-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A9RNv8sahk/FNUPEmyreuRIetRzibLe3f5+Smq46X7z5r1d6uVsjwmy/2UOeiWtw Sa91KgGJ5xG3slg3vg2O/A== 0000898822-97-000788.txt : 19970819 0000898822-97-000788.hdr.sgml : 19970819 ACCESSION NUMBER: 0000898822-97-000788 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970814 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970818 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WR GRACE & CO/DE CENTRAL INDEX KEY: 0001012100 STANDARD INDUSTRIAL CLASSIFICATION: UNSUPPORTED PLASTICS FILM & SHEET [3081] IRS NUMBER: 650654331 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12139 FILM NUMBER: 97665937 BUSINESS ADDRESS: STREET 1: ONE TOWN CENTER RD CITY: BOCA RATON STATE: FL ZIP: 33486-1010 BUSINESS PHONE: 4073622000 MAIL ADDRESS: STREET 1: ONE TOWN CENTER RD CITY: BOCA RATON STATE: FL ZIP: 33486-1010 FORMER COMPANY: FORMER CONFORMED NAME: GRACE HOLDING INC DATE OF NAME CHANGE: 19960805 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): August 14, 1997 W. R. GRACE & CO. (Exact name of registrant as specified in its charter) Delaware 1-12139 65-0654331 (State or other (Commission File (IRS Employer jurisdiction of Number) Identification No.) incorporation) One Town Center Road, Boca Raton, Florida 33486-1010 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 561/362-2000 Item 5. Other Events. On August 14, 1997, W. R. Grace & Co. ("Grace") and Sealed Air Corporation ("Sealed Air") announced that they had entered into an Agreement and Plan of Merger, dated as of August 14, 1997 (the "Merger Agreement"), pursuant to which Grace's packaging business ("Packaging") would combine with Sealed Air (the "Merger") immediately following a spin-off of Grace's specialty chemicals businesses (the "Spin-off"). In connection with the Spin-off and Merger, Grace will contribute its specialty chemicals businesses to a newly formed wholly owned subsidiary of Grace ("New Grace"), which will become a publicly traded company that will retain the name "W. R. Grace & Co." Prior to the Spin-off, New Grace will receive approximately $1.2 billion from Packaging and Grace (the "Contribution"). The indebtedness incurred in connection with the Contribution will remain an obligation of New Sealed Air (as defined below) and Packaging following the Merger. In the Merger, a wholly owned subsidiary of Grace will merge with and into Sealed Air to create a new publicly owned company, to be called "Sealed Air Corporation" ("New Sealed Air"). Immediately prior to the Merger, the outstanding shares of Grace common stock, par value $.01 per share, will be recapitalized into an aggregate of approximately 40.9 million shares of common stock, par value $.10 per share, of New Sealed Air ("New Sealed Air Common Stock") and 36 million shares of a new series of convertible preferred stock, par value $.10 per share, of New Sealed Air. In the Merger, Sealed Air shareholders will receive one share of New Sealed Air Common Stock for each share of Sealed Air common stock, par value $.01 per share, held immediately prior to the Merger. On a fully-diluted basis and immeditely after the Merger, former Grace shareholders will own, in the aggregate, approximately 63% of the equity of New Sealed Air and former Sealed Air shareholders will own the remaining 37%. Grace and Sealed Air have issued a joint press release with respect to the foregoing, which is filed as an exhibit hereto. -2- The foregoing is qualified in its entirety by reference to the Merger Agreement; the Form of Distribution Agreement (the "Distribution Agreement") by and among Grace, W. R. Grace & Co.-Conn. ("Grace-Conn.") and Grace Specialty Chemicals, Inc. ("Grace Chemicals"); the Form of Benefits Allocation Agreement by and among Grace, Grace-Conn. and Grace Chemicals; and the Form of Tax Sharing Agreement by and among Grace, Grace-Conn. and Sealed Air that are filed as exhibits hereto and are incorporated herein by reference. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. Exhibits. The following exhibits are filed with this Report: Exhibit No. Description 2.1 Agreement and Plan of Merger, dated as of August 14, 1997 by and among Grace, Sealed Air and Packco Acquisition Corp. 2.2 Form of Distribution Agreement by and among Grace, Grace-Conn. and Grace Chemicals (Exhibit A to the Merger Agreement) 10.1 Form of Employee Benefits Allocation Agreement by and among Grace, Grace- Conn. and Grace Chemicals (Exhibit A to the Distribution Agreement) 10.2 Form of Tax Sharing Agreement by and among Grace, Grace-Conn. and Sealed Air (Exhibit B to the Distribution Agreement) 99.1 Press release issued by Grace and Sealed Air, dated August 14, 1997 -3- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed by the undersigned, thereunto duly au- thorized. W. R. GRACE & CO. (Registrant) By /s/ Robert B. Lamm Robert B. Lamm Vice President and Secretary Dated: August 18, 1997 -4- W. R. GRACE & CO. Current Report on Form 8-K Exhibit Index Exhibit No. Description 2.1 Agreement and Plan of Merger, dated as of August 14, 1997 by and among Grace, Sealed Air and Packco Acquisition Corp. 2.2 Form of Distribution Agreement by and among Grace, Grace-Conn. and Grace Chemicals (Exhibit A to the Merger Agreement) 10.1 Form of Employee Benefits Allocation Agreement by and among Grace, Grace- Conn. and Grace Chemicals (Exhibit A to the Distribution Agreement) 10.2 Form of Tax Sharing Agreement by and among Grace, Grace-Conn. and Sealed Air (Exhibit B to the Distribution Agreement) 99.1 Press release issued by Grace and Sealed Air, dated August 14, 1997 EX-2 2 EXHIBIT 2.1 EXHIBIT 2.1 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 -i- PAGE 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 -ii- PAGE (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 -iii- PAGE 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 -iv- PAGE 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 -v- 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 corpora- tion ("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 "Dis- tribution"). 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 Agree- ment. 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 Incorpora- tion of Grace shall be amended (the "Newco Amendment") to change the name of Grace to "Sealed Air Corporation" (such cor- poration, from and after the Effective Time, is sometimes here- inafter referred to as "Newco") and to effect the other amend- ments 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 share- holders under the Code and the Merger shall qualify as a "reor- ganization" 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 inter- ests 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 SECTION 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 contem- plated thereby, including the Contribution, the Distribution and the Recapitalization. SECTION 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. SECTION 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 fil- ing 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 "Ef- fective Time") on which the Merger Certificate has been duly -2- filed with the Secretary of State of the State of Delaware, or at such later date and time as set forth therein. SECTION 1.4. Closing. The closing of the Reorgani- zation (the "Closing") shall take place at the offices of Wach- tell, 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 "Clos- ing Date." ARTICLE II CERTIFICATE OF INCORPORATION AND BY-LAWS SECTION 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 Incorpora- tion"), until duly amended in accordance with the terms thereof and the DGCL. At the Effective Time, the Certificate of Incor- poration of Grace (the "Grace Certificate of Incorporation") shall be amended as set forth in the Newco Amendment. SECTION 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 SECTION 3.1. Newco Directors. Immediately after the Effective Time, the directors of Newco shall be the seven di- rectors of Sealed Air immediately prior to the Effective Time and four independent directors selected by Grace from the ex- isting Grace Board. SECTION 3.2. Newco Officers. Immediately after the Effective Time, the officers of Newco shall be the Chief Execu- tive 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- SECTION 3.3. Surviving Corporation Directors. Imme- diately after the Effective Time, the directors of the Surviv- ing Corporation shall be as designated by Newco. SECTION 3.4. Surviving Corporation Officers. Imme- diately 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 SECTION 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 out- standing 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 Convert- ible Preferred Share issued and outstanding immediately prior to the Effective Time shall remain issued and out- standing 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 out- standing 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 out- standing, 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. SECTION 4.2. Exchange of Old Certificates for New Certificates. (a) Appointment of Exchange Agent. From and -4- 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 Certifi- cates 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 share- holder with the provisions of Section 4.2(b), a book-entry ac- count 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 re- lating to the ownership of Newco Common Shares. (b) Exchange Procedures. Promptly after the Effec- tive Time, Newco shall cause the Exchange Agent to mail or de- liver 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 par- ties hereto prior to the Effective Time) containing instruc- tions 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 accor- dance 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 is- sued in a name other than that in which the Old Sealed Air Cer- tificate surrendered in exchange therefor is registered, it shall be a condition of such exchange that the person request- ing such exchange shall pay any transfer or other taxes re- quired 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 un- claimed by the former shareholders of Sealed Air. Any such former shareholders who have not theretofore exchanged their -5- Old Sealed Air Certificates for Newco Certificates pursuant to this Article IV who desires to do so shall thereafter be en- titled to look exclusively to Newco and only as general credi- tors 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 Certifi- cate 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 Certifi- cate, Newco shall, in exchange for such lost, stolen or de- stroyed Old Sealed Air Certificates, issue or cause to be is- sued the Newco Certificate deliverable in respect thereof pur- suant to this Article IV. No party hereto, nor the Exchange Agent, shall be liable to any holder of former Sealed Air Com- mon 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 accor- dance 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 Ef- fective Time, shall be rights and obligations of Newco follow- ing the Effective Time and (ii) each unexercised right granted -6- under the Sealed Air Stock Plans to purchase a Sealed Air Com- mon Share shall constitute a right to purchase a Newco Common Share in accordance with the terms and conditions of the ap- plicable Sealed Air Stock Plans, as amended from time to time. ARTICLE V REPRESENTATIONS AND WARRANTIES SECTION 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 Agree- ment (the "Grace Disclosure Letter"): (a) Capital Stock. (i) Grace. The authorized cap- ital 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 trea- sury 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 re- served 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 -7- 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 securi- ties the holders of which have the right to vote (or are convertible or