement. New Grace shall, and shall cause the other New Grace Indemnitees to,
notify Grace in writing promptly after learning of any Third-Party Claim for
which any New Grace Indemnitee intends to seek indemnification from Grace under
this Agreement. The failure of any Indemnitee to give such notice shall not
relieve any Indemnifying Party of its obligations under this Article except to
the extent that such Indemnifying Party or its Affiliate is actually prejudiced
by such failure to give notice. Such notice shall describe such Third-Party
Claim in reasonable detail considering the Information provided to the
Indemnitee.
(b) Except as otherwise provided in paragraph (c) of this Section,
an Indemnifying Party may, by notice to the Indemnitee and to Grace, if New
Grace is the Indemnifying Party, or to the Indemnitee and New Grace, if Grace is
the Indemnifying Party, at any time after receipt by such Indemnifying Party of
such Indemnitee's notice of a Third-Party Claim, undertake (itself or through
another member of the Group of which the Indemnifying Party is a member) the
defense or settlement of such Third-Party Claim. If an Indemnifying Party
undertakes the defense of any Third-Party Claim, such Indemnifying Party shall
thereby admit its obligation to indemnify the Indemnitee against such
Third-Party Claim, and such Indemnifying Party shall control the investigation
and defense or settlement thereof, and the Indemnitee may not settle or
compromise such Third-Party Claim, except that such Indemnifying Party shall not
(i) require any Indemnitee, without its prior written consent, to take or
refrain from taking any action in connection with such Third-Party Claim, or
make any public statement, which such Indemnitee reasonably considers to be
against its interests, nor (ii) without the prior written consent of the
Indemnitee and of Grace, if the Indemnitee is a Packco Indemnitee, or the
Indemnitee and of New Grace, if the Indemnitee is a New Grace Indemnitee,
consent to any settlement that does not include as a part thereof an
unconditional release of the Indemnitees from liability with respect to such
Third-Party Claim or that requires the Indemnitee or any of its Representatives
or Affiliates to make any payment that is not fully indemnified under this
Agreement or to be subject to any non-monetary remedy; and subject to the
Indemnifying Party's control rights, as specified herein, the Indemnitees may
participate in such investigation and defense, at their own expense. Following
the provision of notices to the Indemnifying Party, until such time as an
Indemnifying Party has undertaken the defense of any Third-Party Claim as
provided herein, such Indemnitee shall control the investigation and defense or
settlement thereof, without prejudice to its right to seek indemnification
hereunder.
(c) If an Indemnitee reasonably determines that there may be legal
defenses available to it that are different from or in addition to those
available to its Indemnifying Party which make it inappropriate for the
Indemnifying Party to undertake the defense or settlement thereof, then such
Indemnifying Party shall not be entitled to undertake the defense or settlement
of such Third-Party Claim; and counsel for the Indemnifying Party shall be
entitled to conduct the defense of such Indemnifying Party and counsel for the
Indemnitee (selected by the Indemnitee) shall be entitled to conduct the defense
of such Indemnitee, it being understood that both such counsel shall cooperate
with each other to conduct the defense or settlement of such action as
efficiently as possible. The above provisions of this paragraph (c) shall not
apply to Third-Party Claims relating to asbestos claims described in the proviso
to the definition of Packco Liabilities. Rather, with respect to such asbestos
claims, with the consent of Grace-Conn., which shall not be unreasonably
withheld, counsel for the Indemnifying Party shall be entitled to conduct the
defense of such Third-Party Claim to the extent the legal defenses available to
the Indemnifying Party and the Indemnitee are substantially similar, but counsel
for the Indemnitee shall be entitled to assert and conduct its own defense to
the extent, but only to the extent, of any additional legal defenses available
to it.
(d) In no event shall an Indemnifying Party be liable for the fees
and expenses of more than one counsel for all Indemnitees (in addition to its
own counsel, if any) in connection with any one action, or separate but similar
or related actions, in the same jurisdiction arising out of the same general
allegations or circumstances.
(e) New Grace shall, and shall cause the other New Grace Indemnitees
to, and Grace shall, and shall cause the other Packco Indemnitees to, make
available to each other, their counsel and other Representatives, all
information and documents reasonably available to them which relate to any
Third-Party Claim, and otherwise cooperate as may reasonably be required in
connection with the investigation, defense and settlement thereof, subject to
the terms and conditions of a mutually acceptable joint defense agreement. Any
joint defense agreement entered into by New Grace or Grace with any third party
relating to any Third-Party Claim shall provide that New Grace or Grace may, if
requested, provide information obtained through any such agreement to the New
Grace Indemnitees and/or the Packco Indemnitees.
SECTION 4.04 Remedies Cumulative. The remedies provided in this
Article IV shall be cumulative and shall not preclude assertion by any
Indemnitee of any other rights or the seeking of any other remedies against any
Indemnifying Party. However, the procedures set forth in Section 4.03 shall be
the exclusive procedures governing any indemnity action brought under this
Agreement, except as otherwise specifically provided in any of the Other
Agreements.
ARTICLE V
CERTAIN ADDITIONAL COVENANTS
SECTION 5.01 Notices to Third Parties. In addition to the actions
described in Section 5.02, the members of the Packco Group and the members of
the New Grace Group shall cooperate to make all other filings and give notice to
and obtain consents from all third parties that may reasonably be required to
consummate the transactions contemplated by this Agreement, the Merger Agreement
and the Other Agreements.
SECTION 5.02 Licenses and Permits. Each party hereto shall cause the
appropriate members of its Group to prepare and file with the appropriate
licensing and permitting authorities applications for the transfer or issuance,
as may be necessary or advisable in connection with the transactions
contemplated by this Agreement, the Other Agreements and the Merger Agreement,
to its Group of all material governmental licenses and permits required for the
members of its Group to operate its Business after the Distribution Date. The
members of the New Grace Group and the members of the Packco Group shall
cooperate and use all reasonable efforts to secure the transfer or issuance of
the licenses and permits.
SECTION 5.03 Intercompany Agreements. All contracts, licenses,
agreements, commitments or other arrangements, formal or informal, between any
member of the Packco Group, on the one hand, and any member of the New Grace
Group, on the other hand, in existence as of the Distribution Date, pursuant to
which any member of either Group makes payments in respect of Taxes to any
member of the other Group or provides to any member of the other Group goods or
services (including, without limitation, management, administrative, legal,
financial, accounting, data processing, insurance or technical support), or the
use of any Assets of any member of the other Group, or the secondment of any
employee, or pursuant to which rights, privileges or benefits are afforded to
members of either Group as Affiliates of the other Group, shall terminate as of
the close of business on the day prior to the Distribution Date, except as
specifically provided herein or in the Other Agreements. From and after the
Distribution Date, no member of either Group shall have any rights under any
such contract, license, agreement, commitment or arrangement with any member of
the other Group, except as specifically provided herein or in the Other
Agreements.
SECTION 5.04 Guarantee Obligations. (a) Grace and New Grace shall
cooperate, and shall cause their respective Groups to cooperate, to terminate,
or to cause a member of the Packco Group to be substituted in all respects for
any member of the New Grace Group in respect of, all obligations of any member
of the New Grace Group under any Packco Liabilities for which such member of the
New Grace Group may be liable, as guarantor, original tenant, primary obligor or
otherwise. If such a termination or substitution is not effected by the
Distribution Date, (i) Grace shall indemnify and hold harmless the New Grace
Indemnitees for any Indemnifiable Loss arising from or relating thereto, and
(ii) without the prior written consent of the Chief Financial Officer, Treasurer
or any Assistant Treasurer of New Grace, from and after the Distribution Date,
Grace shall not, and shall not permit any member of the Packco Group or any of
its Affiliates to, renew or extend the term of, increase its obligations under,
or transfer to a third party, any loan, lease, contract or other obligation for
which any member of the New Grace Group is or may be liable unless all
obligations of the New Grace Group with respect thereto are thereupon terminated
by documentation reasonably satisfactory in form and substance to the Chief
Financial Officer, Treasurer or any Assistant Treasurer of New Grace, provided
that the limitations in clause (ii) shall not apply in the event that a member
of the Packco Group obtains a letter of credit from a financial institution
reasonably acceptable to New Grace and for the benefit of New Grace with respect
to such obligation of the New Grace Group.
(b) Grace and New Grace shall cooperate, and shall cause their
respective Groups to cooperate, to terminate, or to cause a member of the New
Grace Group to be substituted in all respects for any member of the Packco Group
in respect of, all obligations of any member of the Packco Group under any
Grace-Conn. Liabilities for which such member of the Packco Group may be liable,
as guarantor, original tenant, primary obligor or otherwise. The foregoing
sentence does not apply to the Grace-Conn. Public Debt, which is governed by
Section 2.06. If such a termination or substitution is not effected by the
Distribution Date, (i) New Grace shall indemnify and hold harmless the Packco
Indemnitees for any Indemnifiable Loss arising from or relating thereto, and
(ii) without the prior written consent of the Chief Financial Officer, Treasurer
or any Assistant Treasurer of Grace, from and after the Distribution Date, New
Grace shall not, and shall not permit any member of the New Grace Group to,
renew or extend the term of, increase its obligations under, or transfer to a
third party, any loan, lease, contract or other obligation for which any member
of the Packco Group is or may be liable unless all obligations of the Packco
Group with respect thereto are thereupon terminated by documentation reasonably
satisfactory in form and substance to the Chief Financial Officer, Treasurer or
any Assistant Treasurer of Grace, provided that the limitations contained in
clause (ii) shall not apply in the event that a member of the New Grace Group
obtains a letter of credit from a financial institution reasonably acceptable to
Grace and for the benefit of Grace with respect to such obligation of the Packco
Group.
SECTION 5.05 Further Assurances. In addition to the actions
specifically provided for elsewhere in this Agreement, each of the parties
hereto shall use reasonable efforts to take, or cause to be taken, all actions,
and to do, or cause to be done, all things reasonably necessary, proper or
advisable under applicable laws, regulations and agreements to consummate and
make effective the transactions contemplated by this Agreement. Without limiting
the foregoing, each party hereto shall cooperate with the other party, and
execute and deliver, or use reasonable efforts to cause to be executed and
delivered, all instruments, and to make all filings with, and to obtain all
consents, approvals or authorizations of, any governmental or regulatory
authority or any other Person under any permit, license, agreement, indenture or
other instrument, and take all such other actions as such party may reasonably
be requested to take by any other party hereto from time to time, consistent
with the terms of this Agreement, the Merger Agreement and the Other Agreements,
in order to effectuate the provisions and purposes of this Agreement.
SECTION 5.06 Environmental Claims Cooperation. With respect to
claims relating to Environmental Laws described in clause (a) of the definition
of Packco Liabilities, the New Grace Group and the Packco Group shall cooperate
to minimize the costs incurred in connection with such claims and shall
generally cooperate and provide appropriate information to the other party with
respect to such claims. Notwithstanding any other provision of this Agreement,
including Article IV, Grace shall be entitled to participate in the defense of
any such claims but New Grace shall control the resolution of any such claims;
provided that New Grace shall not consent to entry of any judgment or enter into
any settlement without the approval of Grace, which approval shall not be
unreasonably withheld.
ARTICLE VI
ACCESS TO INFORMATION
SECTION 6.01 Provision of Corporate Records. Prior to or as promptly
as practicable after the Distribution Date, Grace shall retain complete and
accurate copies but shall deliver to New Grace all corporate books and records
of the New Grace Group in its possession and copies of the relevant portions of
all corporate books and records of the Packco Group relating directly and
predominantly to the Grace-Conn. Assets, the New Grace Business, or the
Liabilities of the New Grace Group, including, in each case, all active
agreements, active litigation files and government filings. Grace shall also
retain complete and accurate copies but deliver to New Grace all corporate board
and committee minute books of Grace. From and after the Distribution Date, all
such books, records and copies shall be the property of New Grace. Prior to or
as promptly as practicable after the Distribution Date, New Grace shall deliver
to Grace all corporate books and records of the Packco Group in its possession
and copies of the relevant portions of all corporate books and records of the
New Grace Group relating directly and predominantly to the Packco Assets, the
Packaging Business, or the Liabilities of the Packco Group, including, in each
case, all active agreements, active litigation files and government filings.
From and after the Distribution Date, all such books, records and copies shall
be the property of Grace. The costs and expenses incurred in the provision of
records or other information to a party shall be paid for (including
reimbursement of costs incurred by the providing party) by the requesting party.
SECTION 6.02 Access to Information. From and after the Distribution
Date, each of Grace and New Grace shall afford to the other and to the other's
Representatives reasonable access and duplicating rights during normal business
hours to all Information within the possession or control of such party's Group
relating to the other party's Group's pre-Distribution business, Assets or
Liabilities or relating to or arising in connection with the relationship
between the Groups on or prior to the Distribution Date, insofar as such access
is reasonably required for a reasonable purpose, subject to the provisions below
regarding Privileged Information. Without limiting the foregoing, Information
may be requested under this Section 6.02 for audit, accounting, claims,
litigation and Tax purposes, as well as for purposes of fulfilling disclosure
and reporting obligations.
In furtherance of the foregoing:
(a) Each party hereto acknowledges that: (i) Each of Grace and New
Grace (and the members of the Packco Group and the New Grace Group,
respectively) has or may obtain Privileged Information; (ii) there are a
number of Litigation Matters affecting each or both of Grace and New
Grace; (iii) both Grace and New Grace have a common legal interest in
Litigation Matters, in the Privileged Information and in the preservation
of the confidential status of the Privileged Information, in each case
relating to the pre-Distribution business of the Packco Group or the New
Grace Group or relating to or arising in connection with the relationship
between the Groups on or prior to the Distribution Date; and (iv) both
Grace and New Grace intend that the transactions contemplated hereby and
by the Merger Agreement and the Other Agreements and any transfer of
Privileged Information in connection therewith shall not operate as a
waiver of any potentially applicable privilege.
(b) Each of Grace and New Grace agrees, on behalf of itself and each
member of the Group of which it is a member, not to disclose or otherwise
waive any privilege attaching to any Privileged Information relating to
the pre-Distribution business of the New Grace Group or the Packco Group,
respectively, or relating to or arising in connection with the
relationship between the Groups on or prior to the Distribution Date,
without providing prompt written notice to and obtaining the prior written
consent of the other, which consent shall not be unreasonably withheld and
shall not be withheld if the other party certifies that such disclosure is
to be made in response to a likely threat of suspension or debarment or
similar action; provided, however, that Grace and New Grace may make such
disclosure or waiver with respect to Privileged Information if such
Privileged Information relates solely to the pre-Distribution business of
the Packco Group in the case of Grace or the New Grace Group in the case
of New Grace. In the event of a disagreement between any member of the
Packco Group and any member of the New Grace Group concerning the
reasonableness of withholding such consent, no disclosure shall be made
prior to a resolution of such disagreement by a court of competent
jurisdiction, provided that the limitations in this sentence shall not
apply in the case of disclosure required by law and so certified as
provided in the first sentence of this paragraph.
(c) Upon any member of the Packco Group or any member of the New
Grace Group receiving any subpoena or other compulsory disclosure notice
from a court, other governmental agency or otherwise which requests
disclosure of Privileged Information, in each case relating to
pre-Distribution business of the New Grace Group or the Packco Group,
respectively, or relating to or arising in connection with the
relationship between the Groups on or prior to the Distribution Date, the
recipient of the notice shall promptly provide to the other Group
(following the notice provisions set forth herein) a copy of such notice,
the intended response, and all materials or information relating to the
other Group that might be disclosed. In the event of a disagreement as to
the intended response or disclosure, unless and until the disagreement is
resolved as provided in paragraph (b) of this Section, the parties shall
cooperate to assert all defenses to disclosure claimed by either party's
Group, and shall not disclose any disputed documents or information until
all legal defenses and claims of privilege have been finally determined.
SECTION 6.03 Production of Witnesses. Subject to Section 6.02, after
the Distribution Date, each of Grace and New Grace shall, and shall cause each
member of the Packco Group and the New Grace Group, respectively, to make
available to New Grace or Grace or any member of the New Grace Group or of the
Packco Group, as the case may be, upon written request, such Group's directors,
officers, employees and agents as witnesses to the extent that any such Person
may reasonably be required in connection with any Litigation Matters,
administrative or other proceedings in which the requesting party may from time
to time be involved and relating to the pre-Distribution business of the Packco
Group or the New Grace Group or relating to or in connection with the
relationship between the Groups on or prior to the Distribution Date.
SECTION 6.04 Retention of Records. Except as otherwise agreed in
writing, or as otherwise provided in the Other Agreements, each of Grace and New
Grace shall, and shall cause the members of the Group of which it is a member
to, retain all Information in such party's Group's possession or under its
control relating directly and predominantly to the pre-Distribution business,
Assets or Liabilities of the other party's Group until such Information is at
least ten years old or until such later date as may be required by law, except
that if, prior to the expiration of such period, any member of either party's
Group wishes to destroy or dispose of any such Information that is at least
three years old, prior to destroying or disposing of any of such Information,
(a) the party whose Group is proposing to dispose of or destroy any such
Information shall provide no less than 30 days' prior written notice to the
other party, specifying the Information proposed to be destroyed or disposed of,
and (b) if, prior to the scheduled date for such destruction or disposal, the
other party requests in writing that any of the Information proposed to be
destroyed or disposed of be delivered to such other party, the party whose Group
is proposing to dispose of or destroy such Information promptly shall arrange
for the delivery of the requested Information to a location specified by, and at
the expense of, the requesting party.
SECTION 6.05 Confidentiality. Subject to Section 6.02, which shall
govern Privileged Information, from and after the Distribution Date, each of
Grace and New Grace shall hold, and shall use reasonable efforts to cause its
Affiliates and Representatives to hold, in strict confidence all Information
concerning the other party's Group obtained by it prior to the Distribution Date
or furnished to it by such other party's Group pursuant to this Agreement or the
Other Agreements and shall not release or disclose such Information to any other
Person, except its Affiliates and Representatives, who shall be bound by the
provisions of this Section 6.05, and each party shall be responsible for a
breach by any of its Affiliates or Representatives; provided, however, that any
member of the Packco Group or the New Grace Group may disclose such Information
to the extent that (a) disclosure is compelled by judicial or administrative
process or, in the opinion of such Person's counsel, by other requirements of
law, or (b) such party can show that such Information was (i) available to such
Person on a nonconfidential basis (other than from a member of the other party's
Group) prior to its disclosure by the other party's Group, (ii) in the public
domain through no fault of such Person or (iii) lawfully acquired by such Person
from another source after the time that it was furnished to such Person by the
other party's Group, and not acquired from such source subject to any
confidentiality obligation on the part of such source known to the acquiror.
Notwithstanding the foregoing, each of Grace and New Grace shall be deemed to
have satisfied its obligations under this Section 6.05 with respect to any
Information (other than Privileged Information) if it exercises the same care
with regard to such Information as it takes to preserve confidentiality for its
own similar Information.
SECTION 6.06 Cooperation with Respect to Government Reports and
Filings. Grace, on behalf of itself and each member of the Packco Group, agrees
to provide any member of the New Grace Group, and New Grace, on behalf of itself
and each member of the New Grace Group, agrees to provide any member of the
Packco Group, with such cooperation and Information as may be reasonably
requested by the other in connection with the preparation or filing of any
government report or other government filing contemplated by this Agreement or
in conducting any other government proceeding relating to the pre-Distribution
business of the Packco Group or the New Grace Group, Assets or Liabilities of
either Group or relating to or in connection with the relationship between the
Groups on or prior to the Distribution Date. Such cooperation and Information
shall include, without limitation, promptly forwarding copies of appropriate
notices and forms or other communications received from or sent to any
government authority which relate to the Packco Group, in the case of the New
Grace Group, or the New Grace Group, in the case of the Packco Group. Each party
shall make its employees and facilities available during normal business hours
and on reasonable prior notice to provide explanation of any documents or
Information provided hereunder.
ARTICLE VII
NO REPRESENTATIONS OR WARRANTIES
SECTION 7.01 No Representations or Warranties. Except as expressly
set forth herein or in any other Transaction Agreement (including Article II and
Sections 4.01, 4.02 and 5.05), New Grace and Grace-Conn. understand and agree
that no member of the Packco Group is, in this Agreement or in any other
agreement or document, representing or warranting to New Grace or any member of
the New Grace Group in any way as to the Grace-Conn. Assets, the New Grace
Business or the Grace-Conn. Liabilities, it being agreed and understood that New
Grace and each member of the New Grace Group shall take all of the Grace-Conn.