exchangeable into or exercisable for secu- rities 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 pur- suant to the terms of options, securities or plans re- ferred to above and except in connection with the Transac- tion Agreements, there are no shares of capital stock of Grace authorized, issued or outstanding and there are no preemptive rights or any outstanding subscriptions, op- tions, puts, calls, warrants, rights, convertible or ex- changeable securities or other agreements or commitments of Grace or any of its subsidiaries of any character re- lating to the issued or unissued capital stock or other securities of Grace or any of its subsidiaries (including, without limitation, the issuance, sale, purchase, redemp- tion, 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 Com- mon Stock"). As of the date of this Agreement, 1,000 shares of Merger Sub Common Stock are issued and outstand- ing, 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 subsidiar- ies 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 Sur- viving Corporation will be duly authorized, validly is- sued, fully paid and nonassessable, and will be owned by -8- Grace, free and clear of all liens, pledges, security in- terests, 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 mate- rial 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 re- ceipt of the requisite approval of its shareholders neces- sary 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 requi- site corporate power and authority and has taken all cor- porate 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 trans- actions 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 ac- cordance 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 In- corporation) and the Distribution are the only votes of the holders of Grace's capital stock necessary in connec- tion with the consummation of the Reorganization. -9- (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 Securi- ties 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, registra- tions, approvals, permits or authorizations required to be obtained by it or any such subsidiary from, any govern- mental or regulatory authority, agency, court, commission or other entity, domestic or foreign ("Governmental Enti- ty"), in connection with the execution, delivery or per- formance 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 Agree- ment 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 ("Con- tracts") 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 li- cense to which it or any of its subsidiaries is subject, except, in the case of clause (B) above, for such breach- es, violations, defaults, accelerations or changes that are disclosed in the Grace Disclosure Letter or, individu- ally 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. -10- (e) SEC Documents; Financial Statements; No Undis- closed Liabilities. (i) Grace has filed all forms, re- ports 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 subsid- iaries prior to the Effective Time, as amended or supple- mented, 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 con- tain 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 incor- porated by reference into its SEC Documents (including the related notes and schedules) fairly presents in all mate- rial 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 re- spects 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 other- wise, that, individually or in the aggregate, are reason- ably 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 busi- nesses only in the ordinary and usual course of such busi- nesses, and there has not been any change or development or combination of changes or developments (including any worsening of any condition currently existing) which, in- dividually or in the aggregate, is reasonably likely to -11- 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 consumma- tion 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 Recapi- talization, and the Distribution and to terminate or re- deem 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, di- rectors 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 con- templated herein, except pursuant to arrangements dis- closed 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 con- duct 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 ag- gregate, are not reasonably likely to have a Material Ad- verse 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 re- quests 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 litiga- tion relating to Grace have been paid in full or have been -12- recorded as a liability on its balance sheet (in accor- dance with US GAAP); (v) neither Grace nor any of its sub- sidiaries is a party to any tax sharing or similar agree- ment 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 re- spects, 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 fur- nished by Grace to Sealed Air pursuant hereto or in con- nection 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 mis- leading. SECTION 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 juris- diction, or, if not, duly qualified) as a foreign corpora- tion in each jurisdiction where the properties owned, leased or operated, or the business conducted, by Packco or such Packco Subsidiary require such qualification, ex- cept 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 Ad- verse Effect with respect to the Packco Group or the Pack- aging 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 -13- corporate power and authority and will have taken all cor- porate action necessary in order to consummate the trans- actions contemplated hereby and by the other Transaction Agreements. (c) Capitalization. All issued and outstanding shares of capital stock of Packco and each Packco Subsid- iary (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 restric- tions 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, capi- tal 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, val- idly issued, fully paid and nonassessable. (d) Financial Statements; No Undisclosed Liabili- ties. (i) Included in the Packaging Business Disclosure Letter are unaudited special purpose consolidated and com- bined balance sheets as of December 31, 1995 and 1996 and June 30, 1997, and special purpose consolidated and com- bined 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 fi- nancial statements, the "Packaging Business Disclosure Letter Financial Statements," and the balance sheet as of December 31, 1996 included therein, the "Packaging Busi- ness 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 com- bined balance sheet to be included in the Packaging Busi- ness Financial Statements (including any related notes and schedules) shall fairly present in all material respects, -14- the consolidated financial position of the Packaging Busi- ness, 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 re- spects, the consolidated results of operations, cash flows and retained earnings, as the case may be, of the Pack- aging 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 state- ments, to normal year-end adjustments). (ii) Except as disclosed on the Packaging Business Disclosure Letter Balance Sheet or in the Basis of Presen- tation thereto, the Packco Group does not have any li- abilities of any kind whatsoever, whether or not accrued, contingent or otherwise, that, individually or in the ag- gregate, 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 connec- tion with the Grace Credit Agreement). (e) Absence of Certain Events and Changes. Except (i) as disclosed in the Packaging Business Disclosure Let- ter, and (ii) as contemplated by the Transaction Agree- ments, 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, in- dividually 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 subsidiar- ies (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 Busi- ness. Grace and its subsidiaries (with respect to the -15- Packaging Business) have, and immediately after the Con- tribution 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 En- tities that are required in order to permit the Packco Group to carry on the Packaging Business as it is pres- ently conducted by Grace and its subsidiaries, except for such permits, licenses, certificates, orders, filings, ap- plications and registrations, the failure to have or make which, individually or in the aggregate, are not reason- ably 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 Distribu- tion Date and subject to the provisions of Article II of the Distribution Agreement or as disclosed in the Packag- ing 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 De- cember 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 as- sets 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 sub- sidiaries as of the Distribution Date; in each case except for such matters as would not, indi- vidually or in the aggregate, have a Material Adverse Ef- fect 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 pro- ceedings pending or, to the knowledge of its executive officers, threatened, or investigations pending, against -16- Grace or its subsidiaries with respect to the Packaging Business, Packco or any Packco Subsidiary that, individu- ally 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 out- standing orders, writs, injunctions, decrees, stipulations or awards (whether rendered or issued by a court or Gov- ernmental Entity, or by arbitration) against Grace or its subsidiaries with respect to the Packaging Business, Pack- co 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 Docu- ments filed with the SEC prior to the date hereof and ex- cept for such matters that, individually or in the aggre- gate, 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 accu- rate 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 there- in); (v) neither Grace, Packco nor any Packco Subsidiary is a party to any tax sharing or similar agreement pursu- ant to which the Packaging Business has indemnified an- other 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 stat- ute 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 -17- except for such matters that, individually and in the ag- gregate, are not reasonably likely to have a Material Ad- verse Effect with respect to the Packco Group or the Pack- aging Business, (i) Grace and its subsidiaries, with re- spect to the Packaging Business, Packco and the Packco Subsidiaries are and have been in compliance with all ap- plicable Environmental Laws; (ii) Grace and its subsidiar- ies, 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) nei- ther Grace nor any of its subsidiaries, with respect to the Packaging Business, Packco, nor any of the Packco Sub- sidiaries 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 Agree- ment)), and none of Grace or any of its subsidiaries, with respect to the Packaging Business, Packco, the Packco Sub- sidiaries 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, pro- posed 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 aggre- gate, 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 materi- ally limits the ability of Grace after the Merger, Packco, -18- the Surviving Corporation or any of their respective sub- sidiaries to compete in any line of business or with any person or in any geographic area, in each case with re- spect 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 op- eration 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 thereun- der. (l) Employee Benefit Plans. (i) The Packaging Business Disclosure Letter includes a complete list of all material employee benefit plans, programs, policies, prac- tices and other arrangements (regardless of whether they are funded or unfunded or foreign or domestic, but exclud- ing any such plans, programs, policies, practices and ar- rangements mandated or sponsored by a Governmental Entity