Assets "as is, where is." Except as expressly set forth herein or in any other
Transaction Agreement and subject to Sections 4.01, 4.02 and 5.05, New Grace and
each member of the New Grace Group shall bear the economic and legal risk that
the Grace-Conn. Assets shall prove to be insufficient or that the title of any
member of the New Grace Group to any Grace-Conn. Assets shall be other than good
and marketable and free from encumbrances. Except as expressly set forth herein
or in any other Transaction Agreement (including Article II and Sections 4.01,
4.02 and 5.05), Grace understands and agrees that no member of the New Grace
Group is, in this Agreement or in any other agreement or document, representing
or warranting to Grace or any member of the Packco Group in any way as to the
Packco Assets, the Packaging Business or the Packco Liabilities, it being agreed
and understood that Grace, Packco and each other member of the Packco Group
shall take all of the Packco Assets "as is, where is." Except as expressly set
forth herein or in any other Transaction Agreement and subject to Sections 4.01,
4.02 and 5.05, Grace and each member of the Packco Group shall bear the economic
and legal risk that the Packco Assets shall prove to be insufficient or that the
title of any member of the Packco Group to any Packco Assets shall be other than
good and marketable and free from encumbrances. The foregoing shall be without
prejudice to any rights under Article II, Section 4.01, Section 4.02 or Section
5.05 or to the covenants otherwise contained in this Agreement or any other
Transaction Agreement.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01 Conditions to Obligations. (a) The obligations of the
parties hereto to consummate the payment of the Distribution are subject to the
satisfaction of each of the following conditions:
(i) the transactions contemplated hereby (including the Distribution,
the Recapitalization, the Merger, the amendment to the Grace Certificate
of Incorporation and otherwise as required by applicable law and stock
exchange regulations) shall have been duly approved by Grace shareholders;
(ii) all conditions to the Merger set forth in the Merger Agreement
(other than that the Distribution be consummated) shall have been
satisfied or waived;
(iii) all third-party consents and governmental approvals required in
connection with the transactions contemplated hereby shall have been
received, except where the failure to obtain such consents or approvals
would not have a material adverse effect on either (A) the ability of the
parties to consummate the transactions contemplated by this Agreement, the
Other Agreements or the Merger Agreement or (B) the business, assets,
liabilities, financial condition or results of operations of Grace-Conn.
or Packco and their respective subsidiaries, taken as a whole;
(iv) the transactions contemplated by Article II shall have been
consummated in all material respects, to the extent required to be
consummated prior to the Distribution;
(v) the shares of New Grace Common Stock to be issued in the
Distribution, and the shares of Newco Common Stock and the Newco
Convertible Preferred Stock to be issued in the Recapitalization and the
Merger, as the case may be, shall have been authorized for listing on the
NYSE, in each case subject to official notice of issuance;
(vi) the Board of Directors of New Grace, composed as contemplated by
Section 2.09, shall have been duly elected;
(vii) the Registration Statements shall have been declared effective
under the Exchange Act or the Securities Act, as the case may be, by the
SEC and no stop order suspending the effectiveness of either of the
Registration Statements shall have been issued by the SEC and, to the
knowledge of Grace and New Grace, no proceeding for that purpose shall
have been instituted by the SEC;
(viii) the applicable parties shall have entered into each of the Other
Agreements;
(ix) (A) the Board of Directors of Grace shall have received customary
opinions of a nationally recognized investment banking or appraisal firm
in form and substance reasonably satisfactory to such Board to the effect
that, after giving effect to the transactions set forth in Article II
hereof, neither Grace nor New Grace and Grace-Conn. will be insolvent
(such opinions to be dated as of the date of the Merger Agreement, the
date the Board of Directors of Grace declares the Distribution and the
Distribution Date) and (B) the financial condition of each of Grace and
Grace-Conn. satisfies the requirements of Section 170 of the Delaware
General Corporation Law and Section 33-687 of the Connecticut Business
Corporation Act, respectively, such that the distribution of the common
stock of Packco to Grace by Grace-Conn. and the Distribution may be
effected without violating such Sections, and the Board of Directors of
Grace and the Board of Directors of Grace-Conn. shall in good faith have
determined that such requirements have been satisfied; and
(x) the transactions contemplated hereby shall be in compliance with
all applicable federal and state securities laws.
(b) Any determination made by the Board of Directors of Grace or
Grace-Conn. on behalf of such party hereto prior to the Distribution Date
concerning the satisfaction or waiver of any or all of the conditions set forth
in this Section shall be conclusive.
SECTION 8.02 Use of Grace Name and Mark. Grace acknowledges that
Grace-Conn. shall own all rights in the "Grace" name and logo and related
tradenames and marks. Effective at the Distribution Date, Grace shall change its
name to a name that does not use the word "Grace" or any variation thereof and
shall itself, and shall cause each member of the Packco Group to, cease all use
of the "Grace" name as part of any corporate name. As promptly as practicable
after the Distribution Date, Grace shall, and shall cause each member of the
Packco Group to, cease all other use of the "Grace" name and logo and related
tradenames and marks, provided that Grace may use inventory including any such
name, logo, tradenames or marks in existence as of the Distribution Date. Grace
shall cause the Packco Group to use such names, logos and marks during such
transition period only to the extent consistent with past practice and as Grace
reasonably believes is appropriate, and during the period of such usage Grace
shall cause the Packco Group to maintain the same standards of quality with
respect to such names, logos and marks as previously exercised. No such material
shall be used by the Packco Group after the six-month anniversary of the
Distribution Date.
SECTION 8.03 Complete Agreement. This Agreement, the Exhibits and
Schedules hereto and the agreements and other documents referred to herein shall
constitute the entire agreement between the parties hereto with respect to the
subject matter hereof (other than the Merger Agreement and the schedules and
exhibits thereto) and shall supersede all previous negotiations, commitments and
writings with respect to such subject matter.
SECTION 8.04 Expenses. Except as otherwise specifically provided
herein or in any other Transaction Agreement, New Grace shall bear all costs and
expenses (including all Debt Costs, Adjusted Foreign Transfer Taxes, Severance
Costs and losses of benefits) incurred by Grace, New Grace and/or any members of
their respective Groups (collectively, the "Transaction Costs") in connection
with the transactions contemplated by this Agreement and the Other Agreements
(including the Contribution (and the related transfers, separations and/or
allocations of Assets and Liabilities), the Intragroup Spinoff, the Distribution
and the Recapitalization)); provided that Grace (for the account of Newco after
the Merger) agrees to bear: (i) the lesser of $50 million and 37% of the
aggregate amount of all Debt Costs, Adjusted Foreign Transfer Taxes and
Severance Costs; (ii) the lesser of $10 million and 37% of all other Transaction
Costs (excluding any Debt Costs, Adjusted Foreign Transfer Taxes, Severance
Costs and costs and expenses payable by New Grace or Grace pursuant to Section
6.12 of the Merger Agreement) and (iii) the fees and costs incurred in
connection with the Grace Credit Agreement. "Severance Costs" means the costs
associated with the termination in connection with the transactions contemplated
hereby (including the Merger) of employment of employees of Grace and
Grace-Conn. located at the Grace corporate headquarters. To the extent
Transaction Costs are not included in the New Grace Capital Contribution, Newco
or New Grace shall promptly pay its share of any such costs upon receipt of
reasonable documentation relating to such costs. Appropriate payment shall be
made between the parties in respect of Adjusted Foreign Transfer Taxes on the
Distribution Date so that Adjusted Foreign Transfer Taxes are borne in the
proportions described above in this Section 8.04. Appropriate payment shall be
made between the parties in respect of Adjusted Foreign Transfer Taxes and the
amount calculated pursuant to clause (c) of the definition of "New Grace Capital
Contribution" to the extent that such amounts estimated as of the Distribution
Date may be recalculated in a more accurate manner. New Grace agrees that it
shall pay, or cause Grace-Conn. to pay, all amounts payable by New Grace
pursuant to Section 6.12(a) of the Merger Agreement. Any amount paid by one
party to the other under this Agreement in respect of Transaction Costs shall be
treated, for tax purposes, as an adjustment to the portion of the New Grace
Capital Contribution contributed from Grace to New Grace.
SECTION 8.05 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware (other than the
laws regarding choice of laws and conflicts of laws that would apply the
substantive laws of any other jurisdiction) as to all matters, including matters
of validity, construction, effect, performance and remedies.
SECTION 8.06 Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly given upon receipt) by delivery in person, by
standard form of telecommunications, by courier, or by registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
If to Grace or any member of the Packco Group:
Sealed Air Corporation
Park 80 East
Saddle Brook, New Jersey 07663
Attention: President
Fax: (201) 703-4152
and
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Attention: Christopher Mayer, Esq.
Fax: (212) 450-4800
If to New Grace or any member of the New Grace Group:
W. R. Grace & Co.
One Town Center Road
Boca Raton, Florida 33486
Attention: Secretary
Fax: (561) 362-1970
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Andrew R. Brownstein, Esq.
Fax: (212) 403-2000
or to such other address as any party hereto may have furnished to the other
parties by a notice in writing in accordance with this Section.
SECTION 8.07 Amendment and Modification. This Agreement may be
amended, modified or supplemented only by a written agreement signed by all of
the parties hereto and subject to the reasonable consent of SAC.
SECTION 8.08 Successors and Assigns; No Third-Party Beneficiaries.
This Agreement and all of the provisions hereof shall be binding upon and inure
to the benefit of the parties hereto and their successors and permitted assigns,
but neither this Agreement nor any of the rights, interests and obligations
hereunder shall be assigned by any party hereto without the prior written
consent of the other parties. Except for the provisions of Sections 4.02 and
4.03 relating to indemnities, which are also for the benefit of the Indemnitees,
this Agreement is solely for the benefit of the parties hereto and their
Subsidiaries and Affiliates and is not intended to confer upon any other Persons
any rights or remedies hereunder.
SECTION 8.09 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 8.10 Interpretation. (a) The Article and Section headings
contained in this Agreement are solely for the purpose of reference, are not
part of the agreement of the parties hereto and shall not in any way affect the
meaning or interpretation of this Agreement.
(b) The parties hereto intend that the Distribution shall be a
distribution pursuant to the provisions of Section 355 of the Code, so that no
gain or loss shall be recognized for federal income tax purposes as a result of
such transaction, and all provisions of this Agreement shall be so interpreted.
The parties hereto do not intend to submit the Distribution to the Internal
Revenue Service for a private letter ruling with respect to such nonrecognition,
and any ultimate ruling or decision that any gain or loss should be recognized
for federal income tax purposes shall not permit a rescission or reformation of
this Agreement or transactions contemplated hereby.
SECTION 8.11 Severability. If any provision of this Agreement or the
application thereof to any person or circumstance is determined by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof, or the application of such provision to persons or
circumstances other than those as to which it has been held invalid or
unenforceable, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby, so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party.
SECTION 8.12 References; Construction. References to any "Article,"
"Exhibit," "Schedule" or "Section," without more, are to Articles, Exhibits,
Schedules and Sections to or of this Agreement. Unless otherwise expressly
stated, clauses beginning with the term "including" set forth examples only and
in no way limit the generality of the matters thus exemplified.
SECTION 8.13 Termination. Notwithstanding any provision hereof,
following termination of the Merger Agreement, this Agreement may be terminated
and the Distribution abandoned at any time prior to the Distribution Date by and
in the sole discretion of the Board of Directors of Grace without the approval
of any other party hereto or of Grace's shareholders. In the event of such
termination, no party hereto or to any Other Agreement shall have any Liability
to any Person by reason of this Agreement or any Other Agreement.
SECTION 8.14 SAC Reasonable Consent. The parties hereto agree that
any actions to be taken by Grace or New Grace under this Agreement that are not
specifically required herein and that relate to Packco or the Packaging Business
(including, without limitation, the transactions described in Article II) must
be reasonably satisfactory to SAC.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
W. R. GRACE & CO.
By:
------------------------------
Name:
Title:
W. R. GRACE & CO.-CONN.
By:
------------------------------
Name:
Title:
GRACE SPECIALTY CHEMICALS, INC.
(to be renamed W. R. Grace & Co.)
By:
------------------------------
Name:
Title:
ANNEX C
Donaldson Lufkin & Jenrettte Securities Corporation letterhead
August 14, 1997
Board of Directors
Sealed Air Corporation
Park 80 East
Saddlebrook, New Jersey 07663-5291
Dear Madames and Sirs:
You have requested our opinion as to the fairness from a
financial point of view to holders of common stock, par value $.01 per share
(the "Company Common Stock") of Sealed Air Corporation (the "Company") of the
Exchange Ratio (as defined below). Pursuant to the draft of the Agreement and
Plan of Merger, dated as of August 14, 1997 (the "Merger Agreement") by and
among the Company, W.R. Grace & Co. ("Grace") and Packco Acquisition Corp., a
wholly owned subsidiary of Grace ("Merger Sub"), Merger Sub will be merged with
and into the Company (the "Merger").
We understand that pursuant to the draft of the Distribution
Agreement, dated as of August 14, 1997 (the "Distribution Agreement"), by and
among Grace, W.R. Grace & Co.-Conn., a wholly-owned subsidiary of Grace
("Grace-Conn."), and Grace Specialty Chemicals, Inc. ("New Grace") prior to the
Merger, certain transactions will be consummated including (i) the transfer (the
"Contribution") to a wholly-owned subsidiary of Grace-Conn. ("Packco") of
certain assets and liabilities of Grace and its subsidiaries predominantly
related to its Packaging Business (as defined in the Distribution Agreement),
(ii) the transfer of the issued and outstanding shares of Packco from
Grace-Conn. directly to Grace, (iii) the contribution of the issued and
outstanding shares of Grace-Conn. to New Grace, and (iv) the distribution
pro-rata of all the issued and outstanding shares of the common stock of New
Grace to the holders of common stock, par value $.01 per share (the "Grace
Common Stock"), of Grace (the "Distribution"). Immediately following the
Distribution and prior to the Merger, Grace would be recapitalized (as defined
in the Distribution Agreement, the "Recapitalization"), so that the holders of
Grace Common Stock would thereafter hold Newco Common Shares and Newco
Convertible Preferred Shares, all as defined and provided in the Distribution
Agreement.
Pursuant to the Merger Agreement each share of Company Common
Stock shall be converted, subject to certain exceptions, into the right to
receive one share of Newco Common Stock (the "Exchange Ratio"), all as set forth
more fully in the Merger Agreement. Upon consummation of the Merger, Grace shall
be renamed "Sealed Air Corporation."
In arriving at our opinion, we have reviewed the Merger Agreement
and the Distribution Agreement. We also have reviewed financial and other
information that was publicly available or furnished to us by the Company and
Grace including information provided during discussions with their respective
managements. Included in the information provided during discussions with the
respective managements were certain financial analyses and projections of Grace
and New Grace prepared by the management of Grace and certain financial analyses
and projections of the Company prepared by the management of the Company. In
addition, we have compared certain financial and securities data of the Company
and Grace with various other companies whose securities are traded in public
markets, reviewed the historical stock prices and trading volumes of the Grace
Common Stock and the Company Common Stock, reviewed prices and premiums paid in
certain other business combinations and conducted such other financial studies,
analyses and investigations as we deemed appropriate for purposes of this
opinion.
In rendering our opinion, we have relied upon and assumed the
accuracy and completeness of all of the financial and other information that was
available to us from public sources, that was provided to us by the Company,
Grace, their respective managements or other representatives, or that was
otherwise reviewed by us. In particular, we have relied upon the estimates of
the management of the Company of the operating synergies achievable as a result
of the Merger and upon our discussion of such synergies with the management of
Grace. With respect to the financial analysis and projections supplied to us, we
have assumed that they have been reasonably prepared on the basis reflecting the
best currently available estimates and judgments of the management of the
Company and Grace, respectively, as to the future operating and financial
performance of the Company and Grace, respectively. We have not assumed any
responsibility for making any independent evaluation of any assets or
liabilities or for making any independent verification of any of the information
reviewed by us. We have relied as to certain legal matters on advice of counsel
to the Company including that the transactions contemplated under the
Distribution Agreement will qualify as tax free transactions under the Internal
Revenue Code of 1986 (the "Code") and that the Merger will be tax free under the
Code to Grace, the Company and their respective stockholders.
Our opinion is necessarily based on economic, market, financial
and other conditions as they exist on, and on the information made available to
us as of, the date of this letter. It should be understood that, although
subsequent developments may affect this opinion, we do not have any obligation
to update, revise or reaffirm this opinion. We are expressing no opinion herein
as to the prices at which Grace's securities will actually trade at any time.
With respect to the contingent liabilities of Grace, we have not been requested
to and do not express any opinion regarding the financial impact of these
matters on Grace or the Company. Our opinion does not address the relative
merits of the Merger and the other business strategies being considered by the
Company's Board of Directors (the "Company's Board"), nor does it address the
Company's Board decision to proceed with the Merger. Our opinion does not
constitute a recommendation to any stockholder as to how such stockholder should
vote on the proposed transaction.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as
part of its investment banking services, is regularly engaged in the valuation
of businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. DLJ has
performed investment banking and other services for the Company and for Grace in
the past (including delivery of a fairness opinion for the Company in connection
with a $57 million acquisition of Trigon Industries in 1995 and acting as
underwriter in connection with a $360 million high yield offering for
Fresenius-National Medical Care, Inc., a former subsidiary of Grace) and has
been customarily compensated for such services.
Based upon the foregoing and such other factors as we deem
relevant, we are of the opinion that the Exchange Ratio is fair to the holders
of Company Common Stock from a financial point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Douglas V. Brown
--------------------
Douglas V. Brown
Managing Director
ANNEX D
Credit Suisse First Boston Corporation letterhead
August 14,1997
Board of Directors
W.R.Grace & Co.
One Town Center Rd.
Boca Raton, FL 33486-1010
Dear Sirs and Mesdames:
We understand that W. R. Grace & Co. ("Grace") and its wholly-owned subsidiary,
Packco Acquisition Corp. ("Merger Sub"), have entered into an Agreement and Plan
of Merger (the "Agreement") with Sealed Air Corporation ("Sealed Air"), and
Grace, Sealed Air and/or certain of their respective subsidiaries will enter
into certain related agreements, including a Distribution Agreement (the
"Distribution Agreement") by and among Grace, W.R. Grace & Co.-Conn., a
wholly-owned subsidiary of Grace ("Grace-Conn."), and Grace Specialty Chemicals,
Inc., a wholly-owned subsidiary of Grace ("New Grace").
We understand that pursuant to these agreements, among other things: ( i) Grace
will contribute its worldwide packaging business (other than the container
business group) to a subsidiary of Grace ("Packco"); (ii) Grace and/or Packco
will enter into a credit agreement or other financing agreement or arrangement
(the "Grace Credit Agreement"); (iii) Grace and/or Packo will use the proceeds
of borrowings under the Grace Credit Agreement to make a capital contribution or
distribution in the aggregate amount of $1,200,000,000, subject to certain
adjustments, to Grace-Conn. (or certain of its subsidiaries); (iv) Grace-Conn.
intends to consummate a cash tender offer for all of its outstanding 8.0% Notes
due 2004, 7.4% Notes due 2000 and 7.75% Notes Due 2002 and, to the extent that
upon consummation of the Distribution (as defined below) there remains
outstanding (other than to the extent owned by Grace-Conn. or New Grace) in
excess of $50 million in principal amount of such notes, New Grace or
Grace-Conn. will obtain a letter of credit with respect to such outstanding
amount for the benefit of Grace; (v) the capital stock of Grace-Conn. will be
contributed to New Grace; (vi) Grace will distribute (the "Distribution") to the
holders of Common Stock, par value $.01 per share, of Grace ("Existing Grace
Common Stock") on a pro rata basis all the issued and outstanding shares of
Common Stock, par value $.01 per share, of New Grace ("New Grace Common Stock");
(vii) Grace will be recapitalized and in connection therewith (A) its
certificate of incorporation will be amended to, among other things, change the
par value of its Common Stock and (B) each share of Existing Grace Common Stock
will be exchanged for a number of shares of Common Stock, par value $.10 per
share, of Grace ("Newco Common Stock") and Convertible Preferred Stock, par
value $.10 per share, of Grace ("Newco Preferred Stock") determined in
accordance with the formulas set forth in the Distribution Agreement
(collectively, the "Recapitalization"); and (viii) Merger Sub will be merged
(the "Merger") with and into Sealed Air and in connection therewith Sealed Air
will become a wholly owned subsidiary of Grace and each share of Common Stock,
par value $.01 per share, of Sealed Air (other than shares owned by Grace or its
subsidiaries or any subsidiary of Sealed Air or held in Sealed Air's treasury)
will be converted into one share of Newco Common Stock. The transactions
contemplated by the Agreement, the Distribution Agreement and the forms of
related agreements attached as exhibits thereto are collectively referred to
herein as the "Transactions."
You have asked us to advise you with the respect to the fairness to the holders
of Existing Grace Common Stock, from a financial point of view, of the terms of
the Distribution, the Recapitalization and the Merger, taken as a whole.
In arriving at our opinion, we have reviewed certain publicly available business
and financial information relating to Grace and Sealed Air, as well as the
Agreement, the Distribution Agreement and the forms of related agreements
attached as exhibits thereto. We have also reviewed certain other information,
including financial forecasts and certain information with respect to potential
synergies which may result from the Merger provided to us by Grace and Sealed
Air and have met with the managements of Grace and Sealed Air to discuss the
business and prospects of Grace, Sealed Air and New Grace.
We have also considered certain financial and stock market data of Grace and
Sealed Air, and we have compared that data with similar data for other publicly
held companies in businesses similar to those of Grace and Sealed Air, and we
have considered the financial terms of certain other business combinations and
other transactions. We have also considered such other information, financial
studies, analyses and investigations and financial, economic and market criteria
which we deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, including the estimates of any potential future liabilities
related to asbestos, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
managements of Grace and Sealed Air as to the future financial performance of
Grace, Sealed Air and New Grace. We have also relied upon the views of the
managements of Grace and Sealed Air concerning the business, operational and
strategic benefits and implications of the Merger, including financial forecasts
provided to us by Grace and Sealed Air relating to synergistic benefits to Grace
and Sealed Air. We have not made an independent evaluation or appraisal of the
assets or liabilities (contingent or otherwise) of Grace or Sealed Air. Our
opinion is necessarily based upon financial, economic, market and other
conditions as they exist and can be evaluated on the date hereof. We are not
expressing any opinion as to what the value of the New Grace Common Stock or
Newco Preferred Stock actually will be following the consummation of the
Transactions or the prices at which the New Grace Common Stock, Newco Common
Stock or Newco Preferred Stock will trade following the consummation of the
Transactions. We also understand that the financial statements, pro forma
financial statements and registration statement of New Grace have not yet been
prepared. We were not requested to, and did not, solicit third-party indications
of interest in acquiring all or any part of Grace. We have not been requested to
opine, and our opinion does not in any manner address, Grace's underlying
business decision to effect the Transactions.
We have assumed, with your consent, that the Transactions will comply with
applicable United States, foreign, federal and state laws, including, without
limitation, laws relating to the payment of dividends, bankruptcy, insolvency,
reorganization, fraudulent conveyance, fraudulent transfer or other similar laws
now or hereafter in effect affecting creditors' rights generally. We have
assumed, with your consent, that receipt of the Newco Common Stock and Newco
Preferred Stock in connection with the Recapitalization and New Grace Common
Stock in connection with the Distribution will be tax-free for United States
federal income tax purposes to the stockholders of Grace and that none of Grace,
Sealed Air or New Grace will recognize material income, gain or loss for United
States federal income tax purposes as a result of the Transactions. In addition,
we have assumed, with your consent, that following the consummation of the
Transactions, Grace and its subsidiaries and New Grace and its subsidiaries will
perform their respective indemnification obligations which may arise under the
Distribution Agreement (including the forms of related agreements attached as
exhibits thereto) in accordance with their respective terms. We have further
assumed, with your consent, that in the course of obtaining the necessary
regulatory or other consents or approvals (contractual or otherwise) for the
Transactions, no restrictions, including any divestiture requirements or
amendments or modifications, will be imposed that will have a material adverse
effect on the contemplated benefits of the Transactions. We have not been
requested to opine, and our opinion does not in any matter address, any matters
relating to the solvency of any entity and we have assumed that Grace and New
Grace will be solvent following the consummation of the Transactions.
We have acted as financial advisor to Grace in connection with the Transactions
and will receive a fee for our services, a significant portion of which is
contingent upon the consummation of the Transactions. In the past, we have
performed certain investment banking services for Grace and have received
customary fees for such services.
In the ordinary course of our business, Credit Suisse First Boston Corporation
and its affiliates may actively trade the debt and equity securities of Grace
and Sealed Air for their own accounts and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of Grace in connection with its consideration of the Transactions and
does not constitute a recommendation to any stockholder as to how such
stockholder should vote on any of the Transactions. We understand that our
opinion and advice may be summarized in a registration statement relating to the
Transactions, provided that no advice or opinion rendered by us, whether formal
or informal, may be disclosed, in whole or in part, or summarized, excerpted
from or otherwise referred to without our prior written consent, which will not
be unreasonably withheld.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the terms of the Distribution, the Recapitalization and the Merger,
taken as a whole, are fair, from a financial point of view, to the holders of
Existing Grace Common Stock.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
Merrill Lynch & Co. letterhead
August 14, 1997
Board of Directors
W.R. Grace & Co.
One Town Center Rd.
Boca Raton, FL 33486-1010
Members of the Board of Directors:
We understand that W.R. Grace & Co. ("Grace") and its wholly owned subsidiary,
Packo Acquisition Corp. ("Merger Sub"), have entered into an Agreement and Plan
of Merger (the "Agreement") with Sealed Air Corporation ("Sealed Air"), and
Grace, Sealed Air and/or certain of their respective subsidiaries will enter
into certain related agreements, including a Distribution Agreement (the
"Distribution Agreement") by and among Grace, W.R. Grace & Co.-Conn., a wholly
owned subsidiary of Grace ("Grace-Conn.), and Grace Specialty Chemicals, Inc., a
wholly owned subsidiary of Grace ("New Grace").
We understand that pursuant to these agreements, among other things: (i) Grace
will contribute its worldwide packaging business (other than the container
business group) to a subsidiary of Grace ("Packo"); (ii) Grace and/or Packo will
enter into a credit agreement or other financing agreement or arrangement (the
"Grace Credit Agreement"); (iii) Grace and/or Packo will use the proceeds of
borrowings under the Grace Credit Agreement to make a capital contribution or
distribution in the aggregate amount of $1,200,000,000, subject to certain
adjustments, to Grace-Conn. (or certain of its subsidiaries); (iv) Grace-Conn.
intends to consummate a cash tender offer for all of its outstanding 8.0% Notes
due 2004, 7.4% Notes due 2000 and 7.75% Notes Due 2002 and, to the extent that
upon consummation of the Distribution (as defined below) there remains
outstanding (other than to the extent owned by Grace-Conn. or New Grace) in
excess of $50 million in principal amount of such notes, New Grace or
Grace-Conn. will obtain a letter of credit with respect to such outstanding
amount for the benefit of Grace; (v) the capital stock of Grace-Conn. will be
contributed to New Grace; (vi) Grace will distribute (the "Distribution") to the
holders of Common Stock, par value $.01 per share, of Grace ("Existing Grace
Common Stock") on a pro rata basis all the issued and outstanding shares of
Common Stock, par value $.01 per share, of New Grace ("New Grace Common Stock");
(vii) Grace will be recapitalized and in connection therewith (A) its
certificate of incorporation will be amended to, among other things, change the
par value of its Common Stock and (B) each share of Existing Grace Common Stock
will be exchanged for a number of shares of Common Stock, par value $.10 per
share, of Grace ("Newco Common Stock") and Convertible Preferred Stock, par
value $.10 per share, of Grace ("Newco Preferred Stock") determined in
accordance with the formulas set forth in the Distribution Agreement
(collectively, the "Recapitalization"); and (viii) Merger Sub will be merged
(the "Merger") with and into Sealed Air and in connection therewith Sealed Air
will become a wholly-owned subsidiary of Grace and each share of Common Stock,
par value $.01 per share, of Sealed Air ("Sealed Air Common Stock") (other than
shares owned by Grace or its subsidiaries or any subsidiary of Sealed Air or
held in Sealed Air's treasury) will be converted into one share of Newco Common
Stock. The transactions contemplated by the Agreement, the Distribution
Agreement and the forms of related agreements attached as exhibits thereto are
collectively referred to herein as the "Transactions".
You have asked us whether, in our opinion, the Distribution, the
Recapitalization and the Merger, taken as a whole, are fair from a financial
point of view to the holders of Existing Grace Common Stock.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial
information relating to Grace and Sealed Air that we deemed to be
relevant;
(2) Reviewed certain information, including financial
forecasts, relating to the business, earnings, cash flow,
assets, liabilities and prospects of Grace, Sealed Air and New
Grace, as well as the amount and timing of the cost savings and
related expenses and synergies expected to result from the
Merger (the "Expected Synergies") furnished to us by Grace and
Sealed Air, respectively;
(3) Conducted discussions with members of senior management and
representatives of Grace and Sealed Air concerning the matters
described in clauses 1 and 2 above, as well as the respective
businesses and prospects of Grace, Sealed Air and New Grace
before and after giving effect to the Transactions and the
Expected Synergies;
(4) Reviewed the market prices and valuation multiples for Existing
Grace Common Stock and Sealed Air Common Stock and compared them
with those of certain publicly traded companies that we deemed to
be relevant;
(5) Reviewed the results of operations of Grace and Sealed Air and
compared them with those of certain publicly traded companies
that we deemed to be relevant;
(6) Compared the proposed financial terms of the Transactions with
the financial terms of certain other transactions that we deemed
to be relevant;
(7) Participated in certain discussions and negotiations among
representatives of Grace and Sealed Air and their financial and
legal advisors;
(8) Reviewed the potential pro forma impact of the Transactions;
(9) Reviewed the Agreement, the Distribution Agreement and the forms
of related agreements attached as exhibits thereto; and
(10) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our
assessment of general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of Grace or Sealed Air or been furnished with any such evaluation or
appraisal. In addition, we have not assumed any obligation to conduct, nor have
we conducted, any physical inspection of the properties or facilities of Grace
or Sealed Air. With respect to the financial forecast information, including the
estimates of any potential future liabilities related to asbestos, and the
Expected Synergies, in each case furnished to or discussed with us by Grace or
Sealed Air, we have assumed that they have been reasonably prepared and reflect
the best currently available estimates and judgment of Grace's or Sealed Air's
management as to the expected future financial performance of Grace, Sealed Air
and New Grace, as the case may be, and the Expected Synergies.
Our opinion is necessarily based upon market, economic and other conditions as
they exist and can be evaluated on, and on the information made available to us
as of, the date hereof. We have assumed, with your consent, that in the course
of obtaining the necessary regulatory or other consents or approvals
(contractual or otherwise) for the Transactions, no restrictions, including any
divestiture requirements or amendments or modifications, will be imposed that
will have a material adverse effect on the contemplated benefits of the
Transactions. We have assumed, with your consent, that the Transactions will
comply with applicable United States, foreign, federal and state laws,
including, without limitation, laws relating to the payment of dividends,
bankruptcy, insolvency, reorganization, fraudulent conveyance, fraudulent
transfer or other similar laws now or hereafter in effect affecting creditors'
rights generally. We have assumed, with your consent, that receipt of the Newco
Common Stock and Newco Preferred Stock in connection with the Recapitalization
and New Grace Common Stock in connection with the Distribution will be tax-free
for United States federal income tax purposes to the stockholders of Grace and
that none of Grace, Sealed Air or New Grace will recognize material income, gain
or loss for United States federal income tax purposes as a result of the
Transactions. In addition, we have assumed, with your consent, that following
the consummation of the Transactions, Grace and its subsidiaries and New Grace
and its subsidiaries will perform their respective indemnification obligations
which may arise under the Distribution Agreement (including the forms of related
agreements attached as exhibits thereto) in accordance with their respective
terms. We have not been requested to opine, and our opinion does not in any
manner address, any matters relating to the solvency of any entity and we have
assumed that Grace and New Grace will be solvent following the consummation of
the Transactions.
In connection with the preparation of this opinion, we have not been authorized
by Grace or its Board of Directors to solicit, nor have we solicited,
third-party indications of interest for the acquisition of all or any part of
Grace.
We are acting as financial advisor to Grace in connection with the Transactions
and will receive a fee from Grace for our services, a significant portion of
which is contingent upon the consummation of the Transactions. In addition,
Grace has agreed to indemnify us for certain liabilities arising out of our
engagement. We have, in the past, provided financial advisory and financing
services to Grace and/or its affiliates and may continue to do so and have
received, and may receive, fees for the rendering of such services. In addition,
in the ordinary course of our business, we may actively trade Existing Grace
Common Stock and other securities of Grace, as well as Sealed Air Common Stock
and other securities of Sealed Air, for our own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
This opinion is for the use and benefit of the Board of Directors of Grace. Our
opinion does not address the merits of the underlying decision by Grace to
engage in the Transactions and does not constitute a recommendation to any
stockholder as to how such stockholder should vote on any of the Transactions.
We are not expressing any option herein as to the prices at which Newco Common
Stock, Newco Preferred Stock or New Grace Common Stock will trade following the
announcement or consummation of the Transactions.
On the basis of and subject to the foregoing, we are of the opinion that, as of
the date hereof, the terms of the Distribution, the Recapitalization and the
Merger, taken as a whole, are fair from a financial point of view to the holders
of Existing Grace Common Stock.
Very truly yours,
/s/ Merrill Lynch, Pierce, Fenner & Smith
Incorporated
MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED
ANNEX E
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
SEALED AIR CORPORATION
(Formerly Named W.R. Grace & Co.)
Sealed Air Corporation, a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
1. The Corporation was originally incorporated under the name
Grace Holding, Inc. on January 29, 1996, and its original Certificate of
Incorporation was filed with the Secretary of State of the State of Delaware on
the same date.
2. The Certificate of Incorporation of the Corporation was
amended to change the name of the Corporation to W.R. Grace & Co. by the filing
of an Amendment to Certificate of Incorporation of Grace Holding, Inc. with the
Secretary of State of the State of Delaware on September 27, 1996.
3. The Certificate of Incorporation of the Corporation was
further amended to change the name of the Corporation to Sealed Air Corporation
by the filing of an Amendment to Certificate of Incorporation of W.R. Grace &
Co. with the Secretary of State of the State of Delaware on ______________ ___,
1998.
4. The text of the Certificate of Incorporation, as heretofore
amended, is further amended and restated in its entirety by the Amended and
Restated Certificate of Incorporation attached hereto.
5. The Amended and Restated Certificate of Incorporation attached
hereto has been duly adopted by the Board of Directors and stockholders of the
Corporation in accordance with the applicable provisions of Section 242 and 245
of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused Certificate to be signed by
its ____________________ and attested by its Secretary, for the purpose of
amending and restating the Certificate of Incorporation of the Corporation
pursuant to the General Corporation Law of the State of Delaware this _____ day
of _______________, 1998.
SEALED AIR CORPORATION
By: ______________________________
Name:
Title:
ATTEST:
By: ___________________________
Name:
Title: Secretary
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
SEALED AIR CORPORATION(1)
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(1) If the Grace Special Charter Amendment Proposal is not approved, certain
provisions of this Amended and Restated Certificate of Incorporation will be
replaced by alternative provisions ("Alterntive Provisions"). The Alternative
Provisions are presented in footnotes following the provisions that they would
replaced.
FIRST: The name of the corporation is Sealed Air Corporation
(the "Corporation").
SECOND: The registered office of the Corporation in the State of
Delaware is to be located at The Prentiss-Hall Corporation Systems, Inc., 1013
Centre Road, Wilmington, New Castle County, Delaware 19805. Its registered agent
at such address is The Prentiss-Hall Corporation Systems, Inc.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the
General Corporation Law of Delaware.
FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is 450,000,000, consisting of 400,000,000 shares
of Common Stock, par value $0.10 per share (the "Common Stock"), and 50,000,000
shares of Preferred Stock, par value $0.10 per share (the "Preferred Stock").
The Preferred Stock may be issued from time to time in one or
more series. The powers, designations, preferences and other rights and
qualifications, limitations or restrictions of the Preferred Stock of each
series shall be such as are stated and expressed in this Article Fourth and, to
the extent not stated and expressed herein, shall be such as may be fixed by the
Board of Directors (authority so to do being hereby expressly granted) and
stated and expressed in a resolution or resolutions adopted by the Board of
Directors providing for the initial issue of Preferred Stock of such series.
Such resolution or resolutions shall (a) fix the dividend rights of holders of
shares of such series, (b) fix the terms on which stock of such series may be
redeemed if the shares of such series are to be redeemable, (c) fix the rights
of the holders of stock of such series upon dissolution or any distribution of
assets, (d) fix the terms or amount of the sinking fund, if any, to be provided
for the purchase or redemption of stock of such series, (e) fix the terms upon
which the stock of such series may be converted into or exchanged for stock of
any other class or classes or of any one or more series of Preferred Stock if
the shares of such series are to be convertible or exchangeable, (f) fix the
voting rights, if any, of the shares of such series and (g) fix such other
powers, designations, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions thereof desired
to be so fixed.
Except to the extent otherwise provided in the resolution or
resolutions of the Board of Directors providing for the initial issue of shares
of a particular series or expressly required by law, holders of shares of
Preferred Stock of any series shall be entitled to one vote for each share
thereof so held, shall vote share for share with the holders of the Common Stock
without distinction as to class and shall not be entitled to vote separately as
a class or series of a class. The number of shares of Preferred Stock authorized
to be issued may be increased or decreased from time to time by the affirmative
vote of the holders of a majority of the stock of the Corporation entitled to
vote, and the holders of the Preferred Stock shall not be entitled to vote
separately as a class or series of a class on any such increase or decrease.
All shares of any one series of Preferred Stock shall be
identical with each other in all respects except that shares of any one series
issued at different times may differ as to the dates from which dividends
thereon shall accumulate, and all series of Preferred Stock shall rank equally
and be identical in all respects except as specified in the respective
resolutions of the Board of Directors providing for the initial issue thereof.
Subject to the prior and superior rights of the Preferred Stock
as set forth in any resolution or resolutions of the Board of Directors
providing for the initial issuance of any particular series of Preferred Stock,
such dividends (payable in cash, stock or otherwise) as may be determined by the
Board of Directors may be declared and paid on the Common Stock from time to
time out of any funds legally available therefor and the Preferred Stock shall
not be entitled to participate in any such dividend.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: The private property of the stockholders shall not be
subject to the payment of the corporate debts to any extent whatever except as
otherwise provided by law.
SEVENTH: In furtherance, and not in limitation of the powers
A. To make, alter or repeal the by-laws of the
Corporation;(2)
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(2) Alternative Provision: Paragraph A of ARTICLE SEVENTH will state in the
alternative:
A. 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,
voting together as a single class, shall be required to alter, amend or
repeal any provision of the by-laws;
B. To authorize and cause to be executed mortgages and liens,
with or without limit as to amount, upon the real and personal property of the
Corporation;
C. To authorize the guaranty by the Corporation of securities,
evidences of indebtedness and obligations of other persons, corporations and
business entities;
D. By resolution adopted by a majority of the whole board, to
designate one or more committees, each committee to consist of two or more of
the directors of the Corporation, which, to the extent provided in the
resolution, shall have and may exercise the powers of the Board of Directors in
the management of the business and affairs of the Corporation and may authorize
the seal of the Corporation to be affixed to all papers which may require it.
Such committee or committees shall have such name or names as may be determined
from time to time by resolution adopted 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. The members of any such committee present at any meeting and not
disqualified from voting may, whether or not they constitute a quorum,
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any absent or disqualified member.
All corporate powers of the Corporation shall be exercised by the
Board of Directors except as otherwise provided herein or by law.(3)
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(3) Alternative Provision: The final paragraph of ARTICLE SEVENTH will state in
the alternative:
All corporate powers of the Corporation shall be exercised by the
Board of Directors except as otherwise provided herein or by 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 A of this ARTICLE SEVENTH. For the purposes of the Amended
and Restated 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.
EIGHTH: Any property of the Corporation constituting less than
all of its assets including goodwill and its corporate franchise, deemed by the
Board of Directors to be not essential to the conduct of the business of the
Corporation, may be sold, leased, exchanged or otherwise disposed of by
authority of the Board of Directors. All of the property and assets of the
Corporation including its goodwill and its corporate franchises, may be sold,
leased or exchanged upon such terms and conditions and for such consideration
(which may be in whole or in part shares of stock and/or other securities of any
other corporation or corporations) as the Board of Directors shall deem
expedient and for the best interests of the Corporation, when and as authorized
by the affirmative vote of the holders of a majority of the stock issued and
outstanding having voting power given at a stockholders' meeting duly called for
that purpose upon at least 20 days notice containing notice of the proposed
sale, lease or exchange, or when authorized by the written consent of the
holders of a majority of the voting stock issued and outstanding.(4)
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(4) Alternative Provision: a portion of the last sentence of ARTICLE EIGHTH will
be struck, and the sentence will state in the alternative:
All of the property and assets of the Corporation including its
goodwill and its corporate franchises, may be sold, leased or exchanged
upon such terms and conditions and for such consideration (which may be
in whole or in part shares of stock and/or other securities of any
other corporation or corporations) as the Board of Directors shall deem
expedient and for the best interests of the Corporation, when and as
authorized by the affirmative vote of the holders of a majority of the
stock issued and outstanding having voting power given at a
stockholders' meeting duly called for that purpose upon at least 20
days notice containing notice of the proposed sale, lease or exchange.
NINTH: A director or officer of the Corporation shall not be
disqualified by his office from dealing or contracting with the Corporation
either as a vendor, purchaser or otherwise, nor shall any transaction or
contract of the Corporation be void or voidable by reason of the fact that any
director or officer or any firm of which any director or officer is a member or
any corporation of which any director or officer is a stockholder, officer or
director, is in any way interested in such transaction or contract, provided
that such transaction or contract is or shall be authorized, ratified or
approved either (1) by a vote of a majority of a quorum of the Board of
Directors or of a committee thereof, without counting in such majority any
director so interested (although any director so interested may be included in
such quorum), or (2) by a majority of a quorum of the stockholders entitled to
vote at any meeting. No director or officer shall be liable to account to the
Corporation for any profits realized from any such transaction or contract
authorized, ratified or approved as aforesaid by reason of the fact that he, or
any firm of which he is a member or any corporation of which he is a
stockholder, officer or director, was interested in such transaction or
contract. Nothing herein contained shall create liability in the events above
described or prevent the authorization, ratification or approval of such
contracts in any other manner permitted by law.
TENTH: Any contract, transaction or act of the Corporation or of
the Board of Directors which shall be approved or ratified by a majority of a
quorum of the stockholders entitled to vote at any meeting shall be as valid and
binding as though approved or ratified by every stockholder of the Corporation;
but any failure of the stockholders to approve or ratify such contract,
transaction or act, when and if submitted, shall not be deemed in any way to
invalidate the same or to deprive the Corporation, its directors or officers of
their right to proceed with such contract, transaction or act.
ELEVENTH: Each person who is or was or has agreed to become a
director or officer of the Corporation, and 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
General Corporation Law of the State of Delaware 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 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 ELEVENTH. Any amendment or repeal of this ARTICLE
ELEVENTH shall not adversely affect any right or protection existing hereunder
in respect of any act or omission occurring prior to such amendment or repeal.
TWELFTH: 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 General Corporation Law
of the State of Delaware, or (4) for any transaction from which the director
derived an improper personal benefit. Any amendment or repeal of this ARTICLE
TWELFTH 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.
THIRTEENTH: Whenever a compromise or arrangement is proposed
between this corporation and its creditors or any class of them and/or between
this corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in a
summary way of this corporation or of any creditor or stockholder thereof or on
the application of any receiver or receivers appointed for this corporation
under Section 291 of Title 8 of the Delaware Code or on the application of
trustees in dissolution or of any receiver or receivers appointed for this
corporation under Section 279 of Title 8 of the Delaware Code, order a meeting
of the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
FOURTEENTH: Meetings of stockholders and directors may be held
within or without the State of Delaware, as the by-laws may provide. The books
of account of the Corporation may be kept (subject to any provision contained in
the statutes) outside the State of Delaware at such place or places as may be
designated from time to time by the Board of Directors or in the by-laws of the
Corporation. Elections of directors need not be by written ballot unless the
by-laws of the Corporation shall so provide.
FIFTEENTH: Whenever the vote of stockholders at a meeting thereof
is required or permitted to be taken for or in connection with any corporate
action, the meeting and vote of stockholders may be dispensed with if a written
consent to such corporate action is signed by the holders of 51% of the stock
who would have been entitled to vote upon such corporate action if a meeting
were held; provided that in no case shall a written consent be by the holders of
stock having less than the minimum percentage of the vote required herein or by
statute for the proposed corporate action, and provided that prompt notice must
be given to all stockholders of the taking of corporate action without a meeting
and by less than unanimous written consent.(5)
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(5)Alternative Provision:, ARTICLE FIFTEENTH will be replaced in its entirety
and state in the alternative:
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 FIFTEENTH.
SIXTEENTH:(6) The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this certificate of incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
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(6)Alternative Provisions: in the alternative, ARTICLE SIXTEENTH will become
"ARTICLE SEVENTEENTH" and the following article will be inserted immediately
after ARTICLE FIFTEENTH:
ARTICLE SIXTEENTH: 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.
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 1998,
another class shall be initially elected for a term expiring at the
annual meeting of stockholders to be held in 1999, and another class
shall be initially elected for a term expiring at the annual meeting of
stockholders to be held in 2000. 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 shareholders, 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 SEVENTEENTH.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Limitation of Liability of Directors
The Registrant's Amended and Restated Certificate of
Incorporation (the "Registrant Charter") provides that a director will not be
personally liable for monetary damages to the Registrant 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 the Registrant 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 General Corporate law
("DGCL"), or (iv) for any transaction from which the director derives an
improper personal benefit.