with respect to foreign Packco Employees) providing bene- fits to any current or former Packco Employee or benefi- ciary 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 Subsidiar- ies, 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 con- tribute (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 here- of. The Packaging Business Disclosure Letter also spe- cifically identifies those Packaging Business Plans that are sponsored, maintained or contributed to exclusively by Packco or any of the Packco Subsidiaries exclusively for -19- 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 re- spect 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 fol- lowing: (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 is- sued 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 identi- fies 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 is- sued a favorable determination letter with respect to each Packco Qualified Plan, in each case that has not been re- voked, or an application for such a letter has been or will be filed before the expiration of the remedial amend- ment 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 re- lated 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 compli- ance, in all material respects, with all provisions of ERISA, the Code and all other laws and regulations appli- cable to the Packaging Business-Only Plans. There is not now, nor do any circumstances exist that could give rise -20- to, any requirement for the posting of security with re- spect to any Packaging Business-Only Plan or the imposi- tion of any lien on the assets of Packco or a Packco Sub- sidiary under ERISA or the Code. No prohibited transac- tion (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) cor- responding or similar provisions of foreign laws or regu- lations, 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 sole- ly 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 pol- icies funding any Packaging Business Plan, have been time- ly 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 Agree- ment) have been timely made in accordance with past prac- tice. (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 ag- gregate, 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 contem- plated 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 limit- ing 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 -21- 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 prod- uct licenses or registrations (including applications for any of the foregoing), technology, know-how, tangible or intangible proprietary intellectual property rights, in- formation or material (whether conceived, reduced to prac- tice or under development), formulae, inventions and new and investigational applications (including all options or other rights to acquire any of the foregoing) as are nec- essary, used or held for use in connection with the Pack- aging Business (the "Packaging Business Intellectual Prop- erty"), 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 Subsid- iaries, 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 aggre- gate, 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 pos- sessed by Grace and its Subsidiaries) all of the Packaging Business Intellectual Property. Except as contemplated by -22- 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. SECTION 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 simul- taneously 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 out- standing as of such date. 157,858 Sealed Air Common Shares were held in treasury by Sealed Air and its subsid- iaries as of August 14, 1997. As of August 14, 1997, there were outstanding under the Sealed Air Amended Con- tingent 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 ex- changeable 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 autho- rized and validly issued and is fully paid and nonassess- able and, except for an immaterial number of shares held by officers and directors of Sealed Air and its subsid- iaries 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 -23- except for awards and Sealed Air Common Shares issued af- ter 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 autho- rized, issued or outstanding and there are no preemptive rights or any outstanding subscriptions, options, puts, calls, warrants, rights, convertible or exchangeable se- curities 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 issu- ance, 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 organiza- tion and is in good standing (if recognized in such juris- diction, or, if not, duly qualified) as a foreign corpo- ration 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 subsid- iaries 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 com- plete 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 re- ceipt of the requisite approval of its shareholders to consummate the Merger, Sealed Air has the requisite cor- porate 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 there- by, including, without limitation, the approval of the -24- 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 de- livered shall be, a valid and binding agreement of Sealed Air enforceable in accordance with its terms. The affir- mative 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 Merg- er. (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 Securi- ties 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, regis- trations, approvals, permits or authorizations required to be obtained by it or any such subsidiary from, any Govern- mental 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, ex- cept 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 contem- plated 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 breach- es, violations, defaults, accelerations or changes that are disclosed in the Sealed Air Disclosure Letter or, -25- 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 Undis- closed 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 re- quirements 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 mis- leading. 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 con- solidated statements of earnings, cash flows and share- holders' 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 share- holders' 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 busi- nesses only in the ordinary course of such businesses, and -26- there has not been any change or development or combina- tion 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, li- censes, 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 registra- tions, the failure to have or make which, individually or in the aggregate, are not reasonably likely to have a Ma- terial 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 Decem- ber 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, indi- vidually or in the aggregate, have a Material Adverse Ef- fect on Sealed Air. -27- (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 inves- tigations pending, against Sealed Air or any of its sub- sidiaries that, individually or in the aggregate, are rea- sonably likely to have a Material Adverse Effect with re- spect to Sealed Air. There are no judgments or outstand- ing orders, writs, injunctions, decrees, stipulations or awards (whether rendered or issued by a court or Govern- mental 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 ag- gregate, are not reasonably likely to have a Material Ad- verse 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, de- ficiency, 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 com- pleted 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 mat- ters 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 -28- 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 Con- tract 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 with- out 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 Disclo- sure Letter includes a complete list of all material em- ployee 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 man- dated 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 con- tribute (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 Sec- tion 3(2) of ERISA. (ii) With respect to each Sealed Air Plan providing benefits to U.S. Sealed Air Employees, Sealed Air has de- livered 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, cor- rect and complete copy of each of the following: (A) all -29- plan documents, (B) all benefit schedules, trust agree- ments 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 ac- companying 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 let- ter 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 Qual- ified 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 oc- curred 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 main- tained by Sealed Air, any of its subsidiaries or any of their respective ERISA Affiliates is subject to Title IV -30- 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, con- tributed to or been obligated to contribute to any Multi- employer Plan or Multiple Employer Plan. There does not now exist, nor do any circumstances exist that could re- sult 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 Sec- tion 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 aggre- gate, 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 contem- plated 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 contem- plated 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 ex- cept for such matters that, individually and in the ag- gregate, are not reasonably likely to have a Material Ad- verse Effect with respect to Sealed Air, (i) Sealed Air and its subsidiaries are and have been in compliance with -31- all applicable Environmental Laws; (ii) Sealed Air and its subsidiaries hold and have held all permits under any En- vironmental Law required for the operation of their re- spective businesses as presently conducted and are in com- pliance 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 re- quests 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 as- serted 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 de- cree 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 "Na- tional Priorities List" under CERCLA, or any similar state, local or foreign list of sites requiring inves- tigation or cleanup. (n) Takeover Statutes; Rights Plans. The execution, delivery and performance of this Agreement and consumma- tion 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, commis- sions or finders' fees in connection with the transactions contemplated herein, except pursuant to arrangements dis- closed 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 -32- 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 investiga- tional 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 rea- sonably 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 Prop- erty or is aware, to the knowledge of the executive offic- ers of Sealed Air and its subsidiaries, of any infringe- ment with respect thereto, and there is no infringement by Sealed Air or its subsidiaries of the intellectual prop- erty rights of others, which, in each case, would, indi- vidually 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 ad- equate 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 Intel- lectual Property. (q) Tax Matters. At the Effective Time, the repre- sentations 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 ef- fect as if set forth herein in their entirety. (r) Disclosure. The representations and warranties of Sealed Air contained in this Agreement or in any writ- ten 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 mis- leading. -33- ARTICLE VI COVENANTS SECTION 6.1. Interim Operations. Each of Grace and Sealed Air covenants and agrees as to itself and its subsid- iaries that, from and after the date hereof until the Effective Time, except insofar as