Indemnification of Directors and Officers
The Registrant Charter provides that each individual who is or
was or has agreed to become a director or officer of the Registrant or each such
person who is or was serving or who has agreed to serve at the request of the
Board of Directors of the Registrant as an employee or agent of the Registrant
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 the Registrant,
in accordance with the Registrant's By-laws, to the fullest extent permitted by
the DGCL, 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 the
Registrant to provide broader indemnification rights than the DGCL permitted
prior to such amendment). The Registrant Charter also specifically authorizes
the Registrant to enter into agreements with any person providing for
indemnification greater than or different from that provided by the Registrant
Charter.
The Registrant's 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 the Registrant or is or was serving at the request of the Registrant
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 an
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 the Registrant to the fullest
extent authorized by the DGCL 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 the Registrant to provide broader indemnification rights than the DGCL
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, the Registrant 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 Registrant's Board.
Pursuant to the Registrant's By-laws, if a claim for
indemnification as described in the preceding paragraph is not paid in full by
the Registrant within 30 days after a written claim has been received by the
Registrant, the claimant may, at any time thereafter, bring suit against the
Registrant to recover the unpaid amount of the claim and, if successful, in
whole or in part, the claimant will be entitled to be paid also the expense of
prosecuting such claim. The Registrant's 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 the
Registrant, as discussed below) that the claimant has not met the standards of
conduct which make it permissible under the DGCL for the Registrant to indemnify
the claimant for the amount claimed, but the burden of proving such defense will
be on the Registrant. Neither the failure of the Registrant (including the Board
of Directors of the Registrant, 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 DGCL, nor an actual
determination by the Registrant (including the Board of Directors of the
Registrant, 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 Registrant's By-laws provide that the right conferred in the
Registrant's 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 Registrant Charter or the Registrant's By-laws,
agreement, vote of stockholders or disinterested directors or otherwise. The
Registrant's By-laws permit the Registrant to maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Registrant or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the Registrant
would have the power to indemnify such person against such expense, liability or
loss under the DGCL. The Registrant maintains directors and officers liability
insurance providing coverage to its directors and officers. In addition, the
Registrant's By-laws authorize the Registrant, to the extent authorized from
time to time by the Board of Directors of the Registrant, to grant rights to
indemnification, and rights to be paid by the Registrant the expenses incurred
in defending any Proceeding in advance of its final disposition, to any agent of
the Registrant to the fullest extent of the provisions of the Registrant's
By-laws with respect to the indemnification and advancement of expenses of
directors, officers and employees of the Registrant.
The Registrant's By-laws provide that the right to
indemnification conferred therein will be a contract right and will include the
right to be paid by the Registrant the expenses incurred in defending any such
Proceeding in advance of its final disposition, except that if the DGCL
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 the
Registrant 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 Registrant's By-laws or
otherwise.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits. See Exhibit Index.
(b) Financial Statement Schedules. Not Applicable
(c) Report, Opinion or Appraisal. See Exhibits 5.1, 8.1 and 8.2
Item 22. Undertakings.
The undersigned registrant hereby undertakes:
(a) That prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part of this
registration statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
(b) That every prospectus (i) that is filed pursuant to paragraph
(b) immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act of 1933 and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to this registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in this registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(d) To respond to requests for information that is incorporated by
reference into the Joint Proxy Statement/Prospectus pursuant to Item 4, 10(b),
11 or 13 of this Form, within one business day of receipt of such request, and
to send the incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed subsequent to the
effective date of this registration statement through the date of responding to
the request.
(e) To supply by means of a post-effective amendment all
information concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in this registration statement
when it became effective.
(f) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Boca Raton,
State of Florida, on February 13, 1998.
W. R. GRACE & CO.
Date: February 13, 1998 By: /s/ Larry Ellberger
-------------------
Larry Ellberger
Senior Vice President and
Chief Financial Officer
--------------
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of the Registrant in the capacities and on the dates indicated.
Signature Title Date
Chairman, President and February 13, 1998
/s/ Albert J. Costello Chief Executive Officer
- ------------------------ (Principal Executive Officer)
(Albert J. Costello)
/s/ Larry Ellberger Senior Vice President and February 13, 1998
- ------------------------ Chief Financial Officer
(Larry Ellberger) (Principal Financial Officer)
/s/ Kathleen A. Browne Vice President and Controller February 13, 1998
- ------------------------ (Principal Accounting Officer)
(Kathleen A. Browne)
*
- ------------------------
(John F. Akers) Director February 13, 1998
*
- ------------------------
(Hank Brown) Director February 13, 1998
*
- -------------------------
(Christopher Cheng) Director February 13, 1998
*
- -------------------------
(Harold A. Eckmann) Director February 13, 1998
*
- -------------------------
(James W. Frick) Director February 13, 1998
*
- -------------------------
(Marye Anne Fox) Director February 13, 1998
*
- -------------------------
(Thomas A. Holmes) Director February 13, 1998
*
- -------------------------
(Virginia A. Kamsky) Director February 13, 1998
*
- -------------------------
(John J. Murphy) Director February 13, 1998
- ------------------------
(John E. Phipps) Director February 13, 1998
*
- -----------------------
(Thomas A. Vanderslice) Director February 13, 1998
*By: /s/ Robert B. Lamm
------------------------
Robert B. Lamm
Attorney-in-Fact
EXHIBIT INDEX
Exhibit
Number Description
*2.1 Agreement and Plan of Merger dated as of August 14, 1997 among the
Registrant, Sealed Air Corporation and Packco Acquisition Corp.
(included as Annex A to the Joint Proxy Statement/Prospectus
contained in this Registration Statement).
*2.2 Form of Distribution Agreement to be dated as of the Effective Time
between the Registrant, W. R. Grace & Co.-Conn. and Grace
Speciality Chemicals, Inc. (included as Annex B to the Joint Proxy
Statement/Prospectus contained in this Registration Statement).
*3.1 Amended and Restated Certificate of Incorporation of W. R. Grace &
Co. (incorporated herein by reference to Exhibit 4.1 to W. R. Grace
& Co.'s Form 8-K filed on October 10, 1996 (the "October 1996 Form
8-K")).
*3.2 Amended and Restated By-Laws of W. R. Grace & Co. (incorporated
herein by reference to Exhibit 4.2 to the October 1996 Form 8-K).
*4.1 Certificate of Designations, Preferences and Rights of Series A
Convertible Preferred Stock of New Sealed Air.
*4.2 Commitment Letters for the New Credit Agreements.
*5.1 Opinion of Wachtell, Lipton, Rosen & Katz regarding the validity of
the securities being registered (including consent).
*8.1 Form of opinion of Davis Polk & Wardwell regarding certain federal
income tax consequences relating to the Merger (including consent).
*8.2 Form of opinion of Wachtell, Lipton, Rosen & Katz regarding certain
federal income tax consequences relating to the Reorganization and
Merger (including consent).
*23.1 Consents of Price Waterhouse LLP.
*23.2 Consent of KPMG Peat Marwick LLP.
*23.3 Consent of Davis Polk & Wardwell (included in the opinion filed as
Exhibit 8.1 to this Registration Statement).
*23.4 Consent of Wachtell, Lipton, Rosen & Katz (included in the opinions
filed as Exhibit 5.1 and 8.2 to this Registration Statement).
*24.1 Form of Power of Attorney.
*99.1 Form of Sealed Air Corporation Proxy Card.
*99.2 Form of W. R. Grace & Co. Proxy Card.
*99.3 Consent of Donaldson, Lufkin & Jenrette Securities Corporation.
*99.4 Consent of Merrill Lynch & Co.
*99.5 Consent of Credit Suisse First Boston Corporation.
*99.6 Consents of persons named as future directors of the Registrant.
* Filed herewith.
EXHIBIT 4.1
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES A CONVERTIBLE PREFERRED STOCK
OF
W. R. GRACE & CO.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
The undersigned, pursuant to the provisions of Sections 103 and
151 of the General Corporation Law of the State of Delaware, do hereby certify
that, pursuant to the authority expressly vested in the Board of Directors of
W. R. Grace & Co., a Delaware corporation (the "Corporation"), by the
Corporation's Certificate of Incorporation, the Board of Directors has duly
adopted the following resolutions:
RESOLVED that pursuant to the authority expressly granted to
and vested in the Board of Directors of the Corporation by the Corporation's
Certificate of Incorporation, the Board of Directors hereby provides for the
issuance of and creates a series of Preferred Stock of the Corporation, par
value $0.10 per share (the "Preferred Stock"), and hereby fixes the
designation and amount and the voting powers, designations, preferences and
relative, participating, optional and other special rights, and the
qualifications, limitations and restrictions, of a series of Preferred Stock.
RESOLVED that each share of such series of Preferred Stock
shall rank equally in all respects and shall be subject to the following
provisions:
1. Number of Shares and Designation. 36,000,000
shares of Preferred Stock of the Corporation shall constitute a series of
Preferred Stock designated as Series A Convertible Preferred Stock (the
"Series A Preferred Stock"). The number of shares of Series A Preferred Stock
may be increased (to the extent of the Corporation's authorized and unissued
Preferred Stock) or decreased (but not below the number of shares of Series
A Preferred Stock then outstanding) by further resolution duly adopted by the
Board of Directors and the filing of a certificate of increase or decrease, as
the case may be, with the Secretary of State of Delaware.
2. Rank. The Series A Preferred Stock shall, with respect
to payment of dividends, redemption payments and rights upon liquidation,
dissolution or winding up of the affairs of the Corporation, (i) rank
senior and prior to the Common Stock of the Corporation, par value $0.10
per share (the "Common Stock"), and each other class or series of equity
securities of the Corporation, whether currently issued or issued in the
future, that by its terms ranks junior to the Series A Preferred Stock
(whether with respect to payment of dividends, redemption payments or
rights upon liquidation, dissolution or winding up of the affairs of the
Corporation) (all of such equity securities, including the Common Stock,
are collectively referred to herein as the "Junior Securities"), (ii) rank
on a parity with each other class or series of equity securities of the
Corporation (other than the Common Stock), whether currently issued or
issued in the future, that does not by its terms expressly provide that it
ranks senior to or junior to the Series A Preferred Stock (whether with
respect to payment of dividends, redemption payments or rights upon
liquidation, dissolution or winding up of the affairs of the Corporation)
(all of such equity securities are collectively referred to herein as the
"Parity Securities"), and (iii) rank junior to each other class or series
of equity securities of the Corporation, whether currently issued or issued
in the future, that by its terms ranks senior to the Series A Preferred
Stock (whether with respect to payment of dividends, redemption payments or
rights upon liquidation, dissolution or winding up of the affairs of the
Corporation) (all of such equity securities are collectively referred to
herein as the "Senior Securities"). The respective definitions of Junior
Securities, Parity Securities and Senior Securities shall also include any
rights or options exercisable or exchangeable for or convertible into any
of the Junior Securities, Parity Securities or Senior Securities, as the
case may be.
3. Dividends.
(a) The holders of shares of Series A Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors,
out of funds legally available for the payment of dividends, cash dividends
at the annual rate of $2.00 per share. Such dividends shall be payable
quarterly in arrears, in equal amounts, on ________, ________, ________ and
________ of each year (unless such day is not a Business Day (as defined
below), in which event such dividends shall be payable on the next
succeeding Business Day), commencing _____________ ___, 1998 (each such
payment date being a "Dividend Payment Date" and each such quarterly period
being a "Dividend Period"). Dividends on shares of Series A Preferred
Stock shall be cumulative from the date of issue, whether or not in any
Dividend Period there shall be funds of the Corporation legally available
for the payment of dividends. The amount of dividends payable for each
full Dividend Period shall be computed by dividing the annual dividend rate
by four. The amount of dividends payable on the Series A Preferred Stock
for the initial Dividend Period, or for any other period shorter or longer
than a full Dividend Period, shall be computed on the basis of a 360-day
year of twelve 30-day months. As used herein, the term "Business Day"
means any day except a Saturday, Sunday or day on which banking
institutions are legally authorized to close in the City of New York.
(b) Each dividend shall be payable to the holders of record of
shares of Series A Preferred Stock as they appear on the stock records of
the Corporation at the close of business on such record dates (each, a
"Dividend Payment Record Date"), which shall be not more than 60 days nor
less than 10 days preceding the Dividend Payment Date thereof, as shall be
fixed by the Board of Directors. Accrued and unpaid dividends for any past
Dividend Periods may be declared and paid at any time, without reference to
any Dividend Payment Date, to holders of record on such date, not more than
60 days nor less than 10 days preceding the payment date thereof, as may be
fixed by the Board of Directors. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments
on the Series A Preferred Stock that may be in arrears.
(c) Except as described in the next succeeding sentence, so long as
any shares of Series A Preferred Stock are outstanding, (i) no dividends
shall be declared or paid or set apart for payment, or other distribution
declared or made, on any Parity Securities for any period unless the
Corporation has paid or contemporaneously pays or declares and sets apart
for payment on the Series A Preferred Stock all accrued and unpaid
dividends for all Dividend Periods terminating on or prior to the date of
payment of such dividends, and (ii) no dividends shall be declared or paid
or set apart for payment, or other distribution declared or made, on the
Series A Preferred Stock for any Dividend Period unless the Corporation has
paid or contemporaneously pays or declares and sets apart for payment on
any Parity Securities all accrued and unpaid dividends for all dividend
payment periods terminating on or prior to the Dividend Payment Date for
such dividends. Unless and until dividends accrued but unpaid in respect
of all past Dividend Periods with respect to the Series A Preferred Stock
and all past dividend periods with respect to any Parity Securities at the
time outstanding shall have been paid in full or a sum sufficient for such
payment is set apart, all dividends declared by the Corporation upon shares
of Series A Preferred Stock and upon all Parity Securities shall be
declared ratably in proportion to the respective amounts of dividends
accrued and unpaid on the Series A Preferred Stock and Parity Securities.
(d) So long as any shares of Series A Preferred Stock are
outstanding, no dividends shall be declared or paid or set apart for
payment, or other distribution declared or made, upon any Junior Securities
(other than dividends or distributions paid in shares of, or options,
warrants or rights to subscribe for or purchase shares of Junior
Securities), nor shall any Junior Securities be redeemed, purchased or
otherwise acquired (other than a redemption, purchase or other acquisition
of shares of Common Stock made for purposes of any employee or director
incentive or benefit plans or arrangements of the Corporation or any
subsidiary of the Corporation) for any consideration (nor shall any moneys
be paid to or made available for a sinking fund for the redemption of any
shares of any such Junior Securities) by the Corporation, directly or
indirectly (except by conversion into or exchange for Junior Securities),
unless in each case (i) the full cumulative dividends on all outstanding
shares of Series A Preferred Stock and any other Parity Securities shall
have been paid or set apart for payment for all past Dividend Periods with
respect to the Series A Preferred Stock and all past dividend periods with
respect to such Parity Securities and (ii) sufficient funds shall have been
paid or set apart for the payment of the dividend for the current Dividend
Period with respect to the Series A Preferred Stock and for the current
dividend period with respect to such Parity Securities.
(e) The Corporation shall not, directly or indirectly, make any
payment on account of any purchase, redemption, retirement or other
acquisition of any Parity Securities (other than for consideration payable
solely in Junior Securities) unless all accrued and unpaid dividends on the
Series A Preferred Stock for all Dividend Payment Periods ending on or
before such payment for such Parity Securities shall have been paid or
declared and set apart for payment.
(f) If at any time the Corporation issues any Senior Securities and
the Corporation shall have failed to declare and pay or set apart for
payment accrued and unpaid dividends on such Senior Securities, in whole or
in part, then (except to the extent allowed by the terms of the Senior
Securities) no dividends shall be declared or paid or set apart for payment
on the Series A Preferred Stock unless and until all accrued and unpaid
dividends with respect to the Senior Securities, including the full
dividends for the then-current dividend period, shall have been declared
and paid or set apart for payment.
4. Liquidation Preference.
(a) The liquidation preference for the shares of Series A Preferred
Stock shall be $50.00 per share, plus an amount equal to the dividends
accrued and unpaid thereon, whether or not declared, to the payment date
(the "Liquidation Value").
(b) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of
Series A Preferred Stock shall not be entitled to receive the Liquidation
Value of such shares until payment in full or provision has been made for
the payment in full of all claims of creditors of the Corporation and the
liquidation preferences for all Senior Securities, and shall be entitled to
receive the Liquidation Value of such shares before any payment or
distribution of any assets of the Corporation shall be made or set apart
for holders of any Junior Securities. Subject to clause (i) above, if the
assets of the Corporation are not sufficient to pay in full the Liquidation
Value payable to the holders of shares of Series A Preferred Stock and the
liquidation preference payable to the holders of any Parity Securities,
then such assets, or the proceeds thereof, shall be distributed among the
holders of shares of Series A Preferred Stock and any such other Parity
Securities ratably in accordance with the Liquidation Value for the Series
A Preferred Stock and the liquidation preference for the Parity Securities,
respectively. Upon payment in full of the Liquidation Value to which the
holders of shares of Series A Preferred Stock are entitled, the holders of
shares of Series A Preferred Stock will not be entitled to any further
participation in any distribution of assets of the Corporation.
(c) Neither a consolidation or merger of the Corporation with or
into any other entity, nor a merger of any other entity with or into the
Corporation, nor a sale or transfer of all or any part of the Corporation's
assets for cash, securities or other property shall be considered a
liquidation, dissolution or winding up of the Corporation within the
meaning of this Section 4.
5. Redemption.
(a) Optional Redemption. The Series A Preferred Stock shall not be
redeemable prior to __________ __, 2001. During the period from __________
__, 2001 until __________ __, 2003, the Corporation may redeem at its option
shares of Series A Preferred Stock in accordance with this Section 5 only if
the last reported sales price of a share of Common Stock in its principal
trading market for any 20 trading days within a period of 30 consecutive
trading days ending on the trading day prior to the date of mailing the notice
of redemption is at least $70.6563. At any time on or after __________ __,
2001, to the extent the Corporation shall have funds legally available to
redeem shares of Series A Preferred Stock and if permitted by the immediately
preceding sentence, the Corporation may redeem shares of Series A Preferred
Stock, in whole or in part, at the option of the Corporation, at the
applicable cash redemption price per share set forth below for any redemption
during the 12-month period beginning on _______ ____ of the year indicated:
Year Redemption Price Per Share
- ----- ----------------------------
2001 $51.40
2002 $51.20
2003 $51.00
2004 $50.80
2005 $50.60
2006 $50.40
2007 $50.20
Thereafter $50.00
plus, in each case, an amount equal to the dividends accrued and unpaid
thereon, whether or not declared, up to but not including the redemption date.
From and after __________ __, 2008, the Corporation may redeem shares of
Series A Preferred Stock, at any time in whole or in part, at the option of
the Corporation, at a cash redemption price per share of $50.00 plus an amount
equal to the dividends accrued and unpaid thereon, whether or not declared, up
to but not including the redemption date.
(b) Mandatory Redemption. To the extent the Corporation shall have funds
legally available for such payment, on __________ __, 2018 (the "Mandatory
Redemption Date), the Corporation shall redeem all outstanding shares of
Series A Preferred Stock at a redemption price of $50.00 per share in cash,
together with accrued and unpaid dividends thereon, whether or not declared,
up to but not including such redemption date, without interest. If the
Corporation is unable or shall fail to discharge its obligation to redeem all
outstanding shares of Series A Preferred Stock on the Mandatory Redemption
Date (the "Mandatory Redemption Obligation"): (i) dividends on the Series A
Preferred Stock shall continue to accrue, without interest, in accordance with
Section 3, and (ii) the Mandatory Redemption Obligation shall be discharged as
soon thereafter as the Corporation is able to discharge such Mandatory
Redemption Obligation. If and for so long as any Mandatory Redemption
Obligation with respect to the Series A Preferred Stock shall not be fully
discharged on the Mandatory Redemption Date, the Corporation shall not (x)
directly or indirectly, redeem, purchase, or otherwise acquire any Parity
Securities or discharge any mandatory or optional redemption, sinking fund or
other similar obligation in respect of any Parity Securities (except in
connection with a redemption, sinking fund or other similar obligation to be
satisfied pro rata with the Series A Preferred Stock) or (y) declare or pay or
set apart for payment any dividends or other distributions upon any Junior
Securities, or, directly or indirectly, discharge any mandatory or optional
redemption, sinking fund or other similar obligation in respect of any Junior
Securities.
6. Procedures for Redemption.
(a) If fewer than all of the outstanding shares of Series A
Preferred Stock are to be redeemed pursuant to Section 5, the shares shall
be redeemed on a pro rata basis (according to the number of shares of
Series A Preferred Stock held by each holder, with any fractional shares
rounded to the nearest whole share) or in such other manner as the Board of
Directors may determine, as may be prescribed by resolution of the Board of
Directors. Notwithstanding the provisions of Section 5 and this Section 6,
unless full cumulative cash dividends (whether or not declared) on all
outstanding shares of Series A Preferred Stock shall have been paid or
contemporaneously are declared and paid or set apart for payment for all
Dividend Periods terminating on or prior to the applicable redemption date,
none of the shares of Series A Preferred Stock shall be redeemed, and no
sum shall be set aside for such redemption, unless shares of Series A
Preferred Stock are redeemed pro rata.
(b) In the event of a redemption of shares of Series A Preferred
Stock pursuant to Section 5, notice of such redemption shall be given by
first class mail, postage prepaid, mailed not less than 15 days nor more
than 60 days prior to the redemption date, to each holder of record of the
shares to be redeemed at such holder's address as the same appears on the
stock register of the Corporation; provided that neither the failure to
give such notice nor any defect therein shall affect the validity of the
giving of notice for the redemption of any share of Series A Preferred
Stock to be redeemed, except as to the holder to whom the Corporation has
failed to give said notice or except as to the holder whose notice was
defective. Each such notice shall state: (i) the redemption date; (ii)
the number of shares of Series A Preferred Stock to be redeemed and, if
fewer than all the shares held by such holder are to be redeemed, the
number of shares to be redeemed from such holder; (iii) the redemption
price; (iv) the place or places where certificates for such shares are to
be surrendered for payment of the redemption price; and (v) that dividends
on the shares to be redeemed will cease to accrue on such redemption date.
Any notice mailed in the manner herein provided shall be conclusively
presumed to have been duly given whether or not the holder receives the
notice.
(c) If a notice of redemption has been given pursuant to Section
6(b) and if, on or before the redemption date, the funds necessary for such
redemption (including all dividends on the shares of Series A Preferred
Stock to be redeemed that will accrue to but not including the redemption
date) shall have been set aside by the Corporation, separate and apart from
its other funds, in trust for the pro rata benefit of the holders of the
shares so called for redemption, then on the redemption date,
notwithstanding that any certificates for such shares have not been
surrendered for cancellation, (i) dividends shall cease to accrue on the
shares of Series A Preferred Stock to be redeemed, (ii) the holders of such
shares shall cease to be stockholders with respect to those shares, shall
have no interest in or claims against the Corporation by virtue thereof and
shall have no voting or other rights with respect thereto, except the
conversion rights provided in Section 7 (in accordance with Section 6(e))
and the right to receive the monies payable upon such redemption, without
interest thereon, upon surrender (and endorsement, if required by the
Corporation) of their certificates, and (iii) the shares evidenced thereby
shall no longer be outstanding. Subject to applicable escheat laws, any
monies so set aside by the Corporation and unclaimed at the end of two
years from the redemption date shall revert to the general funds of the
Corporation, after which reversion the holders of such shares so called for
redemption shall look only to the general funds of the Corporation for the
payment of the redemption price, without interest. Any interest accrued on
funds so deposited shall belong to the Corporation and be paid thereto from
time to time.
(d) Upon surrender in accordance with the Corporation's notice of
redemption of the certificates for any shares so redeemed (properly
endorsed or assigned for transfer, if the Board of Directors shall so
require and the notice shall so state), such shares shall be redeemed by
the Corporation at the redemption price aforesaid. In case fewer than all
the shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares without cost
to the holder thereof.
(e) If a notice of redemption has been given pursuant to Section
6(b) and any holder of shares of Series A Preferred Stock shall, prior to
the close of business on the Business Day preceding the redemption date,
give written notice to the Corporation pursuant to Section 7 of the
conversion of any or all of the shares to be redeemed held by the holder
(accompanied by a certificate or certificates for such shares, duly
endorsed or assigned to the Corporation, and any necessary transfer tax
payment, as required by Section 7), then such redemption shall not become
effective as to such shares to be converted and such conversion shall
become effective as provided in Section 7, whereupon any funds deposited by
the Corporation for the redemption of such shares shall (subject to any
right of the holder of such shares to receive the dividend payable thereon
as provided in Section 7) immediately upon such conversion be returned to
the Corporation or, if then held in trust by the Corporation, shall
automatically and without further corporate action or notice be discharged
from the trust.
7. Conversion.
(a) Right to Convert.
(i) Subject to the provisions of this Section 7, each holder of
shares of Series A Preferred Stock shall have the right, at any time and
from time to time, at such holder's option, to convert any or all of such
holder's shares of Series A Preferred Stock, in whole or in part, into
fully paid and non-assessable shares of Common Stock at the conversion
price of $56.525 per share of Common Stock, subject to adjustment as
described in Section 7(c) (as adjusted, the "Conversion Price"). The
number of shares of Common Stock into which a share of the Series A
Preferred Stock shall be convertible (calculated as to each conversion to
the nearest 1/1,000,000th of a share) shall be determined by dividing
$50.00 by the Conversion Price in effect at the time of conversion.
(ii) If shares of Series A Preferred Stock are called for redemption
in accordance with Section 5(a), the right to convert shares so called for
redemption shall terminate at the close of business on the Business Day
immediately preceding the date fixed for redemption unless the Corporation shall
default in making payment of the amount payable upon such redemption, in which
case the conversion rights for such shares shall continue.
(b) Mechanics of Conversion.
(i) To exercise the conversion right, the holder of shares of Series A
Preferred Stock to be converted shall surrender the certificate or certificates
representing such shares at the office of the Corporation (or any transfer agent
of the Corporation previously designated by the Corporation to the holders of
Series A Preferred Stock for this purpose) with a written notice of election to
convert completed and signed, specifying the number of shares to be converted.
Unless the shares issuable upon conversion are to be issued in the same name as
the name in which such shares of Series A Preferred Stock are registered, each
share surrendered for conversion shall be accompanied by instruments of
transfer, in form satisfactory to the Corporation, duly executed by the holder
or the holder's duly authorized attorney and an amount sufficient to pay any
transfer or similar tax in accordance with Section 7(b)(vii). As promptly as
practicable after the surrender by the holder of the certificates for shares of
Series A Preferred Stock as aforesaid, the Corporation shall issue and shall
deliver to such holder, or on the holder's written order to the holder's
transferee, a certificate or certificates for the whole number of shares of
Common Stock issuable upon the conversion of such shares and a check payable in
an amount corresponding to any fractional interest in a share of Common Stock as
provided in Section 7(b)(viii).
(ii) Each conversion shall be deemed to have been effected immediately
prior to the close of business on the first Business Day (the "Conversion Date")
on which the certificates for shares of Series A Preferred Stock shall have been
surrendered and such notice received by the Corporation as aforesaid. At such
time on the Conversion Date:
(w) the person in whose name or names any certificate or certificates
for shares of Common Stock shall be issuable upon such
conversion shall be deemed to have become the holder of record
of the shares of Common Stock represented thereby at such time;
(x) such shares of Series A Preferred Stock shall no longer be deemed to
be outstanding and all rights of a holder with respect to such
shares surrendered for conversion shall immediately terminate
except the right to receive the Common Stock and other amounts
payable pursuant to this Section 7;
(y) in lieu of dividends on such Series A Preferred Stock pursuant to
Section 3, such shares of Series A Preferred Stock shall
participate equally and ratably with the holders of shares of
Common Stock in all dividends paid on the Common Stock; and
(z) the right of the Corporation to redeem such shares of Series A
Preferred Stock shall terminate, regardless of whether a notice
of redemption has been mailed as aforesaid.
All shares of Common Stock delivered upon conversion of the Series A Preferred
Stock will, upon delivery, be duly and validly issued and fully paid and non-
assessable, free of all liens and charges and not subject to any preemptive
rights.
(iii) Holders of shares of Series A Preferred Stock at the close of
business on a Dividend Payment Record Date shall be entitled to receive the
dividend payable on such shares on the corresponding Dividend Payment Date
notwithstanding the conversion thereof following such Dividend Payment Record
Date and prior to such Dividend Payment Date. However, shares of Series A
Preferred Stock surrendered for conversion during the period between the close
of business on any Dividend Payment Record Date and the opening of business on
the corresponding Dividend Payment Date (except shares converted after the
issuance of a notice of redemption during such period, which shall be entitled
to such dividend on the Dividend Payment Date) must be accompanied by payment of
an amount equal to the dividend payable on such shares on such Dividend Payment
Date; provided that notwithstanding such surrender of shares for conversion
after such Dividend Payment Record Date, the holders thereof at the close of
business on such Dividend Payment Record Date shall be entitled to receive the
dividend payable on such shares on the corresponding Dividend Payment Date. A
holder of shares of Series A Preferred Stock on a Dividend Payment Record Date
who (or whose transferee) tenders any such shares for conversion into shares of
Common Stock on such Dividend Payment Date will receive the dividend payable by
the Corporation on such shares of Series A Preferred Stock on such date, and the
converting holder need not include payment of the amount of such dividend upon
surrender of shares of Series A Preferred Stock for conversion.
(iv) Except as provided in clause (iii) above and in Section
7(c), the Corporation shall make no payment or adjustment for accrued and
unpaid dividends on shares of Series A Preferred Stock, whether or not in
arrears, on conversion of such shares or for dividends in cash on the
shares of Common Stock issued upon such conversion.
(v) The Corporation covenants that it will at all times reserve
and keep available, free from preemptive rights, such number of its
authorized but unissued shares of Common Stock as shall be required for the
purpose of effecting conversions of the Series A Preferred Stock. Prior to
the delivery of any securities which the Corporation shall be obligated to
deliver upon conversion of the Series A Preferred Stock, the Corporation
shall comply with all applicable federal and state laws and regulations
which require action to be taken by the Corporation.
(vi) The Corporation will pay any and all documentary stamp or
similar issue or transfer taxes payable in respect of the issuance or
delivery of shares of Common Stock on conversion of the Series A Preferred
Stock pursuant hereto; provided that the Corporation shall not be required
to pay any tax which may be payable in respect of any transfer involved in
the issuance or delivery of shares of Common Stock in a name other than
that of the holder of the Series A Preferred Stock to be converted, and no
such issuance or delivery shall be made unless and until the person
requesting such issuance or delivery has paid to the Corporation the amount
of any such tax or has established, to the satisfaction of the Corporation,
that such tax has been paid.
(vii) In connection with the conversion of any shares of Series
A Preferred Stock, no fractions of shares of Common Stock shall be issued,
but in lieu thereof the Corporation shall pay a cash adjustment in respect
of such fractional interest in an amount equal to such fractional interest
multiplied by the Daily Price (as defined below) per share of Common Stock
on the Conversion Date. In the absence of a Daily Price, the Board of
Directors shall in good faith determine the current market price on such
basis as it considers appropriate, and such current market price shall be
used to calculate the cash adjustment. As used herein, "Daily Price" means
(w) if the shares of such class of Common Stock are then listed and traded
on the New York Stock Exchange, Inc. ("NYSE"), the closing price on such
day as reported on the NYSE Composite Transactions Tape; (x) if the shares
of such class of Common Stock are not then listed and traded on the NYSE,
the closing price on such day as reported by the principal national
securities exchange on which the shares are listed and traded; (y) if the
shares of such class of Common Stock are not then listed and traded on any
such securities exchange, the last reported sale price on such day on the
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation System ("NASDAQ"); or (z) if the shares of such class
of Common Stock are not then traded on the NASDAQ National Market, the
average of the highest reported bid and lowest reported asked price on such
day, as reported by NASDAQ.
(c) Adjustments to Conversion Price. The Conversion Price shall be
adjusted from time to time as follows:
(i) If, at any time after the date of issuance of the Series A
Preferred Stock, the Corporation shall pay a dividend or make a
distribution on any class of its capital stock in shares of its Common
Stock, subdivide its outstanding shares of Common Stock into a greater
number of shares or combine its outstanding shares of Common Stock into a
smaller number of shares, the Conversion Price in effect immediately prior
thereto shall be adjusted as provided below so that the Conversion Price
thereafter shall be determined by multiplying the Conversion Price at which
the shares of Series A Preferred Stock were theretofore convertible by a
fraction, the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such action, and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
following such action. Such adjustment shall be made whenever any event
listed above shall occur and shall become effective retroactively
immediately after the record date in the case of a dividend and immediately
after the effective date in the case of a subdivision or combination.
(ii) If, at any time after the date of issuance of the Series A
Preferred Stock, the Corporation shall issue rights or warrants to all
holders of its Common Stock entitling them (for a period expiring within 45
days after the record date for determining stockholders entitled to receive
such rights or warrants) to subscribe for or purchase shares of Common
Stock at a price per share less than the current market price per share of
Common Stock at the record date therefor (as determined in accordance with
the provisions of Section 7(c)(iv)), the "Current Market Price"), or in
case the Corporation shall issue to all holders of its Common Stock other
securities convertible into or exchangeable for Common Stock for a
consideration per share of Common Stock deliverable upon conversion or
exchange thereof less than the Current Market Price, then the Conversion
Price in effect immediately prior thereto shall be adjusted as provided
below so that the Conversion Price therefor shall be equal to the price
determined by multiplying the Conversion Price at which shares of Series A
Preferred Stock were theretofore convertible by a fraction of which the
numerator shall be the sum of (1) the number of shares of Common Stock
outstanding on the date of issuance of the convertible or exchangeable
securities, rights or warrants and (2) the number of additional shares of
Common Stock that the aggregate offering price for the number of shares of
Common Stock so offered would purchase at the Current Market Price per
share of Common Stock, and of which the denominator shall be the sum of the
number of shares of Common Stock outstanding on the date of issuance of
such convertible or exchangeable securities, rights or warrants and the
number of additional shares of Common Stock offered for subscription or
purchase, or issuable upon such conversion or exchange. Such adjustment
shall be made whenever such convertible or exchangeable securities, rights
or warrants are issued, and shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
securities. However, upon the expiration of any right or warrant to
purchase Common Stock, the issuance of which resulted in an adjustment in
the Conversion Price pursuant to this Section 7(c)(ii), if any such right
or warrant shall expire and shall not have been exercised, the Conversion
Price shall be recomputed immediately upon such expiration and effective
immediately upon such expiration shall be increased to the price it would
have been (but reflecting any other adjustments to the Conversion Price
made pursuant to the provisions of this Section 7(c) after the issuance of
such rights or warrants) had the adjustment of the Conversion Price made
upon the issuance of such rights or warrants been made on the basis of
offering for subscription or purchase only that number of shares of Common
Stock actually purchased upon the exercise of such rights or warrants. No
further adjustment shall be made upon exercise of any right, warrant,
convertible security or exchangeable security if any adjustment shall have
been made upon issuance of such security.
(iii) If, at any time after the date of issuance of the Series A
Preferred Stock, the Corporation shall distribute to all holders of its
Common Stock (including any dividend paid in connection with a
consolidation or merger in which the Corporation is the continuing
corporation) any shares of capital stock of the Corporation or its
subsidiaries (other than Common Stock) or evidences of its indebtedness,
cash or other assets (excluding dividends payable solely in cash that may
from time to time be fixed by the Board of Directors, or dividends or
distributions in connection with the liquidation, dissolution or winding up
of the Corporation) or rights or warrants to subscribe for or purchase any
of its securities or those of its subsidiaries or securities convertible or
exchangeable for Common Stock (excluding those securities referred to in
Section 7(c)(ii)), then in each such case the Conversion Price in effect
immediately prior thereto shall be adjusted as provided below so that the
Conversion Price thereafter shall be equal to the price determined by
multiplying (A) the Conversion Price in effect on the record date mentioned
below by (B) a fraction, the numerator of which shall be the Current Market
Price per share of Common Stock on the record date mentioned below less the
then fair market value (as determined by the Board of Directors, whose good
faith determination shall be conclusive) as of such record date of the
assets, evidences of indebtedness or securities so paid with respect to one
share of Common Stock, and the denominator of which shall be the Current
Market Price per share of Common Stock on such record date; provided,
however, that in the event the then fair market value (as so determined) so
paid with respect to one share of Common Stock is equal to or greater than
the Current Market Price per share of Common Stock on the record date
mentioned above, in lieu of the foregoing adjustment, adequate provision
shall be made so that each holder of shares of Series A Preferred Stock
shall have the right to receive the amount and kind of assets, evidences of
indebtedness, or securities such holder would have received had such holder
converted each such share of Series A Preferred Stock immediately prior to
the record date for such dividend. Such adjustment shall be made whenever
any such payment is made, and shall become effective retroactively
immediately after the record date for the determination of stockholders
entitled to receive the payment.
(iv) For the purpose of any computation under Sections 7(c)(ii)
or 7(c)(iii), the Current Market Price per share of Common Stock at any
date shall be deemed to be the average Daily Price for the 30 consecutive
trading days commencing 35 trading days before the day in question.
(v) No adjustment in the Conversion Price shall be required
unless the adjustment would require an increase or decrease of at least 1%
in the Conversion Price then in effect; provided, however, that any
adjustments that by reason of this Section 7(c)(v) are not required to be
made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 7(c) shall be made to the
nearest cent.
(vi) In the event that, at any time as a result of an adjustment
made pursuant to Section 7(c)(i) or 7(c)(iii), the holder of any shares of
Series A Preferred Stock thereafter surrendered for conversion shall become
entitled to receive any shares of the Corporation or its subsidiaries,
other than shares of the Common Stock, thereafter the number of such other
shares so receivable upon conversion of any share of Series A Preferred
Stock shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to
the Common Stock contained in Sections 7(c)(i) through 7(c)(v), and the
other provisions of this Section 7 with respect to the Common Stock shall
apply on like terms to any such other shares.
(vii) Whenever the Conversion Price is adjusted, as herein
provided, the Corporation shall promptly file with the transfer agent for
the Series A Preferred Stock a certificate of an officer of the Corporation
setting forth the Conversion Price after the adjustment and setting forth a
brief statement of the facts requiring such adjustment and a computation
thereof. The certificate shall be prima facie evidence of the correctness
of the adjustment. The Corporation shall promptly cause a notice of the
adjusted Conversion Price to be mailed to each registered holder of shares
of Series A Preferred Stock.
(viii) In case of any reclassification of the Common Stock, any
consolidation of the Corporation with, or merger of the Corporation into,
any other entity, any merger of another entity into the Corporation (other
than a merger that does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of Common Stock of the
Corporation), any sale or transfer of all or substantially all of the
assets of the Corporation or any compulsory share exchange pursuant to
which share exchange the Common Stock is converted into other securities,
cash or other property, then lawful provision shall be made as part of the
terms of such transaction whereby the holder of each share of Series A
Preferred Stock then outstanding shall have the right thereafter, during
the period such share shall be convertible, to convert such share only into
the kind and amount of securities, cash and other property receivable upon
the reclassification, consolidation, merger, sale, transfer or share
exchange by a holder of the number of shares of Common Stock of the
Corporation into which a share of Series A Preferred Stock would have been
convertible immediately prior to the reclassification, consolidation,
merger, sale, transfer or share exchange. The Corporation, the person
formed by the consolidation or resulting from the merger or which acquires
such assets or which acquires the Corporation's shares, as the case may be,
shall make provisions in its certificate or articles of incorporation or
other constituent documents to establish such rights and to ensure that the
dividend, voting and other rights of the holders of Series A Preferred
Stock established herein are unchanged, except as permitted by Section 9
and applicable law. The certificate or articles of incorporation or other
constituent documents shall provide for adjustments, which, for events
subsequent to the effective date of the certificate or articles of
incorporation or other constituent documents, shall be as nearly equivalent
as may be practicable to the adjustments provided for in this Section 7.
The provisions of this Section 7(c)(viii) shall similarly apply to
successive reclassifications, consolidations, mergers, sales, transfers or
share exchanges.
(d) Optional Reduction in Conversion Price. The Corporation may at its
option reduce the Conversion Price from time to time by any amount for any
period of time if the period is at least 20 days and if the reduction is
irrevocable during the period. Whenever the Conversion Price is so reduced,
the Corporation shall mail to holders of record of the Series A Preferred
Stock a notice of the reduction at least 15 days before the date the reduced
Conversion Price takes effect, stating the reduced Conversion Price and the
period it will be in effect. A voluntary reduction of the Conversion Price
does not change or adjust the Conversion Price otherwise in effect for
purposes of Section 7(c).
8. Status of Shares. All shares of Series A Preferred Stock
that are at any time redeemed pursuant to Section 5 or converted pursuant to
Section 7 and all shares of Series A Preferred Stock that are otherwise
reacquired by the Corporation shall (upon compliance with any applicable
provisions of the laws of the State of Delaware) have the status of authorized
but unissued shares of Preferred Stock, without designation as to series,
subject to reissuance by the Board of Directors as shares of any one or more
other series.
9. Voting Rights.
(a) The holders of record of shares of Series A Preferred Stock
shall not be entitled to any voting rights except as hereinafter provided
in this Section 9 or as otherwise provided by law.
(b) The holders of the shares of Series A Preferred Stock (i) shall
be entitled to vote with the holders of the Common Stock on all matters
submitted for a vote of holders of Common Stock (voting together with the
holders of Common Stock as one class), (ii) shall be entitled to a number
of votes equal to the number of votes to which shares of Common Stock
issuable upon conversion of such shares of Series A Preferred Stock would
have been entitled if such shares of Common Stock had been outstanding at
the time of the applicable vote and related record date and (iii) shall be
entitled to notice of any stockholders' meeting in accordance with the
Certificate of Incorporation and Bylaws of the Corporation.
(c) If and whenever six quarterly dividends (whether or not
consecutive) payable on the Series A Preferred Stock have not been paid in
full or if the Corporation shall have failed to discharge its Mandatory
Redemption Obligation on or after the Redemption Date, the number of
directors then constituting the Board of Directors shall be increased by
two and the holders of shares of Series A Preferred Stock, together with
the holders of shares of every other series of preferred stock upon which
like rights to vote for the election of two additional directors have been
conferred and are exercisable (resulting from either the failure to pay
dividends or the failure to redeem) (any such other series is referred to
as the "Preferred Shares"), voting as a single class regardless of series,
shall be entitled to elect the two additional directors to serve on the
Board of Directors at any annual meeting of stockholders or special meeting
held in place thereof, or at a special meeting of the holders of the Series
A Preferred Stock and the Preferred Shares called as hereinafter provided.
Whenever all arrears in dividends on the Series A Preferred Stock and the
Preferred Shares then outstanding shall have been paid and dividends
thereon for the current quarterly dividend period shall have been paid or
declared and set apart for payment, or the Corporation shall have fulfilled
its Mandatory Redemption Obligation, as the case may be, then the right of
the holders of the Series A Preferred Stock and the Preferred Shares to
elect such additional two directors shall cease (but subject always to the
same provisions for the vesting of such voting rights in the case of any
similar future arrearages in six quarterly dividends or failure to fulfill
any Mandatory Redemption Obligation), and the terms of office of all
persons elected as directors by the holders of the Series A Preferred Stock
and the Preferred Shares shall forthwith terminate and the number of the
Board of Directors shall be reduced accordingly. At any time after such
voting power shall have been so vested in the holders of shares of Series A
Preferred Stock and the Preferred Shares, the secretary of the Corporation
may, and upon the written request of any holder of Series A Preferred Stock
(addressed to the secretary at the principal office of the Corporation)
shall, call a special meeting of the holders of the Series A Preferred
Stock and of the Preferred Shares for the election of the two directors to
be elected by them as herein provided, such call to be made by notice
similar to that provided in the Bylaws of the Corporation for a special
meeting of the stockholders or as required by law. If any such special
meeting required to be called as above provided shall not be called by the
secretary within 20 days after receipt of any such request, then any holder
of shares of Series A Preferred Stock may call such meeting, upon the
notice above provided, and for that purpose shall have access to the stock
records of the Corporation. The directors elected at any such special
meeting shall hold office until the next annual meeting of the stockholders
or special meeting held in lieu thereof if such office shall not have
previously terminated as above provided. If any vacancy shall occur among
the directors elected by the holders of the Series A Preferred Stock and
the Preferred Shares, a successor shall be elected by the Board of
Directors, upon the nomination of the then-remaining director elected by
the holders of the Series A Preferred Stock and the Preferred Shares or the
successor of such remaining director, to serve until the next annual
meeting of the stockholders or special meeting held in place thereof if
such office shall not have previously terminated as provided above.