the other parties shall otherwise con- sent 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 pre- serve their business organization intact and maintain their existing relations with customers, suppliers, em- ployees 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 docu- ment); (iii) split, combine or reclassify any outstanding capital stock; or (iv) declare, set aside or pay any divi- dend payable in stock or property with respect to any of its capital stock (other than, in the case of Grace, regu- lar quarterly cash dividends consistent with Grace's cur- rent practice, and intercompany dividends). (c) Neither it nor any of its subsidiaries will is- sue, sell, pledge, dispose of or encumber, or authorize or propose the issuance, sale, pledge, disposition or en- cumbrance of, any shares of, or securities convertible or exchangeable for, or options, puts, warrants, calls, com- mitments 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 fore- going (A) Grace may grant options to acquire Grace Common Shares so long as such options will not, after the Recapi- talization, 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 -34- 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 dis- pose 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 Dis- closure 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, sever- ance 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 appli- cable law, and except in the ordinary and usual course of business, neither it nor any of its subsidiaries will es- tablish, adopt, enter into, make, amend or make any elec- tions under any collective bargaining, bonus, profit shar- ing, 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 account- ing 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 pro- pose any change in its certificate of incorporation or bylaws. -35- (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 (includ- ing 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 man- agement 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 Pack- co 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 au- thorize or enter into an agreement to take any of the ac- tions referred to in paragraphs (a) through (k) above. SECTION 6.2. Certain Transactions. (a) It is understood and agreed by the parties here- to that, pursuant to the Distribution Agreement, at the time of the Reorganization and subject to Section 2.02 of the Distribu- tion Agreement, neither Grace nor any member of the Packco Group shall have cash or marketable securities, it being con- templated 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 with- held. SECTION 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 di- rect and use its best efforts to cause its employees, agents -36- and representatives (including, without limitation, any invest- ment banker, attorney or accountant retained by it or any of its subsidiaries) not to, initiate, solicit or encourage, di- rectly or indirectly, any inquiries or the making or implemen- tation of any proposal or offer with respect to a merger, ac- quisition, consolidation, business combination, recapitaliza- tion or similar transaction involving, or any purchase of all or any significant portion of the assets or any equity securi- ties of, it or any of its subsidiaries (any such proposal or offer being hereinafter referred to as an "Acquisition Pro- posal") 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 nego- tiations directly or through its representatives if (i) the failure to provide such information or participate in such ne- gotiations 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 pro- posal, the terms thereof and the availability of adequate fi- nancing 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 con- summated and represents a transaction more favorable to its shareholders than the Reorganization (a "Higher Offer"); pro- vided 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, dis- cussion or negotiations. -37- SECTION 6.4. Information Supplied. Each of the par- ties 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 Regis- tration 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 supple- ment thereto is filed in definitive form with the SEC or mailed to shareholders and at the time of the applicable Meeting, con- tain 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 docu- ments 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 re- quirements of the Exchange Act. SECTION 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 ac- tion 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 recom- mend 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, with- drawal, modification or change of recommendation or recommenda- tion 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 -38- identity of the other party thereto and the material terms and conditions of the agreement to be entered into with such per- son), shall not constitute a breach of this Agreement by Grace or Sealed Air, as the case may be. SECTION 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 Regis- tration Statement and the Joint Proxy Statement to be mailed to their shareholders, and Grace shall prepare the New Grace Reg- istration 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 con- sultation 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 transac- tions 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 applica- tions, notices, petitions, filings and other documents, and to obtain as promptly as reasonably practicable all necessary per- mits, consents, orders, approvals and authorizations of, or any exemption by, all third parties and Governmental Entities nec- essary 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 Govern- mental Entities necessary or advisable to consummate the trans- actions 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. -39- (c) Each party hereto shall, upon reasonable request and except as otherwise may be required by applicable law, fur- nish 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 con- nection 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 writ- ten 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 contem- plated hereby. (e) Each party hereto shall cooperate with each oth- er 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 fa- vorable review of the proposed transaction under the HSR Act and any foreign antitrust or competition laws. SECTION 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 quali- fication by Price Waterhouse LLP or other nationally recognized accounting firm reasonably acceptable to Sealed Air (the "Pack- aging Business Financial Statements"). (b) Each of Grace and Sealed Air shall use all rea- sonable efforts to cause to be delivered to the other party, as appropriate, and its directors letters of its independent ac- countants, dated (i) the date on which each Registration State- ment 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" let- ters delivered by independent accountants in connection with registration statements. SECTION 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 -40- access, during normal business hours throughout the period un- til 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 mod- ify 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 pro- vision 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 ob- tained 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 writ- ten confidentiality arrangements existing among the parties hereto. SECTION 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 re- sult in any Material Adverse Effect or to delay, in any sub- stantial respect, or prevent consummation of the Reorganiza- tion, in each case to the knowledge of the executive officers. SECTION 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, state- ment 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. SECTION 6.11. Employee Benefits; Headquarters Em- ployees. (a) Grace and Sealed Air covenant and agree that -41- from and after the Effective Time, Grace, Packco and the Sur- viving Corporation, as the case may be, shall maintain either employee benefits plans and programs that are, in the aggre- gate, at least substantially comparable to the plans and pro- grams in effect with respect to Packco Employees at the Ef- fective 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 acknowl- edges 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 manage- ment, investor relations, information systems and internal au- dit. In seeking to fill these needs, Sealed Air shall work with Grace to identify, prior to the Effective Time, appropri- ate people located at Grace's Boca Raton headquarters and shall give such individuals preferential consideration. SECTION 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 print- ing and mailing the Joint Proxy Statement and the Grace Regis- tration 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 lim- itation 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 dis- closed or announced, the Grace shareholders do not -42- 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 por- tion" 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 benefi- cial 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 Ac- quisition Proposal (except that, for this purpose, the reference to "significant portion" in the defini- tion 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 af- filiated 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 agree- ments 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 writ- ing. -43- (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 Pro- posal (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 defini- tion 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 contem- plated hereby after the date of this Agreement, in the case of -44- 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 termina- tion 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. SECTION 6.13. Antitakeover Statutes. If any Take- over 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 contem- plated 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. SECTION 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 Meet- ings, 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. SECTION 6.15. Transaction Agreements. (a) Prior to the Effective Time, the parties shall consummate any transac- tions 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. SECTION 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 in- consistent therewith, except where, in the opinion of nation- ally recognized tax counsel to such party, there is not "sub- stantial authority," as defined in Section 6662 of the Code, to support such a position. -45- ARTICLE VII CONDITIONS SECTION 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 con- templated 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 wait- ing 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 re- quired 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, de- livery 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 ob- tained, 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 per- formance of this Agreement, the Distribution Agreement and the Other Agreements and the consummation of the transac- tions contemplated hereby and thereby shall have been ob- tained and shall be in full force and effect, except for those the failure of which to obtain would not have a Ma- terial Adverse Effect with respect to (i) the New Grace Group (with respect to the condition for Grace), or (ii) -46- the Packco Group or Sealed Air (with respect to the condi- tion for Sealed Air). (d) Governmental Matters. No Governmental Entity of competent jurisdiction shall have enacted, issued, promul- gated, enforced or entered any statute, rule, regulation, judgment, decree, injunction or other order (whether tem- porary, 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 