(d) So long as any shares of Series A Preferred Stock are outstanding:
(i) the Corporation shall not, without the written consent or
affirmative vote at a meeting called for that purpose by holders
of at least 66-2/3% of the outstanding shares of Series A
Preferred Stock, voting as a single class, amend, alter or repeal
any provision of the Corporation's Certificate of Incorporation
(by merger or otherwise) so as to materially and adversely affect
the preferences, rights or powers of the Series A Preferred Stock;
provided that any such amendment, alteration or repeal to create,
authorize or issue any Junior Securities or Parity Securities, or
any security convertible into, or exchangeable or exercisable for,
shares of Junior Securities or Parity Securities, shall not be
deemed to have any such material adverse effect; and
(ii) the Corporation shall not, without the written consent or
affirmative vote at a meeting called for that purpose of at least
66-2/3% of the votes entitled to be cast by the holders of shares
of Series A Preferred Stock and of all other series of Preferred
Stock upon which like rights to vote upon the matters specified
herein have been conferred and are exercisable, voting as a single
class regardless of series, create, authorize or issue any Senior
Securities, or any security convertible into, or exchangeable or
exercisable for, shares of Senior Securities;
provided that no such consent or vote of the holders of Series A Preferred
Stock shall be required if at or prior to the time when such amendment,
alteration or repeal is to take effect, or when the issuance of any such
securities is to be made, as the case may be, all shares of Series A Preferred
Stock at the time outstanding shall have been called for redemption by the
Corporation and the funds necessary for such redemption shall have been set
aside in accordance with Sections 5 and 6.
(e) The consent or votes required in Sections 9(c) and 9(d) shall be in
addition to any approval of stockholders of the Corporation which may be
required by law or pursuant to any provision of the Corporation's Certificate
of Incorporation or Bylaws, which approval shall be obtained by vote of the
stockholders of the Corporation in the manner provided in Section 9(b).
10. No Other Rights.
(a) The shares of Series A Preferred Stock shall not have any relative,
participating, optional or other special rights and powers except as set forth
herein or as may be required by law.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
duly executed on its behalf and attested by its undersigned duly authorized
officers this ____ day of _____________, 1998.
W. R. GRACE & CO.
By:
-------------------------
Name:
Title:
ATTEST:
- -------------------------
Name:
Title:
Exhibit 4.2
December 18, 1997
W. R. Grace & Co.
One Town Center Road
Boca Raton, FL 33486-1010
Attention: Paul McMahon
Vice President and Treasurer
Gentlemen:
ABN AMRO Bank N.V., New York Branch ("ABN AMRO"), Bank of
America National Trust and Savings Association ("Bank of America"),
NationsBank N.A. ("NationsBank") and Bankers Trust Company ("BTCo") are
pleased to offer to W. R. Grace & Co. ("W. R. Grace") their respective
commitments in the amounts set forth opposite their names on their respective
signature pages hereto (or the equivalent thereof in permitted designated and
alternate currencies) as part of the One Billion Six Hundred Million United
States Dollar credit facility described herein, subject to the terms and
provisions set forth herein and in the attached summary of terms and
conditions (the "Facility"). ABN AMRO, Bank of America, NationsBank and BTCo
are herein referred to individually as an "Agent Bank" and collectively as the
"Agent Banks". All defined terms used herein and not defined herein shall have
the same meaning herein as in the attached summary of terms and conditions.
ABN AMRO will serve as Administrative Agent and Arranger and
BancAmerica Robertson Stephens, BT Alex.Brown Incorporated, and NationsBanc
Montgomery Securities, Inc. are herein referred to individually as a
"Co-Arranger" and, collectively, the "Co-Arrangers". Each of the Agent Banks,
Arranger and Co-Arrangers will perform the customary duties under the Facility.
In addition, each of the Arranger and Co-Arrangers agrees to use its best
efforts to work with W. R. Grace to syndicate the Facility to one or more
banks or financial institutions that are reasonably satisfactory to the
Arranger, Co-Arrangers and W. R. Grace.
The Arranger and Co-Arrangers intend to commence syndication
efforts promptly after your execution of this letter, and you agree to
assist the Arranger and Co-Arrangers in achieving a syndication that is
satisfactory to the Arranger, Co-Arrangers and you. The syndication
efforts of the Arranger and Co-Arrangers, including contacts with and
requests for assistance from W. R. Grace and SAC, will be coordinated
among the Arranger and Co-Arrangers. Such syndication will be accomplished
by a variety of means, including direct contact during the syndication
between senior management and advisors of W. R. Grace and its affiliates
and the proposed syndicate members. To assist the Arranger and Co-
Arrangers in their syndication efforts, you hereby agree (i) to provide and
cause your advisors to provide the Arranger and Co-Arrangers, the Agent
Banks and the other syndicate members upon request with all information
reasonably deemed necessary by the Arranger and Co-Arrangers to complete
syndication, including but not limited to information and evaluations
prepared by W. R. Grace and its affiliates and their respective advisors,
or on their behalf, relating to the transactions contemplated hereby, (ii)
to assist ABN AMRO upon its reasonable request in the preparation of an
Information Memorandum to be used in connection with the syndication of the
Facility, (iii) to otherwise assist the Arranger and Co-Arrangers in their
syndication efforts, including by making officers of W. R. Grace and its
affiliates available from time to time to attend and make presentations
regarding the business and prospects of the Grace Packaging Business at a
meeting or meetings of lenders or prospective lenders, and (iv) to use your
best efforts to cause officers of SAC and its affiliates to be available
from time to time to attend and make presentations regarding the business
and prospects of the Grace Packaging Business and SAC and its subsidiaries,
taken as a whole, at a meeting or meetings of lenders or prospective
lenders.
As you are aware, we have received certain historical and
projected pro forma financial statements of the Grace Packaging Business and
of SAC and its subsidiaries. If additional information comes to our attention
which the Agent Banks, Arranger or Co-Arrangers reasonably believe has a
material adverse effect on the business, assets, financial condition, or
prospects of the Grace Packaging Business, taken as a whole, or the Grace
Packaging Business and SAC and its subsidiaries, taken as a whole, or on the
Transaction, the Agent Banks may decline to provide the financing and ABN AMRO
may, in its sole discretion, suggest alternative financing amounts or
structures that ensure adequate protection for the Agent Banks, Arranger and
the Co-Arrangers.
You hereby represent and covenant that (i) all information,
other than the Projections (as defined below), which has been or is
hereafter made available to the Agent Banks, the Arranger and the Co-
Arrangers by you or on your behalf in connection with the transactions
contemplated hereby (the "Information") is and will (as supplemented below)
be complete and correct in all material respects and does not and will not
contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements contained therein not materially
misleading as of the date provided to you and (ii) all financial
projections concerning the Grace Packaging Business. taken as a whole, and
the Grace Packaging Business and SAC and its subsidiaries, taken as a
whole, that have or are hereafter made available to the Agent Banks, the
Arranger and the Co-Arrangers by you or on your behalf in connection with
the transactions contemplated hereby (the "Projections") have been or will
be prepared in good faith based upon reasonable assumptions. You agree to
supplement the Information and the Projections from time to time until the
closing date of the credit facility so that the representation and warranty
in the preceding sentence is true and correct on such closing date as if
the Information and Projections were provided to you on the closing date.
You acknowledge that in arranging and syndicating the Facility, the Agent
Banks, the Arranger and the Co-Arrangers will be using and relying on the
Information and Projections without independent verification thereof. In
issuing this commitment and undertaking, as the case may be, the Agent
Banks, the Arranger and the Co-Arrangers are relying on the accuracy of the
information furnished by you or on your behalf.
The Agent Banks will not be obligated to enter into the
Facility unless and until all of the following conditions set forth herein and
in the attached summary of terms and conditions have been met:
(a) The Facility will be made available pursuant to loan
and related agreements and documentation (collectively, the "Facilities
Documentation"), in form and substance consistent with the attached summary
of terms and conditions and otherwise satisfactory to the Agent Banks. The
Facilities Documentation shall contain such covenants, terms, conditions,
representations, warranties and events of default as are consistent with
the term sheet and otherwise as shall be satisfactory to ABN AMRO or as are
customarily included by ABN AMRO in agreements governing transactions of
the kind contemplated, or as the Agent Banks shall deem appropriate based
on their investigation of the Grace Packaging Business and SAC and its
subsidiaries. It is understood that the attached terms and conditions
attempt to set forth certain of the material terms and provisions of the
Facility, but not necessarily all of such terms and provisions, and that
the Facility as finally documented shall contain those terms and provisions
customarily required by the Agent Banks for facilities and transactions of
this type. Accordingly, each of our commitments remains subject to our
receipt of legal documentation in form and content satisfactory to us and
to our legal counsel.
(b) The Merger Agreement shall be in full force and effect.
Any consent of the shareholders of W. R. Grace or SAC which may be
required to authorize the Merger shall have been obtained.
(c) All approvals, consents, authorizations, licenses,
permits, orders, filings and declarations of and with any governmental or
regulatory body, agency or authority or any person, firm, corporation or
other legal entity necessary in connection with the Facility and the
transactions otherwise contemplated thereby and to be obtained by you or
SAC, shall have been obtained and made and be in full force and effect and
all applicable waiting periods shall have expired without any action being
taken by any competent authority which restrains, prevents or imposes
materially adverse conditions upon, the consummation of the Merger or the
incurrence of the loans under the Facility, in each case on a basis
acceptable to the Agent Banks.
(d) The execution of the Facilities Documentation and the
consummation of the transactions contemplated thereby shall not violate or
conflict with any law, rule or regulation or any material agreement,
contract or other obligation binding upon or affecting the property of the
Grace Packaging Business or SAC or any of its subsidiaries or businesses.
(e) Except as previously disclosed to the Agent Banks no
action, suit or proceeding (including, without limitation, any inquiry or
investigation) shall be pending or threatened against the Grace Packaging
Business or against SAC or any of its subsidiaries which could reasonably
be expected to result in a material adverse effect on the Grace Packaging
Business, taken as a whole, or on the Grace Packaging Business and SAC and
its subsidiaries, taken as a whole, the financing contemplated hereby or
any documentation executed in connection therewith, and no injunction or
other restraining order shall have been issued or a hearing therefor be
pending or noticed with respect to the Facility or the transactions
contemplated hereby and thereby.
(f) The Agent Banks shall be satisfied as to the existing
and potential liability of the Grace Packaging Business, taken as a whole,
and the Grace Packaging Business and SAC and its subsidiaries, taken as a
whole, with respect to any environmental matters including compliance with
laws and regulations relating to environmental protection.
(g) The results of the Agent Banks' continued due diligence
review, analysis and testing of the assets, liabilities, commitments,
contingencies, results of operations and prospects of the Grace Packaging
Business, taken as a whole, and the Grace Packaging Business and SAC and
its subsidiaries, taken as a whole, shall be acceptable to the Agent Banks.
(h) There shall have been no material adverse change in the
business, financial condition, or results of operations of the Grace
Packaging Business, taken as a whole, or the Grace Packaging Business and
SAC and its subsidiaries, taken as a whole, since December 31, 1996.
(i) All extensions of credit under the Facility shall be in
full compliance with all applicable requirements, including, to the extent
applicable, the rules and regulations of the Board of Governors of the
Federal Reserve System.
(j) The Agent Banks shall be satisfied that the pro forma
financial condition of the Grace Packaging Business, taken as a whole, and
the Grace Packaging Business and SAC and its subsidiaries, taken as a
whole, after giving effect to the Transactions is substantially consistent
with the Projections provided by you or your agents to the Agent Banks.
(k) The Agent Banks shall have received such opinions of
counsel, officers' certificates, board resolutions and certificates of
accountants and other professionals in respect of such matters as the Agent
Banks shall reasonably request.
(l) There shall not have occurred and be continuing such a
material disruption in the market for syndicated bank credit facilities
generally as would, in the reasonable judgment of the Arranger and Co-
Arrangers, materially impair the syndication of the Facility.
(m) There shall have been no other syndications of private
debt by W. R. Grace for which Cryovac or the Grace Packaging Business
would remain liable after giving effect to the Merger or by SAC during the
syndication of the Facility which would, in the reasonable opinions of the
Arranger and Co-Arrangers, affect the successful syndication of the
Facility.
For its commitment to the Facility, W. R. Grace agrees to pay
to each of the Agent Banks the upfront fee specified in the fee letter dated
the date hereof among the Agent Banks and W. R. Grace. W. R. Grace agrees to
pay to ABN AMRO the additional fees specified in the fee letter dated the date
hereof between W. R. Grace and ABN AMRO. The Facilities Documentation shall be
prepared by Chapman and Cutler as special counsel to ABN AMRO. The reasonable
costs and expenses of Chapman and Cutler (to be limited to a maximum amount to
be agreed upon) in connection with the preparation, execution and delivery of
this letter, the Facilities Documentation and the transactions contemplated
hereby and thereby and all other incidental out-of-pocket costs and expenses
of the Agent Banks, the Arranger and the Co-Arrangers in connection with the
syndication of the Facility shall be for your account, whether or not any
portion of the Facility is made available. To the extent any fees are payable
to the banks participating in the Facility (other than to the Agent Banks),
such fees shall be for the account of W. R. Grace as shall be mutually agreed
between W. R. Grace and the Agent Banks.
To induce the Agent Banks, the Arranger and the Co-Arrangers
to enter into this letter, W. R. Grace hereby agrees to indemnify and
hold harmless the Agent Banks, the Arranger and the Co-Arrangers and their
affiliates and each director, officer, employee, agent, attorney thereof
(each an "indemnified person") from and against any and all actions, suits,
proceedings (including any investigations or inquiries), claims, losses,
damages, liabilities or expenses of any kind or nature whatsoever which may
be incurred by or asserted against or involve the Arranger or any Agent
Bank or Co-Arranger or any such indemnified person as a result of or
arising out of or in any way related to or resulting from this letter, the
Facility or the other transactions contemplated hereby and thereby and,
upon demand, to pay and reimburse the Agent Banks, the Arranger and the Co-
Arrangers and each indemnified person for any reasonable legal or other
out-of-pocket expenses incurred in connection with investigating, defending
or preparing to defend any such action, suit, proceeding (including any
inquiry or investigation) or claim (whether or not the Agent Banks, the
Arranger and the Co-Arrangers or any such indemnified person is a party to
any action or proceeding out of which any such expenses arise); provided,
however, W. R. Grace shall not indemnify any Agent Bank, the Arranger or
Co-Arranger or any indemnified person pursuant to this paragraph against
any loss, claim, damage, expense or liability resulting from its gross
negligence or willful misconduct (as applicable). The foregoing provisions
of this paragraph shall be in addition to any rights that an indemnified
party shall have at common law or otherwise. Neither the Agent Banks, the
Arranger, the Co-Arrangers nor any indemnified person shall be entitled to
indemnity for any lost profits or consequential damages pursuant to this
paragraph.
The provisions of the immediately preceding two paragraphs
shall survive any termination of this letter.
This letter shall not be assignable by any party hereto without
the prior written consent of the other parties, subject to the right of the
Agent Banks stated above to syndicate the Facility among banks or other
financial institutions acceptable to the Agent Banks and W. R. Grace, and the
right of the Agent Banks to sell, transfer or assign all or any portion of, or
interests or participation in, the Facility, in the case of assignments,
subject to the consent of W. R. Grace.
If you are in agreement with the foregoing, please sign and
return the enclosed copy of this letter no later than 5:00 p.m., New York
time, on or before December 22, 1997. This letter will become effective upon
your delivery to us of executed counterparts of this letter. This offer shall
terminate if not so accepted by you prior to that time.
After this letter becomes effective, the commitments of the
Agent Banks hereunder may be terminated in whole or in part at any time by W.
R. Grace upon written notice to the Agent Banks. This commitment will
terminate on April 15, 1998 unless definitive Facilities Documentation,
meeting the conditions set forth herein, shall have been entered into on or
prior to such date.
Prior to the receipt by the Agent Banks, the Arranger and the
Co-Arranger of a counterpart of this commitment letter executed by you, this
commitment letter and the contents hereof shall be treated by you as
confidential and (except as required by law in the opinion of your or SAC's
counsel) shall not be disclosed by you to any person other than W. R. Grace's
or SAC's officers, directors, attorneys and other advisors. After such receipt
this commitment letter and its respective contents shall not be disclosed by
you or SAC except in furtherance of, and to other proposed participants in,
the transactions contemplated by such commitment letter and, in any event,
this commitment letter shall not be disclosed publicly (unless required by law
in the opinion of your or SAC's counsel) without the prior written consent of
the Agent Banks, except that, following your acceptance of this letter, you or
SAC may make public disclosure of the existence and amount of the Agent Banks'
commitments, and you or SAC may make such public disclosures of the terms and
conditions hereof as you or SAC are required by law, in the opinion of your or
SAC's counsel, to make.
Except as otherwise contemplated herein or as required by law or
requested by any regulatory authority, each Agent Bank, the Arranger, and each
Co-Arranger agrees that it will keep and cause its affiliates to keep as
confidential in accordance with customary banking practices, all non-public,
confidential materials of W. R. Grace and its subsidiaries and SAC and its
subsidiaries (except as may be necessary to complete syndication, provided
that any such materials will be provided only subject to confidentiality
restrictions mutually agreed by the Agent Banks, the Arranger, the
Co-Arrangers and you).
This letter may be executed in counterparts which, taken
together, shall constitute an original. This letter embodies the entire
agreement and understanding between the Agent Banks, the Arranger, the
Co-Arrangers and you with respect to the Facilities and supersedes all prior
agreements and understandings relating to the subject matter hereof.
THIS LETTER WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF
CONFLICTS OF LAWS AND ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM,
ACTION, SUIT OR PROCEEDING ARISING OUT OF OR CONTEMPLATED BY THIS COMMITMENT
LETTER IS HEREBY WAIVED BY THE AGENT BANKS, ARRANGER, CO-ARRANGERS AND YOU.
THE AGENT BANKS, THE ARRANGER, CO-ARRANGERS AND YOU HEREBY SUBMIT TO THE
NON-EXCLUSIVE JURISDICTION OF THE FEDERAL AND NEW YORK STATE COURTS LOCATED IN
THE CITY OF NEW YORK IN CONNECTION WITH ANY DISPUTE RELATED TO THIS COMMITMENT
LETTER OR ANY MATTERS CONTEMPLATED HEREBY
Very truly yours,
Commitment: $300,000,000 ABN AMRO Bank N.V.
By: /s/ John W. Deegan
-----------------------------------
Its: Vice President
-------------------------------
By: /s/ Pauline McHugh
-----------------------------------
Its: Vice President
-------------------------------
Commitment: $250,000,000 BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ Ambrish Thanawala
-----------------------------------
Its: Vice President
-------------------------------
Commitment: $250,000,000 BANKERS TRUST COMPANY
By: /s/ Gregory P. Shefren
-----------------------------------
Its: Vice President
-------------------------------
Commitment: $250,000,000 NATIONSBANK N.A.
By: /s/ Thomas J. Kane
-----------------------------------
Its: Vice President
-------------------------------
BANCAMERICA ROBERTSON STEPHENS
By: /s/ Annette Hanami
-----------------------------------
Its: Vice President
-------------------------------
NATIONSBANC MONTGOMERY SECURITIES, INC.
By: /s/ Charles F. Wallach
-----------------------------------
Its: Vice President
-------------------------------
BT ALEX BROWN INCORPORATED
By: /s/ Christopher Kinslow
-----------------------------------
Its: Vice President
-------------------------------
Accepted and Agreed to
this 22nd day of December, 1997
W. R. GRACE & CO.
By: /s/ Paul McMahon
-----------------------------------
Its: Vice President and Treasurer
-------------------------------
By:
-----------------------------------
Its:
-------------------------------
EXHIBIT A
W. R. GRACE & CO.
SUMMARY OF TERMS AND CONDITIONS
$1,600,000,000 GLOBAL REVOLVING CREDIT FACILITIES
TRANSACTION
SUMMARY: W. R. Grace & Co. ("W. R. Grace" or the "Company"),
Cryovac Acquisition Corp. ("Mergco", a subsidiary of
W. R. Grace) and Sealed Air Corporation ("SAC") have
entered into that certain Agreement and Plan of
Merger (the "Merger Agreement") dated as of August
14, 1997 attached to which is a form of
Distribution Agreement (the "Distribution
Agreement") (the transaction and events described
in the Merger Agreement and the Distribution
Agreement being herein referred to as the
"Transaction"). W. R. Grace and Cryovac, Inc.
("Cryovac"), the subsidiary to which W. R. Grace's
packaging business (the "Grace Packaging Business")
has been or will be contributed, will borrow a
portion of the facilities, the proceeds of which
will be transferred (the "Grace Chemicals
Contribution") to Grace Specialty Chemicals, Inc.
("Grace Chemicals", the subsidiary of W. R. Grace
that will hold, directly or indirectly, W. R.
Grace's non-packaging business), or a subsidiary
thereof, as provided in the Distribution Agreement.
W. R. Grace will then be recapitalized, and, among
other things, will distribute the shares of Grace
Chemicals to its shareholders. Immediately
thereafter Mergco will merge (the "Merger") into
Sealed Air Corporation ("SAC"). SAC will be the
surviving corporation of such merger and will
become a wholly-owned subsidiary of W. R. Grace,
and W. R. Grace will change its name to Sealed
Air Corporation ("New Sealed Air").
BORROWERS: W. R. Grace and Cryovac. After completion of the
Merger W.R. Grace may, without further approval,
cause SAC to be a Borrower.