Ex- hibit C hereto. In rendering such opinion, such firm may receive and rely upon representations contained in cer- tificates of Grace, Merger Sub and Sealed Air and others, including, without limitation, the Grace Tax Matters Cer- tificate 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, substan- tially in the form of Exhibit D hereto. In rendering such opinion, such firm may receive and rely upon representa- tions 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 Mat- ters Certificate. (f) Registration Statements. The Registration Statements shall have become effective under the Securi- ties Act or Exchange Act (as applicable), and no stop or- der 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 Re- capitalization. The Contribution, the Distribution and the Recapitalization shall have been consummated as pro- vided 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 satis- fied 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 -47- for listing on the NYSE, subject to official notice of issuance. SECTION 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 representa- tions and warranties of Sealed Air set forth in this Agreement shall be true and correct in all material re- spects as of the date of this Agreement, and such repre- sentations 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 re- spects as of such date) disregarding with respect to the Closing Date all qualifications and exceptions contained therein relating to materiality or Material Adverse Ef- fect, except for such matters as would not in the aggre- gate 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. SECTION 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 representa- tions 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 cor- rect 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 -48- 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 qual- ifications and exceptions contained therein relating to materiality or Material Adverse Effect, except for such matters as would not in the aggregate reasonably be ex- pected 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 re- quired 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 SECTION 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. SECTION 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 consum- mated by April 30, 1998, provided that the right to terminate -49- this Agreement pursuant to this clause (i) shall not be avail- able to any party whose breach of any provision of this Agree- ment results in the failure of the Reorganization to be con- summated by such date, (ii) at the Grace Meeting or at any ad- journment thereof, the approval of Grace's shareholders re- quired 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. SECTION 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 adop- tion and approval by shareholders of Grace referred to in Sec- tion 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 re- spect 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 rec- ommend 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. SECTION 8.4. Termination by Sealed Air. This Agree- ment 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 per- formed 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 -50- failed to recommend to its shareholders the approval of the transactions contemplated hereby or shall have withdrawn, modi- fied 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 im- mediately preceding the day of the Effective Time (but for this clause) is less than $45.375 per share. SECTION 8.5. Effect of Termination and Abandonment. In the event of termination of this Agreement and the abandon- ment 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 SECTION 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, agree- ments and covenants shall be deemed only to be conditions of the Reorganization and shall not survive the Effective Time. SECTION 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. SECTION 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 permit- ted by applicable law. SECTION 9.4. Counterparts. For the convenience of the parties hereto, this Agreement may be executed in any num- ber of separate counterparts signed by one or more of the par- ties hereto, each such counterpart being deemed to be an origi- nal instrument, and all such counterparts shall together con- stitute the same agreement. -51- SECTION 9.5. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. SECTION 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, tele- gram, 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. SECTION 9.7. Entire Agreement; Assignment. This Agreement (and the Exhibits and Disclosure Letters hereto) (a) -52- 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. SECTION 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 organiza- tion 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 di- rectly 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. SECTION 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. SECTION 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 par- ties agree that the remedies at law for any breach or threat- ened breach, including monetary damages, are inadequate compen- sation for any loss and that any defense in any action for spe- cific performance that a remedy at law would be adequate is waived. SECTION 9.11. Severability. If any provision of this Agreement or the application thereof to any person or cir- cumstance 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 cir- cumstances other than those as to which it has been held in- valid or unenforceable, shall remain in full force and effect -53- and shall in no way be affected, impaired or invalidated there- by, so long as the economic or legal substance of the transac- tions contemplated hereby is not affected in any manner adverse to any party. SECTION 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. SECTION 9.13. Further Assurances. In addition to the actions specifically provided for elsewhere in this Agree- ment, 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 effec- tive the transactions contemplated by this Agreement. -54- IN WITNESS WHEREOF, this Agreement has been duly ex- ecuted 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 -55- ANNEX A DEFINED TERMS Acquisition Proposal: as defined in Section 6.3 hereof. Affiliate: as defined in Rule 12b-2 under the Ex- change 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, investiga- tion or restoration of the environment (including, without lim- itation, 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, A-1 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 mem- ber 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 pur- suant to Section 4001(a)(14) of ERISA. Exchange Act: the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereun- der. 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 Distribu- tion 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 transac- tions contemplated hereby (including the transactions contem- plated by the Distribution Agreement). A-2 Grace Options: as defined in Section 5.1(a)(i) here- of. 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 Pre- ferred 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 mate- rial listed, defined, designated or classified as a pollutant or contaminant, or as ignitable, corrosive, reactive or hazard- ous, 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 com- ponent. Higher Offer: as defined in Section 6.3 hereof. HSR Act: the Hart-Scott-Rodino Antitrust Improve- ments 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. A-3 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 Ex- change 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 pros- pects of such party and its subsidiaries taken as a whole. Meetings: the Grace Meeting and the Sealed Air Meet- ing. Merger: as defined in Recital E hereof. Merger Certificate: as defined in Section 1.3 here- of. 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 here- to. A-4 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 State- ments: 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 Agree- ment. A-5 Packco Employees: as defined in the Benefits Agree- ment. Packco Group: as defined in the Distribution Agree- ment. 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 Recapitaliza- tion, 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 Reor- ganization, 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 Sec- tion 5.3(p) hereof. A-6 Sealed Air Meeting: a duly convened meeting of hold- ers 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 fil- ings 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 amen- ded, 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) here- of. Tax Sharing Agreement: the executed agreement in the form of Exhibit B to the Distribution Agreement. Transaction Agreements: this Agreement, the Distri- bution Agreement and the Other Agreements. US GAAP: United States generally accepted accounting principles consistently applied. A-7 EX-2 3 EXHIBIT 2.2 EXHIBIT 2.2 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 2.05 Financing............................... 24 2.06 Grace Recapitalization.................. 26 2.07 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 TABLE OF CONTENTS (CONTINUED) 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 -ii- 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 Ef- fective 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 plu- ral forms of the terms defined): Adjusted Foreign Transfer Taxes: as defined in Sec- tion 2.02(c) hereof. - 2 - Affiliate: with respect to any specified Person, a Person that directly, or indirectly through one or more in- termediaries, 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 pursu- ant to the Distribution. Agreement: as defined in the preamble to this Agree- ment. Asset: any and all assets and properties, tangible or intangible, including, without limitation, the following: (i) cash, notes and accounts and notes receivable (whether cur- rent or non-current); (ii) certificates of deposit, banker's acceptances, stock, debentures, evidences of indebtedness, cer- tificates of interest or participation in profit-sharing agree- ments, collateral-trust certificates, preorganization certifi- cates or subscriptions, transferable shares, investment con- tracts, voting-trust certificates, fractional undivided inter- ests in oil, gas or other mineral rights, puts, calls, strad- dles, options and other securities of any kind; (iii) intan- gible property rights, inventions, discoveries, know-how, Unit- ed 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 agree- ments, 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 pre- paid 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 - 3 - 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 con- tracts, 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 Dis- tribution 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 Agree- ment. 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. - 4 - 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, oth- er than any Packco Assets. Grace-Conn. Liabilities: all of the Liabilities of Grace or its Subsidiaries immediately prior to the Distribu- tion, other than Packco Liabilities. Grace-Conn. Public Debt: (i) the outstanding indebt- edness 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 indebt- edness owned by Grace-Conn. or another member of the New Grace - 5 - Group) and (ii) with respect to any indebtedness described in clause (i), any amendments, modifications, refinancings, exten- sions, renewals, refundings or replacements of, or indebtedness exchanged for, such indebtedness which in each case is guaran- teed 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 oth- er 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, dam- ages, 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 obli- gated under this Agreement to provide indemnification. Indemnitee: a Person who or which may seek indem- nification under this Agreement. Indemnity Payment: an amount that an Indemnifying Party is required to pay to or in respect of an Indemnitee pur- suant to Article IV. Information: all records, books, contracts, instru- ments, 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, liqui- dated or unliquidated, accrued or unaccrued, known or unknown, whenever arising, and whether or not the same would properly be reflected on a balance sheet. - 6 - 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 Agree- ment. 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 be- low). "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 Agree- ment) 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 Ben- efit 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 Partici- pants (as defined in the Benefits Agreement) under the Union Retirement Plan and (ii) benefits of Packco Partici- pants under the Hourly Non-Union Retirement Plan (as de- fined in the Benefits Agreement) that are assumed by the Packco Hourly Non-Union Retirement Plan pursuant to Sec- tion 4.01(d) of the Benefits Agreement. "Foreign Benefit Plan Liabilities" means the greater of (i) the sum of the - 7 - 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 For- eign Pension Plan that are, pursuant to the Foreign Bene- fits 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 Distribu- tion Date based upon the actuarial and other assumptions used by AON to determine the ABO or PBO (as applicable) of the rel- evant Transferring New Grace Foreign Plan or Retained Grace Foreign Plan for purposes of Grace's fiscal 1996 year-end fi- nancial 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 appli- cable 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 lo- cal 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 neces- sary to reflect the Net Benefit Amount as so finally deter- mined. 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 - 8 - 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 Agree- ment. New Grace Business: all of the businesses and opera- tions 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 contri- bution, 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 ju- risdictions 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 Distri- bution Date and (B) Excess Short-Term Pay- ables of such Subsidiary; provided, how- ever, that such amount of cash shall be determined taking into account the prin- ciples, 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; - 9 - 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 Dis- tribution Date. New Grace Common Stock: as defined in the Recitals to this Agreement. New Grace Group: New Grace, Grace-Conn. and the oth- er 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, ex- ecutors, successors and assigns of any of the foregoing. New Grace Repatriation Tax Costs: as defined in Sec- tion 2.02(c) hereof. New Grace Rights: the preferred share purchase rights of New Grace. New Grace Subsidiaries: all direct and indirect Sub- sidiaries 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 Subsid- iary. Newco Common Stock: the shares of common stock, par value $.10 per share, of Grace. Newco Convertible Preferred Stock: the Series A Con- vertible 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 intel- lectual property license agreement, an interim services agree- ment, the shared facilities agreements and the other agreements - 10 - entered into or to be entered into in connection with the Dis- tribution 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 Sub- sidiaries of its container business group (which was, until 1996, operated as a separate business unit known as Grace Con- tainer 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 Agree- ment. 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 Distri- bution 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 Agree- ment; (iv) the capital stock of Packco and all Packco Subsid- iaries; 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 Pack- co Assets in the form and to the extent provided in Section 2.01(d); (c) with respect to leased or owned real prop- erty 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 - 11 - and shall not include any vacant or unoccupied prop- erty otherwise owned or leased by Grace or any of its Subsidiaries (except in the case of vacant or unoc- cupied property (I) on a site that is engaged pre- dominantly 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 headquar- ters 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 Pack- aging Business (or any Assets located at or relating to such facilities); (II) Assets relating to any di- vested 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 Subsid- iaries. 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 - 12 - relating to or arising from the Packaging Business or the Packco Assets; (ii) all Liabilities of Grace and its Subsid- iaries to the extent assigned to or assumed by Grace and Packco under this Agreement or any Other Agreement; (iii) all Liabil- ities 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, in- clude: (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 af- ter the Distribution Date (including formerly owned or leased facilities and former offsite disposal fa- cilities) 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 aggre- gate 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 Subsid- iaries relating to or arising from any interim ser- vice or tolling agreements entered into in connection with any divestiture by Grace or any of its Subsid- iaries; (e) Liabilities, whether such Liabilities re- late to events, occurrences or circumstances occur- ring or existing, or whether such Liabilities arise, before, on or after the Distribution Date, relating to asbestos or asbestos-containing materials manufac- tured and/or sold (collectively, "Asbestos Activi- ties") by Grace, Grace-Conn. or any of their respec- tive Subsidiaries, affiliates or predecessors (but this clause shall not include such Liabilities to the extent relating to Asbestos Activities, if any, con- ducted after the Distribution Date of any member of - 13 - 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 prede- cessors 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 Sub- sidiaries of Grace to be transferred to or formed by Packco in connection with the Contribution or the Foreign Transfers (in- cluding any such Subsidiary to be formed pursuant to the Tax Sharing Agreement or Section 2.02). Per Share Common Consideration: the shares (or frac- tion of a share) of Newco Common Stock issuable in the Recapi- talization 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 Dis- tribution 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 Effec- tive Time (such number calculated as pro- vided in the Benefits Agreement, the "Newco Options"), multiplied by the amount by which: - 14 - (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 exer- cise price for the Newco Options, cal- culated 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 appro- priately adjusted. Per Share Preferred Consideration: the shares (or fraction of a share) of Newco Convertible Preferred Stock issu- able 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 re- sult 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 be- tween the Record Date and the Effective Time, including pursu- ant to the exercise of stock options granted by Grace (but not including issuances in the Recapitalization), such Consider- ation shall be appropriately adjusted. Person: an individual, a partnership, a joint ven- ture, 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 Shar- ing Agreement. Privileged Information: with respect to either Group, Information regarding a member of such Group, or any of - 15 - 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, consult- ants, 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 Head- quarters, any production, manufacturing, sales office or other facility (whether owned or leased) of Grace or any of its sub- sidiaries 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) here- to. - 16 - 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 Busi- ness. 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 indi- rectly, 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 Agree- ment. 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 adminis- trative agency or commission or any arbitration tribunal as- serted 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. - 17 - 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 Sub- sidiary 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 trans- fers 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 As- sets, subject to Sections 2.05 and 2.10. (b) Effective as of the Distribution Date and sub- ject 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 obli- gated to make significant expenditures to effect such separa- tion prior to the Distribution Date. Actions taken and expen- ditures 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 alloca- tion 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, cur- rent and future costs (and losses of tax or other economic ben- efits) of the respective Businesses. With respect to any Asset that cannot reasonably be separated or otherwise allocated as - 18 - 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 predomi- nantly 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 sep- arated 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 in- tellectual 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 prop- erty 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, includ- ing, 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 Busi- ness" 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 con- tainers 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 reason- able 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 - 19 - 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 un- duly 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) at- tributable 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. As- sets and Grace-Conn. Liabilities, on the other hand, that are located in jurisdictions outside the United States. Such sepa- ration 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 For- eign Transfer that occurs after the Distribution shall be ef- fected 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 al- locable to such other party pursuant to Section 8.04. Such payment shall, for Tax purposes, be characterized as an adjust- ment 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 subdivi- sion 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 - 20 - Benefits shall be presumed to be utilized in the first year in which they arise (or are deemed to arise). All amounts relat- ing 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 lo- cal 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 immedi- ately following the Distribution ("Withholding Taxes") and (II) Taxes that would be imposed by the United States or any politi- cal subdivision thereof on a Deemed Repatriation (without tak- ing 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 Repa- triation ("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, how- ever, 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 - 21 - and Excess Short-Term Payables) and cooperate in good faith to minimize the amount of Subsidiary Excess Cash, taking into ac- count 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 in- come tax purposes of any other Foreign Packco Subsidiary, at- tributable 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 Ben- efit), calculated without regard to any Tax Item arising on the Foreign Transfer involving such