At the Company's option, additional other
wholly-owned direct or indirect subsidiaries
(other than Grace Chemicals and its
subsidiaries) may be direct borrowers
("Subsidiary Borrowers", which term also
includes Cryovac and, if SAC becomes a Borrower,
SAC) under the Facilities if such subsidiaries
are mutually acceptable to the Company and (i)
the Administrative Agent, in the case of
subsidiaries being added to the Global Revolving
Credit Facility for U.S. and Alternate Currency
Borrowings and (ii) the Administrative Agent and
the relevant Country Specific Lender, in the
case of subsidiaries being added to the Global
Revolving Credit Facility for Designated
Currency Borrowings.
CO-OBLIGORS: After completion of the Merger, at the option of New
Sealed Air, SAC may become a co-obligor with W. R.
Grace/New Sealed Air and assume joint and several
liability for all of W. R. Grace's/New Sealed Air's
obligations under the facilities.
GUARANTEE: All Borrowings will be unconditionally guaranteed by
W. R. Grace, Cryovac and all material U.S.
Subsidiaries other than Grace Chemicals and its
subsidiaries.
ADMINISTRATIVE
AGENT: ABN AMRO Bank N.V. (the "Administrative Agent").
ARRANGER: ABN AMRO Bank N.V.
DOCUMENTATION
AGENT: Bankers Trust Company
CO-SYNDICATION
AGENTS: BancAmerica Robertson Stephens and NationsBank N.A.
AGENT BANKS: ABN AMRO Bank N.V., Bank of America National Trust
and Savings Association, Bankers Trust Company and
NationsBank N.A.
CO-ARRANGERS: BancAmerica Robertson Stephens, BT Alex.Brown
Incorporated, and NationsBanc Montgomery Securities,
Inc.
GLOBAL
REVOLVING CREDIT
FACILITIES: 1) 5-year $1,000,000,000 Global Revolving Credit
Facility, with a sub-limit for U.S. Dollar
denominated Letters of Credit, to be determined,
and a swingline facility.
2) 364-day $600,000,000 Global Revolving Credit
Facility.
BORROWINGS: Borrowings will be available under either facility
as follows:
U.S. and Alternate Currency Borrowings:
Committed advances made pro rata by the Lenders
based upon their available commitments to the
Company and certain Subsidiary Borrowers who are
approved by the Administrative Agent.
Competitive bid advances in U.S. Dollars at a
fixed interest rate with maturities of 1-180
days may be requested. Bid Loans shall be
deemed to effect a pro rata utilization of the
Commitments of all Lenders under the applicable
facility and shall not reduce the successful
bidder's obligation to lend its pro rata share
of the remaining undrawn Facility. Each Lender
will represent that on the closing date no
payments by the Borrowers under the facilities
are subject to withholding taxes. Alternate
Currencies available include U.S. Dollars,
Belgian Francs, British Pounds, Dutch Guilders,
French Francs, Italian Lira, German Marks,
Swedish Krona, Norwegian Krone, Canadian
Dollars, Japanese Yen, Australian Dollars and
Spanish Pesetas, and other freely transferable
currencies approved by the Administrative Agent.
Designated Currency Borrowings: The Company
may, upon five Business Days notice to the
Administrative Agent, request that one or more
Lenders (each a "Country Specific Lender")
commit, subject to a sub-limit, to make foreign
currency loans to the Company or a Subsidiary
Borrower directly out of such Lenders' local
branch or affiliate. A Lender may, but shall
have no obligation to, make such a commitment.
While in effect, any Designated Currency
commitment by a Lender shall reduce dollar for
dollar such Lender's available commitment. The
relevant Borrower and Country Specific Lender
shall agree, among other things, on the
maturity, pricing and borrowing procedures
applicable to loans made by such Country
Specific Lender.
Swingline Loans. The Company may request the
Administrative Agent (in such capacity, the
"Swingline Lender") to make Swingline Loans
available to the Company in an outstanding amount
not to exceed $20,000,000. All Swingline Loans will
be made and maintained as Base Rate Loans or at
other short term fixed rates as agreed between the
Company and the Swingline Lender. Each Lender will
be unconditionally obligated to reimburse the
Swingline Lender for its pro rata share of all
Swingline Loans made by the Swingline Lender.
LETTERS OF CREDIT: The Administrative Agent will act as the Letter of
Credit Issuer (the "Issuer"). Each Lender shall be
unconditionally obligated to reimburse the Issuer
for its pro rata share of any drawing paid by the
Issuer under any Letter of Credit and, accordingly,
the Letters of Credit shall be deemed to effect a
pro rata utilization of the Commitments of all
Lenders under the applicable facility.
APPLICABLE
MARGIN: With respect to committed borrowings, the lower of
the rates as set forth on the attached Pricing
Grids. Letter of Credit fees shall be equal to the
applicable LIBOR margin. The Applicable Margin and
Letter of Credit fees will be established at
closing to be effective until the delivery of the
first quarter 1998 financial statements.
FACILITY FEE: The lower of the rates as set forth on the attached
Pricing Grids, calculated on a 365/366 day basis.
UTILIZATION FEE: As set forth on the attached Pricing Grid.
USE OF PROCEEDS: The initial borrowings under the facilities will be
made by W. R. Grace and Cryovac, the proceeds of
which will be used to fund the Grace Chemicals
Contribution in an amount determined as provided in
the Distribution Agreement. Borrowings shall also
be available (i) to refinance outstanding
indebtedness, (ii) to provide working capital,
including the issuance of letters of credit, and
(iii) for other general corporate purposes.
AMORTIZATION: Bullet.
LENDERS: A syndicate of financial institutions acceptable to
the Arranger, Co-Arrangers and the Company.
AVAILABLE
COMMITMENT: Before maturity, the full amount of each Credit
Facility may be borrowed, repaid, and reborrowed,
subject to satisfaction of conditions precedent,
and Company's covenant compliance and notice
requirements. Letters of Credit must expire no
later than the maturity of the 5-Year $1,000,000,000
Global Revolving Credit Facility.
OPTIONAL
COMMITMENT
REDUCTIONS: Upon notice, the Company may irrevocably either
terminate the Credit Facilities or permanently
reduce the Credit Facilities in minimum multiples of
$10,000,000.
OPTIONAL
PREPAYMENTS: Any Borrower may make optional prepayments in
amounts of $2,000,000 or greater, subject to
payment of breakage costs and funding losses. Base
rate drawings may be repaid with same day notice.
U.S. DOLLAR
EQUIVALENT: The Administrative Agent shall determine the U.S.
Dollar equivalent of each loan denominated in a
foreign currency on the first day of the Interest
Period, and as adjusted from time to time
thereafter, applicable to such foreign currency
loan.
INTEREST RATES: Outstanding amounts shall accrue interest according
to the following pricing alternatives, as selected
by the Borrower:
A) Base Rate Option: Interest shall be at the Base
Rate, defined as the higher of (i) the
Administrative Agent's prime rate for U.S.
Dollar loans and (ii) the overnight federal
funds rate plus 50 basis points. Interest shall
be paid quarterly in arrears and shall be
calculated on the basis of the actual number of
days elapsed in a year of 365/366 days.
B) Eurocurrency Option: Interest shall be determined
for periods ("Interest Periods") of 1, 2, 3 or 6
months (as selected by the Borrower) and shall
be at a per annum rate equal to the London
Interbank Offered Rate ("LIBOR") offered to the
Administrative Agent for corresponding deposits
of the relevant currency, plus the Applicable
Margin. Interest shall be paid at the end of
each Interest Period or quarterly, whichever is
earlier and shall be calculated on the basis of
the actual number of days elapsed in a year of
360 days (except that any Loan denominated in
Pounds Sterling and other Designated Currencies
customarily computed on a 365/366 day basis in
accordance with customary Eurocurrency market
practice shall be computed on a 365/366 day
basis).
C) Loans by Country Specific Lenders: The Company
or the relevant Subsidiary Borrower and Country
Specific Lender shall agree on the appropriate
formula and margin for calculating and paying
interest (including a default rate of interest)
on loans made by such Country Specific Lender to
the Company or such Subsidiary Borrower.
D) Bid Rate Loans: Interest at a fixed rate shall be
determined pursuant to a competitive bid
Facility. Fixed rate maturities of 1-180 days
may be requested.
E) Default Interest: Amounts past due shall bear
interest at 2% per annum in excess of the
relevant rate, provided that a Country Specific
Lender and the Company or the relevant
Subsidiary Borrower may designate a different
default rate to apply to loans made by such
Country Specific Lender.
CONDITIONS
PRECEDENT: Customary for transactions of this type, including,
but not limited to:
Closing:
(i) Execution of loan documents and other
documentation related to the Transaction and
requisite shareholder approvals.
(ii) Legal opinions.
(iii) Corporate documents; Proceedings; Officer's
Certificates.
(iv) Satisfactory completion of the Agent Banks' due
diligence review of the Grace Packaging
Business and SAC.
(v) No material adverse change in financial
condition, business, and results of operations
of the Grace Packaging Business, considered as
a whole, or the Grace Packaging Business and
SAC, considered as a whole.
(vi) No material litigation relating to the Grace
Packaging Business other than as previously
disclosed.
(vii) Payment of fees.
Utilizations:
(i) No Default or Potential Default.
(ii) Accuracy of Representations and Warranties.
(iii) Timely delivery of appropriate drawing notice.
DRAWINGS: A. U. S. Dollar Base Rate Drawings: In minimum
amounts of $2,000,000 and incremental multiples
of $500,000, to be determined, with same day
notice to the Administrative Agent, such notice
to be received by the Administrative Agent
prior to 12:00 noon (New York time).
B. U.S. Dollar LIBOR Drawings: For Interest
Periods of 1, 2, 3 and 6 months and in minimum
amounts of $2,000,000 and incremental multiples
of $500,000, upon three Business Days prior
written notice to the Administrative Agent.
C. Alternate Currency LIBOR Drawings: For Interest
Periods of 1, 2, 3 and 6 months and in minimum
amounts approximately equivalent to $2,000,000
and incremental multiples of 500,000 units of
the relevant currency, upon four Business Days
prior written notice to the Administrative
Agent.
D. Loans by Country Specific Lenders: As agreed
between the relevant Country Specific Lender and
the Company or a Subsidiary Borrower in minimum
amounts approximately equivalent to $2.000,000
and incremental multiples of 500,000 units of
the relevant currency.
SECURITY: Unsecured.
REPRESENTATIONS
& WARRANTIES: Usual and customary for facilities of this type for
similar borrowers including (provided that the
following shall not apply to Grace Chemicals and its
subsidiaries):
1. Corporate Status.
2. Corporate Power and Authority.
3. No Violation.
4. Governmental Approvals.
5. Financial Statements; Financial Condition;
Undisclosed Liabilities; etc.
6. Litigation.
7. True and Complete Disclosure.
8. Use of Proceeds; Margin Requirements.
9. Tax Return and Payments.
10. Compliance with ERISA.
11. Subsidiaries.
12. Compliance with Statutes, etc.
13. Environmental Matters.
14. Investment Company Act.
15. Public Utility Holding Company Act.
16. Patents, Licenses, Franchises and Formulas.
17. Properties.
18. Labor Relations.
19. Indebtedness.
COVENANTS: Usual and customary for transactions of this type
for similar borrowers, including the following
(provided that the following shall not apply to
Grace Chemicals and its subsidiaries):
Affirmative Covenants:
1. Information Covenants.
2. Books, Records and Inspections.
3. Maintenance of Property, Insurance.
4. Corporate Franchises.
5. Compliance with Statutes.
6. ERISA.
7. Performance of Obligations.
8. Payment of Taxes.
9. Consummation of Merger within 5 days of first
utilization.
Negative Covenants:
I. Liens.
2. Consolidation, Merger, Disposition of Assets.
etc. (other than as contemplated by the Merger
Agreement)
3. Subsidiary Indebtedness.
4. Limitation on Asset Transfers to Foreign
Subsidiaries.
5. Business.
FINANCIAL
COVENANTS: Financial covenants to be calculated on a rolling
four quarter basis, with levels to be determined:
1. Minimum EBITDA/Interest plus dividends on
Preferred Stock.
2. Maximum Total Debt/EBITDA.
EVENTS OF
DEFAULT: Usual and customary for transactions of this type
for similar borrowers, including, but not limited
to, the following for the Company and its
subsidiaries (other than Grace Chemicals and its
subsidiaries):
1. Failure to pay any interest or fees payable
under the Credit Agreement with two day grace
period or failure to pay principal when due.
2. Failure to meet covenants, with appropriate
grace periods where applicable.
3. Representations or warranties false in any
material respect when made.
4. Cross default to other material indebtedness.
5. Insolvency and bankruptcy.
6. Judgments.
7. Validity of Guaranty.
8. Change of Control (other than as a result of the
Transaction).
9. ERISA.
CAPITAL ADEQUACY &
YIELD PROTECTION: The Definitive Credit Documentation shall contain
yield protection provisions appropriate for
transactions of this type, including, but not
limited to, indemnity provisions relating to
increased reserve requirements, changes in law or
circumstances, possible future illegality of
interest options, "gross up" for taxes (other than
on net income), possible inability to determine
market rate, capital adequacy, interest period
indemnity and breakage, and increased costs,
redeployment costs, and consequential loss.
INDEMNIFICATION: Borrowers shall indemnify the Administrative Agent
and the Lenders, and their respective affiliates
for all reasonable costs, liabilities and expenses
arising out of the Credit Facilities, except to the
extent caused by gross negligence or willful
misconduct of the party seeking indemnity.
Borrowers shall also indemnify Lenders from any
loss, cost or expense incurred as a result of a
prepayment for any reason (including, without
limitation, prepayments resulting from the
occurrence of an event of default) on any day other
than the last day of the applicable Interest
Period, failure to borrow a loan after giving
notice, or failure to prepay a loan after giving
notice of its intent to make such a prepayment.
The Lenders shall indemnify the Administrative Agent
for any loss, cost or expense the Administrative
Agent may incur which arises out of the
transactions described herein and which is not
directly attributable to the gross negligence or
willful misconduct of the Administrative Agent.
ASSIGNMENTS &
PARTICIPATIONS: The Borrowers may not assign any of their rights or
obligations under the Credit Agreement. Assignments
of commitments by Lenders are subject to the
consents of the Company and the Administrative
Agent, such consents not to be unreasonably
withheld, in minimum amounts of $10,000,000.
Participations shall be without restriction,
provided that voting rights of participants shall
be limited to changes in provisions relating to
commitments, payments, interest rates, fees,
collateral, guarantees and maturity. The Company
shall authorize the Lenders to release confidential
information to prospective assignees and
participants, subject to confidentiality
undertakings.
DEFINITIONS: "EBITDA" is defined as consolidated net earnings
before interest expense, depreciation, amortization,
income tax expense, any non-cash contributions
or accruals to deferred profit sharing and
deferred compensation plans, any non-cash gains
or losses on asset sales and any non-cash gains
or losses resulting from the cumulative effect
of changes in accounting principles. EBITDA
will be calculated on a rolling four quarter
basis. EBITDA shall include any acquisitions
which have been owned less than one year on a
pro-forma basis, as if they had been owned for
the entire applicable Test Period.
Calculations of financial covenants which require a
rolling four quarter period shall be modified to
adjust for calculation periods as a result of the
Merger.
GOVERNING LAW: State of New York.
PRICING GRID
Pricing based on this grid shall be determined by reference to the Company's
senior unsecured long-term debt ratings as issued by S & P and Moody's. (All
spreads and fees in basis points)
364 DAY FACILITY:
- -------------------------------------------------------------------------
S&P/Moody's
Rating LIBOR Margin Facility Fee Drawn Cost*
- -------------------------------------------------------------------------
A-/A3 or Higher 19.0 6.0 25.0
- -------------------------------------------------------------------------
BBB+/Baa1 22.5 7.5 30.0
- -------------------------------------------------------------------------
BBB/Baa2 28.5 9.0 37.5
- -------------------------------------------------------------------------
BBB- or Baa3 32.5 12.5 45.0
- -------------------------------------------------------------------------
BB+/Ba1 45.0 17.5 62.5
- -------------------------------------------------------------------------
BB/Ba2 or lower 55.0 20.0 75.0
- -------------------------------------------------------------------------
5 YEAR FACILITY:
- -------------------------------------------------------------------------
S&P/Moody's LIBOR Margin Facility Fee Drawn Cost*
Rating
- -------------------------------------------------------------------------
A-/A3 or Higher 17.0 8.0 25.0
- -------------------------------------------------------------------------
BBB+/Baa1 20.5 9.5 30.0
- -------------------------------------------------------------------------
BBB/Baa2 25.0 12.5 37.5
- -------------------------------------------------------------------------
BBB- or Baa3 30.0 15.0 45.0
- -------------------------------------------------------------------------
BB+/Ba1 42.5 20.0 62.5
- -------------------------------------------------------------------------
BB/Ba2 or lower 50.0 25.0 75.0
- -------------------------------------------------------------------------
- ------------
* The LIBOR Margin is calculated on the basis of a 360-day year. The Facility
Fee is calculated on a basis of 365/366-day year.
If the ratings as issued by S& P and Moody's differ by one rating category, the
higher rating shall determine pricing.
If the ratings as issued by S& P and Moody's differ by two rating categories,
the rating which falls in the middle of the two published ratings shall
determine pricing.
Utilization Fee: An additional utilization fee of 5 basis points will be added
to the LIBOR Margin at any time that outstanding amounts under the Credit
Facilities are greater than $800,000,000.
PRICING GRID
Pricing based on this grid shall be determined by reference to a Total
Debt/EBITDA ratio for the Company calculated on rolling four quarter basis:
364 DAY FACILITY:
- -------------------------------------------------------------------------
Total Debt/EBITDA LIBOR Margin Facility Fee Drawn/Cost*
- -------------------------------------------------------------------------
less than 1.00X 19.0 6.0 25.0
- --------------------------------------------------------------------------
less than 1.50X 22.5 7.5 30.0
- --------------------------------------------------------------------------
less than 2.00X 28.5 9.0 37.5
- --------------------------------------------------------------------------
less than 2.50X 32.5 12.5 45.0
- --------------------------------------------------------------------------
less than 3.00X 45.0 17.5 62.5
- --------------------------------------------------------------------------
greater than 3.00X 55.0 20.0 75.0
- --------------------------------------------------------------------------
5 YEAR FACILITY
- -------------------------------------------------------------------------
Total Debt/EBITDA LIBOR Margin Facility Fee Drawn/Cost*
- -------------------------------------------------------------------------
less than 1.00X 17.0 8.0 25.0
- ----------------------------------------------------------------------------
less than 1.50X 20.5 9.5 30.0
- ----------------------------------------------------------------------------
less than 2.00X 25.0 12.5 37.5
- ----------------------------------------------------------------------------
less than 2.50X 30.0 15.0 45.0
- ----------------------------------------------------------------------------
less than 3.00X 42.5 20.0 62.5
- ----------------------------------------------------------------------------
greater than 3.00X 50.0 25.0 75.0
- ----------------------------------------------------------------------------
- ------------
* The LIBOR Margin is calculated on the basis of a 360-day year. The Facility
Fee is calculated on a basis of 365/366-day year.
Utilization Fee: An additional utilization fee of 5 basis points will be added
to the LIBOR Margin at any time that outstanding amounts under the Credit
Facilities are greater than $800,000,000.
EXHIBIT 5.1
[Wachtell, Lipton, Rosen & Katz Letterhead]
February 13, 1998
W. R. Grace & Co.
One Town Center Road
Boca Raton, Florida 33486
Re: Registration Statement on Form S-4 of
W. R. Grace & Co.
Ladies and Gentlemen:
We have acted as special counsel to W. R. Grace & Co., a
Delaware corporation ("Grace"), in connection with the above captioned
Registration Statement on Form S-4 (the "Registration Statement") being filed
today with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "1933 Act"), with respect to: (1) the
shares of common stock, par value $.10 per share, of Grace ("New Sealed Air
Common Stock") and the shares of convertible preferred stock, par value $.10
per share, of Grace (the "New Sealed Air Preferred Stock," together with the
New Sealed Air Common Stock, the "New Sealed Air Shares") proposed to be
issued in connection with the recapitalization of Grace (the
"Recapitalization") upon the terms and subject to the conditions of the Form
of Distribution Agreement (the "Distribution Agreement"), to be entered into
prior to the effective time of the Merger (as defined herein), filed as
Exhibit 2.2 to the Registration Statement, by and among Grace, Packco
Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of
Grace ("Packco") and Sealed Air Corporation, a Delaware corporation ("Sealed
Air"); and (2) the New Sealed Air Common Stock proposed to be issued in the
merger (the "Merger") of Packco with and into Sealed Air, upon the terms and
subject to the conditions of the Agreement and Plan of Merger (the "Merger
Agreement"), dated as of August 14, 1997, filed as Exhibit 2.1 to the
Registration Statement, by and among Grace, Sealed Air and Packco.
In connection with this opinion, we have examined the Amended
and Restated Certificate of Incorporation and Amended and Restated By-Laws of
Grace in the respective forms contemplated to be in effect at the time that
the New Sealed Air Shares are issued, the Registration Statement and the
exhibits thereto, and we have examined originals or copies, certified or
otherwise identified to our satisfaction, of such corporate records,
agreements, certificates of public officials and of officers of Grace and
other instruments, and such matters of law and fact as we have deemed
necessary to render the opinion contained herein.
In giving the opinion contained herein, we have with your
approval relied upon representations of officers of Grace and certificates of
public officials with respect to the accuracy of the material factual matters
addressed by such representations and certificates. We have, with your
approval, assumed the genuineness of all signatures or instruments submitted
to us, and the conformity of certified copies submitted to us with the
original documents to which such certified copies relate.
We are members of the Bar of the State of New York and we
express no opinion as to the laws of any jurisdiction other than the federal
laws of the United States, the General Corporation Law of the State of
Delaware and the laws of the State of New York.