Subsidiary, that does not ex- ceed the amount of income or gain arising, for purposes of the applicable foreign income tax, on the Foreign Transfer involv- ing such Subsidiary. (d) In connection with the Foreign Transfers, cer- tain 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 fail- ure 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 Ad- justed Foreign Transfer Taxes borne by the other Group. Grace agrees to indemnify and hold the Grace-Conn. Indemnitees harm- less, 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 recal- culated 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 - 22 - 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 recal- culated, 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 in- corporation and by-laws of Packco shall be substantially simi- lar 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 Dis- tribution Date, the parties hereto shall take all steps neces- sary 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 Distribu- tion Date, enter into, or cause the appropriate members of the Group of which it is a member to enter into, the Other Agree- ments in connection with the Distribution, including, without limitation, agreements with respect to (i) insurance proce- dures, (ii) interim services (including, without limitation, services to be provided by the Shared Regional Headquarters consistent with current operations of the respective Busi- nesses, and services to be provided by country organizations to operations of the other Business consistent with past prac- tice), which shall be charged at allocated cost based on Grace's historical methodology, subject to applicable tax laws - 23 - 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 ser- vices) 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 pro- viding 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 ex- tensive 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 con- ditions 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, se- curity and other matters). The parties shall enter into ap- propriate 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 in- cluded in the Other Agreements. SECTION 2.06 FINANCING. (a) Prior to the Distri- bution 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 Capi- tal Contribution may be contributed to foreign Subsidiaries of New Grace. It is contemplated that the New Grace Capital Con- tribution 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 - 24 - 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 con- summate a cash tender offer in accordance with applicable secu- rities laws for any and all Grace-Conn. Public Debt. Grace- Conn. may also elect, in its discretion, to defease or other- wise 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 insti- tutions 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 re- spect 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 sepa- rate in an interest-bearing escrow account with a financial institution and pursuant to escrow arrangements reasonably ac- ceptable 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 - 25 - 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 ten- der offer that are, in the aggregate, in excess of the out- standing 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. Pub- lic Debt acquired, defeased or retired; and plus (iii) the costs of the letter of credit described above. SECTION 2.07 GRACE RECAPITALIZATION. (a) Imme- diately 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 Recapitaliza- tion 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 ac- tions to effect the Recapitalization, including customary pro- cedures 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 Re- capitalization. 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 pro- portionate 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 - 26 - this paragraph. As soon as practicable following the Distribu- tion Date, the Exchange Agent shall determine the excess of (i) the number of full shares of Newco Common Stock or Newco Con- vertible 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 Ex- cess Shares at the prevailing prices on the open market. The sale of the Excess Shares by the Exchange Agent shall be ex- ecuted 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 compensa- tion 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 un- der 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. - 27 - (d) The parties hereto shall cooperate in preparing, filing with the SEC and causing to become effective any regis- tration 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 Em- ployee Benefits Agreement requiring registration under the Se- curities Act. SECTION 2.09 GRACE AND NEW GRACE BOARDS. The par- ties 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 indepen- dent 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. Noth- ing herein shall be deemed to require the transfer of any As- sets 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 Subsid- iaries shall cooperate to obtain any necessary consents or ap- provals for the transfer of all Assets and Liabilities con- templated 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 Distribu- tion 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 enti- tled 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 Distri- bution 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 there- to, and shall be deemed to have assumed in accordance with the - 28 - 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 mem- bers 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 prac- tices (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 Sec- tion 8.01(a), the Board of Directors of Grace, in its sole dis- cretion and consistent with the Merger Agreement, shall estab- lish the Record Date and the Distribution Date and any appro- priate 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 Distri- bution 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 cer- tificates 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 - 29 - 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 Agree- ment shall survive the Distribution Date. SECTION 4.02 INDEMNIFICATION. (a) Except as spe- cifically otherwise provided in the Other Agreements, the New Grace Group shall indemnify, defend and hold harmless the Pack- co 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. Lia- bilities (including, without limitation, all Liabilities spe- cifically 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 infor- mation 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 - 30 - 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 Indem- nifiable Losses arising out of or based upon any untrue state- ment or alleged untrue statement of a material fact, or omis- sion 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 (in- cluding the pro forma financial information relating to Newco contained in the Registration Statements (other than the his- torical information relating to Grace and the Packaging Busi- ness)), or necessary to make the statements therein not mis- leading. (c) If any Indemnity Payment required to be made hereunder or under any Other Agreement is denominated in a cur- rency 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 de- termined 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 be- tween 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 other- wise 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 oth- er 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 In- demnitee 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 - 31 - 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 In- demnitee and to Grace, if New Grace is the Indemnifying Party, or to the Indemnitee and New Grace, if Grace is the Indemnify- ing 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 con- sent, 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 Indemni- tee, 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 In- demnitees 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 rem- edy; and subject to the Indemnifying Party's control rights, as specified herein, the Indemnitees may participate in such in- vestigation 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 here- under. (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 Par- ty which make it inappropriate for the Indemnifying Party to undertake the defense or settlement thereof, then such Indemni- fying Party shall not be entitled to undertake the defense or settlement of such Third-Party Claim; and counsel for the In- demnifying Party shall be entitled to conduct the defense of - 32 - such Indemnifying Party and counsel for the Indemnitee (se- lected by the Indemnitee) shall be entitled to conduct the de- fense 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 sub- stantially 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 avail- able to it. (d) In no event shall an Indemnifying Party be li- able for the fees and expenses of more than one counsel for all Indemnitees (in addition to its own counsel, if any) in connec- tion with any one action, or separate but similar or related actions, in the same jurisdiction arising out of the same gen- eral 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 set- tlement thereof, subject to the terms and conditions of a mutu- ally 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 pro- vided in this Article IV shall be cumulative and shall not pre- clude 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. - 33 - 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 coop- erate 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 here- to shall cause the appropriate members of its Group to prepare and file with the appropriate licensing and permitting authori- ties applications for the transfer or issuance, as may be nec- essary or advisable in connection with the transactions contem- plated 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 coop- erate and use all reasonable efforts to secure the transfer or issuance of the licenses and permits. SECTION 5.03 INTERCOMPANY AGREEMENTS. All con- tracts, licenses, agreements, commitments or other arrange- ments, 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, finan- cial, accounting, data processing, insurance or technical sup- port), 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 ei- ther 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 - 34 - 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 Dis- tribution 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 lim- itations 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 Distribu- tion 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 Trea- surer 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 Fi- nancial Officer, Treasurer or any Assistant Treasurer of Grace, provided that the limitations contained in clause (ii) shall - 35 - not apply in the event that a member of the New Grace Group obtains a letter of credit from a financial institution rea- sonably 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 Agree- ment. 