Based upon and subject to the foregoing, and assuming (i) the
certificates representing the New Sealed Air Shares will be manually signed by
one of the authorized officers of First Chicago Trust Company of New York, as
transfer agent and registrar for the New Sealed Air Shares (the "Transfer
Agent and Registrar"), and registered by the Transfer Agent and Registrar,
(ii) the consummation of the Merger and Recapitalization as contemplated by
the Merger Agreement and Distribution Agreement, respectively, and (iii) that
the shares of Sealed Air common stock to be exchanged for New Sealed Air
Common Stock in the Merger and that the shares of Grace common stock to be
exchanged for New Sealed Air Shares in the Recapitalization have been validly
issued, fully paid and non-assessable, we are of the opinion that, upon the
amendment of the Amended and Restated Certificate of Incorporation of Grace to
authorize a sufficient number of shares of the common and preferred stock of
Grace, and upon the Merger having been approved by the stockholders of Grace
and becoming effective pursuant to the General Corporation Law of the State of
Delaware, all as described in the Registration Statement and any amendments
thereto, the New Sealed Air Shares will be duly authorized and, when issued in
the manner described in the Registration Statement and any amendments thereto,
will be validly issued, fully paid, and non-assessable.
We hereby consent (i) to the filing of this opinion with the
Commission as an exhibit to the Registration Statement and (ii) to the
statement made in reference to our firm under the caption "LEGAL MATTERS" in
the Joint Proxy Statement/Prospectus which is made a part of the Registration
Statement. We do not hereby admit by giving this consent that we are in the
category of persons whose consent is required under Section 7 of the 1933 Act.
Very truly yours,
/s/ Wachtell, Lipton, Rosen & Katz
- ----------------------------------
Wachtell, Lipton, Rosen & Katz
Exhibit 8.1
Form of Sealed Air Tax Opinion
_____________, 1997
Agreement and Plan of Merger
Dated as of August 14, 1997
Among W.R. Grace & Co., Packco Acquisition Corp.
and Sealed Air Corporation
Dear Ladies and Gentleman:
We have acted as counsel for Sealed Air Corporation, a Delaware
corporation ("Sealed Air"), in connection with the proposed merger (the
"Merger") of Packco Acquisition Corp., a Delaware corporation and a wholly-
owned subsidiary of W.R. Grace & Co., a Delaware corporation ("Grace"), with
and into Sealed Air pursuant to an agreement and Plan of Merger dated as of
August 14, 1997 (the "Merger Agreement"), among Sealed Air, Grace and Packco
Acquisition Corp. Under the Merger Agreement each issued and outstanding
share of Sealed Air Common Shares not owned directly or indirectly by Sealed
Air or Grace will be converted into the right to receive Newco Common Shares.
In that connection, you have requested our opinion regarding
certain Federal income tax consequences of the Merger. In providing our
opinion, we have examined the Merger Agreement, the Joint Proxy Statement to
be dated as of [ ], and such other documents and corporate
records as we have deemed necessary or appropriate for purposes of our
opinion. In addition, we have assumed that (i) the Merger will be consummated
in accordance with the provisions of the Merger Agreement and (ii) the
representations made to us by W.R. Grace & Co.-Conn. ("Grace-Conn.") and
Sealed Air in their respective letters to us dated ________, 1997, and
delivered to us for purposes of this opinion are accurate and complete.
Based upon the foregoing, in our opinion, the Merger will be
treated for Federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code") and Grace and Sealed Air will each be a party to that reorganization
within the meaning of Section 368(b) of the Code. Accordingly, no gain or
loss will be recognized by the stockholders of Sealed Air upon their exchange
of Sealed Air Common Shares for Newco Common Shares under Section 354 of the
Code.
The opinions expressed herein are based upon existing statutory,
regulatory and judicial authority, any of which may be changed at any time with
retroactive effect. In addition, our opinions are based solely on the
documents that we have examined, the additional information that we have
obtained, and the statements contained in the letters from Grace-Conn. and
Sealed Air referred to above, which we have assumed will be true as of the
effective time of the Merger. Our opinions cannot be relied upon if any of
the facts pertinent to the Federal income tax treatment of the Merger stated
in such documents or in such additional information is, or later becomes,
inaccurate, or if any of the statements contained in the letters from
Grace-Conn. or Sealed Air referred to above are, or later become, inaccurate.
Finally, our opinions are limited to the tax matters specifically covered
hereby, and we have not been asked to address, nor have we addressed, any
other tax consequences of the Merger or any other transactions.
We are furnishing this opinion solely to Sealed Air Corporation
in connection with the transactions contemplated by the agreements, and it is
not to be relied upon, used, circulated, quoted, or otherwise referred to for
any other purpose or by any other party without our consent.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement. In addition, we consent to the reference to us
under the captions "The Reorganization and Merger," "The Distribution and
Merger Agreement" and "Legal Matters" in the Proxy Statement/Prospectus
constituting a part of the Registration Statement.
Very truly yours,
Davis Polk & Wardwell
[LETTERHEAD OF WACHTELL, LIPTON, ROSEN & KATZ]
______________, 19__
W. R. Grace & Co.
W. R. Grace & Co.-Conn.
One Town Center Road
Boca Raton, Florida 33486-1010
Ladies and Gentlemen:
We have acted as special counsel to W. R. Grace & Co.
("Grace"), a Delaware corporation, in connection with:
A. the distributions (the "Distributions") (a) to Grace by W.
R. Grace & Co.-Conn. ("Grace-Conn."), a Connecticut corporation and a
wholly-owned subsidiary of Grace, of all of the outstanding stock of
Cryovac, Inc. ("Packco"), a Delaware corporation and a wholly owned
subsidiary of Grace-Conn. following the contribution (the "Packco
Contribution") of the assets and liabilities of Grace-Conn.'s packaging
business to Packco, and (b) by Grace pro rata to the holders of its
common stock of all the issued and outstanding common stock of Grace
Specialty Chemicals, Inc., a Delaware corporation ("New Grace") (the
"Grace Distribution"), following the contribution (the "New Grace
Contribution") by Grace to New Grace of all of the outstanding stock of
Grace-Conn.; and
B. the merger of Packco Acquisition Corp. ("Merger Sub"), a
Delaware corporation and a wholly-owned subsidiary of Grace, with and
into Sealed Air Corporation, a Delaware Corporation ("Sealed Air") (the
"Merger");and
(iii) the recapitalization of Grace common stock
immediately prior to the Merger;
all of the foregoing upon the terms and conditions as set forth in the
Distribution Agreement by and among Grace, Grace-Conn. and New Grace dated as of
_________________ (the "Distribution Agreement"), and the Agreement and Plan of
Merger by and among Grace, Merger Sub and Sealed Air dated as of August 14, 1997
(the "Merger Agreement", and together with the Distribution Agreement, the
"Agreements"). Reference is hereby made to Section 7.1(c) of the Merger
Agreement.
Any capitalized term used and not defined herein has the
meaning given to it in the Tax Sharing Agreement by and among Grace, Grace-Conn.
and Sealed Air dated as of ______________ (the "TSA").
In this connection, we have reviewed: (i) the Cer tificate of
Incorporation and By-laws of each of Grace, Grace Conn., New Grace, Packco, and
Merger Sub, as currently in effect and as they are proposed to be amended prior
to the Distribution; (ii) the Agreements; (iii) certain resolutions adopted by
the Board of Directors of each of Grace, New Grace, Grace-Conn. and Sealed Air;
and (iv) such other documents, records and papers as we have deemed necessary or
appropriate in order to give the opinions set forth herein. For purposes of the
opinion set forth below, we have relied, with the consent of Grace and
Grace-Conn. and with the consent of Sealed Air, upon the accuracy and
completeness of the statements and representations (which statements and
representations we have neither investigated nor verified) contained,
respectively, in the Tax Matters Certificates of the officers of Grace,
Grace-Conn., Packco and Sealed Air (copies of which are attached hereto and
which are incorporated herein by reference), which certificates we have assumed
will be complete and accurate as of the Effective Time. We have assumed the
authenticity of all documents submitted to us as originals and the conformity to
original documents of all documents submitted to us as copies.
We have also assumed that the transactions contemplated by the
Agreements will be consummated in accordance with the provisions of the
Agreements and the exhibits thereto and that the Merger will qualify as a
statutory merger under the applicable laws of the State of Delaware. We have
also assumed that no "5-percent shareholder", within the meaning of Section
1.367(e)-1T of the Treasury Regulations, will receive shares of New Grace in the
Distribution of New Grace by Grace.
Based upon such examination and review and subject to the
foregoing, it is our opinion that, under presently applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), and the rules and
regulations promulgated thereunder:
1. Each of the Distributions will be a transaction described
in Section 355(a), and the Packco and New Grace Contributions will each be a
reorganization described in Section 368(a)(1)(D) of the Code, and accordingly:
(a) No gain or loss will be recognized by the
shareholders of Grace solely by reason of the Distributions; and
(b) Pursuant to Section 355(c) and Section
361(c), no gain or loss will be recognized by either Grace or Grace-Conn.
pursuant to Section 311 of the Code solely by reason of the Distributions, the
New Grace Contribution or the Packco Contribution.
2. No gain or loss will be recognized by Grace or its
shareholders, solely as a result of Grace's issuance of preferred stock pursuant
to the recapitalization of Grace immediately prior to the Merger.
We render no opinion as to the federal income tax consequences
to the shareholders of Grace of the recapitalization of Grace immediately prior
to the Grace Merger nor as to the consequences of the Distributions, the New
Grace Contribution and the Merger under any other provisions of the Code
(including Section 482) or state, local or foreign income tax laws.
This opinion may not be applicable to Grace shareholders who
received their Grace Common Stock pursuant to the exercise of employee stock
options or otherwise as compensation or who are not citizens or residents of the
United States.
We are furnishing this opinion solely in connection with the
transactions contemplated by the Agreements, and it is not to be relied upon,
used, circulated, quoted, or otherwise referred to for any other purpose or by
any other party without our consent.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement on Form S-4, including any post-effective
amendments thereof, of Grace relating to the Merger. In addition, we consent to
the reference to us under the captions "The Reorganization and Merger," "The
Distribution and Merger Agreements" and "Legal Matters" in the Joint Proxy
Statement/Prospectus, dated as of February __, 1998. In giving such consent, we
do not admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
WACHTELL, LIPTON, ROSEN & KATZ
EXHIBIT 23.1
CONSENT OF PRICE WATERHOUSE LLP
We hereby consent to the use in the Joint Proxy Statement/Prospectus
constituting part of this Registration Statement on Form S-4 of W. R.
Grace & Co. of our report dated November 3, 1997 relating to the Special-
Purpose Combined Financial Statements of W. R. Grace & Co. and its
packaging business, which appears in such Joint Proxy Statement/Prospectus.
We also consent to the references to us under the headings "Experts" and
"Grace Packaging Selected Special-Purpose Combined Financial Data" in such
Joint Proxy Statement/Prospectus. However, it should be noted that Price
Waterhouse LLP has not prepared or certified such "Grace Packaging Selected
Special-Purpose Combined Financial Data."
/s/ Price Waterhouse LLP
- ------------------------
PRICE WATERHOUSE LLP
Fort Lauderdale, Florida
February 12, 1998
CONSENT OF PRICE WATERHOUSE LLP
We hereby consent to the incorporation by reference in the Joint Proxy
Statement/Prospectus constituting part of this Registration Statement on Form
S-4 of W. R. Grace & Co. of our report dated February 3, 1997 appearing on
page F-3 of W. R. Grace & Co.'s Annual Report on Form 10-K for the year ended
December 31, 1996. We also consent to the incorporation by reference of our
report on the Financial Statement Schedule, which appears on page F-2 of such
Annual Report on Form 10-K.
/s/ Price Waterhouse LLP
- ------------------------
PRICE WATERHOUSE LLP
Fort Lauderdale, Florida
February 12, 1998
Exhibit 23.2
Consent of KPMG Peat Marwick LLP
We consent to the use of our reports dated January 20, 1997 on the consolidated
financial statements and related schedule of Sealed Air Corporation and
subsidiaries as of December 31, 1996 and 1995, and for each of the years in the
three-year period ended December 31, 1996 incorporated by reference in the
Joint Proxy Statement/Prospectus constituting part of this registration
statement and to the reference to our firm under the heading "Experts" in such
Joint Proxy Statement/Prospectus.
/s/ KPMG Peat Marwick LLP
- ----------------------------
KPMG Peat Marwick LLP
Short Hills, New Jersey
February 13, 1998
EXHIBIT 24.1
FORM OF POWER OF ATTORNEY
The undersigned hereby appoints ROBERT H. BEBER, LARRY
ELLBERGER and ROBERT B. LAMM as his/her true and lawful attorneys-in-
fact for the purpose of signing a registration statement under the Securities
Act of 1933, and all amendments thereto, to be filed with the Securities and
Exchange Commission with respect to the issuance of securities of W.R. Grace &
Co., a Delaware corporation, in connection with a transaction between such
corporation and Sealed Air Corporation. Each of such attorneys-in-fact is
appointed with full power to act without the other.
----------------------------
(Signature)
-----------------------------
(Printed Name)
Dated:
--------------------
Exhibit 99.1
FORM OF SEALED AIR CORPORATION PROXY
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
For the Special Meeting of Stockholders of Sealed Air Corporation to be
held at 11:00 a.m. local time on March 23, 1998 at Saddle Brook Marriott, Garden
State Parkway at I-80, Saddle Brook, New Jersey 07663.
The undersigned appoints T.J. Dermot Dunphy, William V. Hickey and H.
Katherine White, or a majority of them as shall act (or if only one shall act,
then that one) (the "Proxy Committee"), proxies with power of substitution to
vote all the common stock of Sealed Air Corporation registered in the name of
the undersigned at the Special Meeting of the Stockholders of Sealed Air
Corporation to be held on March 23, 1998 and at any adjournments. The Proxy
Committee is directed to vote as indicated on the reverse side.
Change of address/comments:
-----------------------------
-----------------------------
-----------------------------
(If you have written in the
above space, please mark the
corresponding box on the
reverse side.)
PLEASE MARK, DATE AND SIGN YOUR PROXY ON THE REVERSE
SIDE AND MAIL IN THE ENCLOSED ENVELOPE. NO POSTAGE IS
REQUIRED. THE PROXY COMMITTEE CANNOT VOTE YOUR
SHARES UNLESS YOU SIGN AND RETURN THIS CARD. THIS PROXY
WILL BE VOTED AS INDICATED ON THE REVERSE SIDE.
Please let us know if you plan to attend the Special Meeting:
I plan to attend |_| I do not plan to attend |_|
SEE REVERSE
SIDE
| X | Please mark your votes as in this example.
---
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1. IF NO CHOICE IS
SPECIFIED, THIS PROXY WHEN PROPERLY SIGNED AND RETURNED WILL BE VOTED FOR
PROPOSAL 1. PLEASE DATE AND SIGN AND RETURN PROMPTLY.
1. Adoption and approval of the Agreement and FOR AGAINST ABSTAIN
Plan of Merger dated as of August 14, 1997,
among W. R. Grace & Co., Sealed Air | | | | | |
Corporation and a wholly owned subsidiary of --- --- ---
W. R. Grace & Co., and the agreements that
are exhibits thereto, as supplemented or
modified from time to time.
Please mark this box if you have noted a change of address or any
comments in the space on the reverse side of this card. | |
---
The signer hereby revokes all proxies previously given by the signer to
vote at the Special Meeting and any adjournments and acknowledges receipt
of the Joint Proxy Statement/Prospectus dated February 13, 1998.
SIGNATURE(S)_________________ DATE_______________________
NOTE: Please sign EXACTLY as name appears on reverse side. When signing
on behalf of a corporation, estate, trust or another stockholder, please
give its full name and state your full title or capacity or otherwise
indicate that you are authorized to sign.
Exhibit 99.2
FORM OF GRACE PROXY
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
For the Special Meeting of Stockholders of W. R. Grace & Co., to be
held at 10:00 A.M. on March 20, 1998, at Grace's headquarters at One Town Center
Road, Boca Raton, Florida.
The undersigned hereby appoints Larry Ellberger and Robert B. Lamm as
agents to act and vote on behalf of the undersigned at the Special Meeting of
Stockholders of W. R. Grace & Co. to be held on March 20, 1998, and any
adjournments or postponements. As more fully described in the Joint Proxy
Statement/Prospectus for the Special Meeting, such agents (or their substitutes)
are directed to vote as indicated on the reverse side.
PLEASE MARK, DATE AND SIGN YOUR PROXY ON THE REVERSE SIDE. PLEASE LET US KNOW
WHETHER YOU PLAN TO ATTEND THE SPECIAL MEETING.
I PLAN TO ATTEND |_| I DO NOT PLAN TO ATTEND |_|
STOCKHOLDER QUESTIONS/COMMENTS:
----------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
(SEE REVERSE SIDE)
Please mark | X |
your votes as in ---
this example
THE DIRECTORS RECOMMEND A VOTE FOR PROPOSALS 1 AND 2. IF NO CHOICE IS SPECIFIED,
THE SHARES WILL BE VOTED FOR PROPOSALS 1 AND 2. PLEASE DATE AND SIGN AND RETURN
PROMPTLY.
1. Approval and adoption of (a) the Agreement FOR AGAINST ABSTAIN
and Plan of Merger dated as of August 14,
1997 among W. R. Grace & Co., Sealed Air | | | | | |
Corporation and a wholly owned subsidiary of --- --- ---
W. R. Grace & Co., and the agreements that
are exhibits thereto, as supplemented or
modified from time to time, and (b) the
reorganization, merger and other transactions
contemplated thereby, including:
a. the spin-off of Grace Specialty Chemicals,
Inc. to Grace stockholders;
b. certain amendments to the Amended and
Restated Certificate of Incorporation of
W. R. Grace & Co.;
c. the recapitalization of Grace common
stock; and
d. the issuance of common stock to Sealed
Air stockholders in the merger.
2. Approval and adoption of the amendment to FOR AGAINST ABSTAIN
W. R. Grace & Co.'s Amended and Restated
Certificate of Incorporation repealing | | | | | |
certain provisions that require a --- --- ---
supermajority vote by Grace stockholders
to amend or repeal.
Date:___________ Signature:________________ Signature:_________________
Please sign EXACTLY as name or names appear above. When signing on behalf of a
corporation, estate, trust or another stockholder, please give its full name and
state your full title or capacity or otherwise indicate that you are authorized
to sign.
(See reverse side for comments)
[DONALDSON, LUFKIN, JENRETTE LETTERHEAD]
CONSENT OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
Board of Directors
Sealed Air Corporation
Park 80 East
Saddle Brook, New Jersey 07663
We hereby consent to the inclusion of our opinion letter, dated August
14, 1997, to the Board of Directors of Sealed Air Corporation ("Sealed Air") as
Annex C to the Joint Proxy Statement/Prospectus which forms a part of the
Registration Statement on Form S-4 relating to the merger of Sealed Air, W.R.
Grace & Co. and Packco Acquisition Corp. and to the references therein to
Donaldson, Lufkin & Jenrette Securities Corporation under the captions
"Summary-Opinion of Financial Advisor," "The Reorganization and Merger-
Background," "The Reorganization and Merger-Information and Factors Considered
by the Sealed Air Board," and "Role of Financial Advisors- Opinion of Sealed Air
Financial Advisor." In giving such consent, we do not admit that we come within
the category of persons whose consent is required under, and we do not admit
that we are "experts" for purposes of, the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
New York, New York
February 13, 1998
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Hoyt Davidson
---------------------
Name: Hoyt Davidson
Title: Managing Director
EXHIBIT 99.4
CONSENT OF
MERRILL LYNCH & CO.
We hereby consent to the use of our name and to the description of our
opinion letter, dated August 14, 1997, under the caption "Role of Financial
Advisors; Opinion of Grace Financial Advisors" in, and to the inclusion of such
opinion letter as Annex D to, the Joint Proxy Statement/Prospectus of Sealed Air
Corporation and W. R. Grace & Co., which Joint Proxy Statement/Prospectus is
part of the Registration Statement on Form S-4 of W. R. Grace & Co. By giving
such consent, we do not thereby admit that we are experts with respect to any
part of such Registration Statement within the meaning of the term "expert" as
used in, or that we come within the category of persons whose consent is
required under, the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
/s/ Merrill Lynch & Co.
MERRILL LYNCH & CO.
New York, New York
February 13, 1998
EXHIBIT 99.5
CONSENT OF
CREDIT SUISSE FIRST BOSTON CORPORATION
We hereby consent to the use of our name and to the description of our
opinion letter, dated August 14, 1997, under the caption "Role of Financial
Advisors; Opinion of Grace Financial Advisors" in, and to the inclusion of such
opinion letter as Annex D to, the Joint Proxy Statement/Prospectus of Sealed Air
Corporation and W. R. Grace & Co., which Joint Proxy Statement/Prospectus is
part of the Registration Statement on Form S-4 of W. R. Grace & Co. By giving
such consent, we do not thereby admit that we are experts with respect to any
part of such Registration Statement within the meaning of the term "expert" as
used in, or that we come within the category of persons whose consent is
required under, the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
/s/ Credit Suisse First Boston
Corporation
CREDIT SUISSE FIRST BOSTON CORPORATION
New York, New York
February 13, 1998
Exhibit 99.6
CONSENTS OF PERSONS NAMED AS FUTURE DIRECTORS
The undersigned hereby consent to the inclusion of their names in the Joint
Proxy Statement/Prospectus constituting a part of this Registration Statement on
Form S-4 as persons to become directors of W. R. Grace & Co. ("Grace"), which
will be renamed "Sealed Air Corporation", upon consummation of the merger of
Packco Acquisition Corp., a wholly-owned subsidiary of Grace, with and into
Sealed Air Corporation.
/s/ John K. Castle
- --------------------------------------- February 13, 1998
John K. Castle
/s/ Lawrence Codey
- --------------------------------------- February 13, 1998
Lawrence Codey
/s/ T.J. Dermot Dunphy
- --------------------------------------- February 13, 1998
T.J. Dermot Dunphy
/s/ Charles F. Farrell
- --------------------------------------- February 13, 1998
Charles F. Farrell
/s/ David Freeman
- --------------------------------------- February 13, 1998
David Freeman
/s/ Alan H. Miller
- --------------------------------------- February 13, 1998
Alan H. Miller
/s/ R.L. San Soucie
- --------------------------------------- February 13, 1998
R.L. San Soucie