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, li- cense, 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 de- liver to New Grace all corporate books and records of the New Grace Group in its possession and copies of the relevant por- tions of all corporate books and records of the Packco Group - 36 - 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 re- tain 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 de- liver 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 reim- bursement of costs incurred by the providing party) by the re- questing 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 ac- cess 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 Informa- tion 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 - 37 - 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 in- tend 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 mem- ber, not to disclose or otherwise waive any privilege at- taching 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 connec- tion 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; pro- vided, however, that Grace and New Grace may make such disclosure or waiver with respect to Privileged Informa- tion 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 con- cerning the reasonableness of withholding such consent, no disclosure shall be made prior to a resolution of such disagreement by a court of competent jurisdiction, pro- vided that the limitations in this sentence shall not ap- ply in the case of disclosure required by law and so cer- tified as provided in the first sentence of this para- graph. (c) Upon any member of the Packco Group or any mem- ber of the New Grace Group receiving any subpoena or other compulsory disclosure notice from a court, other govern- mental agency or otherwise which requests disclosure of Privileged Information, in each case relating to pre-Dis- tribution business of the New Grace Group or the Packco Group, respectively, or relating to or arising in connec- tion 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 - 38 - 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 de- fenses and claims of privilege have been finally deter- mined. 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 wit- nesses to the extent that any such Person may reasonably be required in connection with any Litigation Matters, adminis- trative or other proceedings in which the requesting party may from time to time be involved and relating to the pre-Distri- bution 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 other- wise 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-Distri- bution 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, pri- or to the expiration of such period, any member of either par- ty's Group wishes to destroy or dispose of any such Information that is at least three years old, prior to destroying or dis- posing 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 dis- posed 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 In- formation to a location specified by, and at the expense of, the requesting party. - 39 - 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 Informa- tion 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 Per- son 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 sub- ject 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 mem- ber 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 govern- ment 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 in- clude, without limitation, promptly forwarding copies of appro- priate 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 - 40 - 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. Ex- cept 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 mem- ber 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 Liabili- ties, 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 Ar- ticle 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. - 41 - 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 share- holders; (ii) all conditions to the Merger set forth in the Merger Agreement (other than that the Distribution be con- summated) shall have been satisfied or waived; (iii) all third-party consents and governmental ap- provals required in connection with the transactions con- templated 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, finan- cial 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 Distri- bution; (v) the shares of New Grace Common Stock to be is- sued in the Distribution, and the shares of Newco Common Stock and the Newco Convertible Preferred Stock to be is- sued 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 elect- ed; (vii) the Registration Statements shall have been de- clared effective under the Exchange Act or the Securities - 42 - Act, as the case may be, by the SEC and no stop order sus- pending 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 Ar- ticle 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 Dis- tribution Date) and (B) the financial condition of each of Grace and Grace-Conn. satisfies the requirements of Sec- tion 170 of the Delaware General Corporation Law and Sec- tion 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 Distribu- tion 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 securi- ties 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 ac- knowledges 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 - 43 - to, cease all other use of the "Grace" name and logo and re- lated tradenames and marks, provided that Grace may use inven- tory including any such name, logo, tradenames or marks in ex- istence 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 prac- tice and as Grace reasonably believes is appropriate, and dur- ing 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 mate- rial shall be used by the Packco Group after the six-month an- niversary 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 agree- ment between the parties hereto with respect to the subject matter hereof (other than the Merger Agreement and the sched- ules 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 specifi- cally 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 "Transac- tion Costs") in connection with the transactions contemplated by this Agreement and the Other Agreements (including the Con- tribution (and the related transfers, separations and/or al- locations 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 con- nection with the Grace Credit Agreement. "Severance Costs" means the costs associated with the termination in connection with the transactions contemplated hereby (including the Merg- er) 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 - 44 - in respect of Adjusted Foreign Transfer Taxes on the Distribu- tion Date so that Adjusted Foreign Transfer Taxes are borne in the proportions described above in this Section 8.04. Ap- propriate 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 Sec- tion 6.12(a) of the Merger Agreement. Any amount paid by one party to the other under this Agreement in respect of Transac- tion Costs shall be treated, for tax purposes, as an adjustment to the portion of the New Grace Capital Contribution contrib- uted 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, ad- dressed 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 - 45 - 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 sub- ject 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 Agree- ment 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 par- ties hereto and shall not in any way affect the meaning or in- terpretation of this Agreement. - 46 - (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 transac- tion, and all provisions of this Agreement shall be so inter- preted. The parties hereto do not intend to submit the Distri- bution 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 circum- stance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions here- of, or the application of such provision to persons or circum- stances 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 pro- vision 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 ap- proval 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 rea- son 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. - 47 - 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: - 48 - EX-10 4 EXHIBIT 10.1 EXHIBIT 10.1 FORM OF EMPLOYEE BENEFITS ALLOCATION AGREEMENT This EMPLOYEE BENEFITS ALLOCATION 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 subsid- iary of Grace ("Grace-Conn."), and General Specialty Chemicals, Inc. (to be renamed W. R. Grace & Co.), a Delaware corporation and a wholly owned subsidiary of Grace ("New Grace"). RECITALS A. The Merger Agreement. Grace and Sealed Air Cor- poration, a Delaware corporation ("SAC"), have entered into an Agreement and Plan of Merger, dated as of [ ], 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 cor- poration (the "Merger"), and Grace being renamed Sealed Air Corporation. B. The Distribution Agreement. The Distribution Agreement dated as of [ ], 1997, by and among Grace, Grace-Conn. and New Grace (the "Distribution Agreement") and the Other Agreements (as defined in the Distribution Agreement) set forth certain transactions that SAC has required as a con- dition to its willingness to consummate the Merger, and the purpose of the Distribution 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 New Grace-Conn. C. The Contribution. Prior to the Effective Time, and subject to the terms and conditions set forth in the Dis- tribution 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 predomi- nantly related to the Packaging Business (the "Contribution"), as contemplated by the Distribution Agreement and the Other Agreements. D. The Distribution. Following the Contribution and prior to the Effective Time, subject to the conditions set forth in the Distribution Agreement, (i) the capital stock of Packco will be distributed to Grace, (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 (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, on a pro rata basis. E. This Agreement. This Agreement is one of the Other Agreements contemplated by the Distribution Agreement, and its purpose is to set forth the agreement of Grace, Grace- Conn. and New Grace with respect to certain matters relating to employees and employee benefit plans and compensation arrange- ments; 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. Capitalized terms used but not defined herein shall have the meanings set forth in the Distribution Agreement or the Merger Agreement, as applicable. 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): Agreement: has the meaning assigned to it in the preamble hereof. ABO: has the meaning assigned to it in Section 4.01(b). AICP: the Annual Incentive Compensation Program of Grace. Alternate Payee: an alternate payee under a domestic relations order which qualifies under Section 414(p) of the Code and Section 206(d) of ERISA and which creates or recog- nizes an alternate payee's right to, or assigns to an alternate payee, all or a portion of the benefits payable to a partici- pant under any Plan, or an alternate recipient under a medical child support order which qualifies under Section 609(a) of ERISA and which creates or recognizes the existence of an al- ternate recipient's right to, or assigns to an alternate re- cipient the right to, receive benefits for which a participant or beneficiary is eligible under any Plan. -2- ASA: has the meaning assigned to it in Section 4.01(b). Benefit Plan: any Plan established, sponsored or maintained by any member of the Packco Group, any member of the New Grace Group, or any predecessor or affiliate of any of the foregoing, existing as of the Distribution Date or prior there- to, to which any member of the Packco Group or the New Grace Group contributes, has contributed, is required to contribute or has been required to contribute, on behalf of any employee of a member of the Packco Group or a member of the New Grace Group, or under which any employee of a member of the Packco Group or a member of the New Grace Group, former employee of a member of the Packco Group or a member of the New Grace Group, or any beneficiary or dependent thereof, is covered, is eli- gible for coverage or has benefits rights. Change in Control Severance Agreements: the agree- ments listed on Schedule I hereto. Change in Control Severance Plan: the Grace Change in Control Severance Program for U.S. Employees (April 3, 1996- April 3, 1998). Current Performance Period: any three-year perfor- mance period under the Grace LTIP that begins before and ends after the Effective Time. Current Plan Year: the plan year or fiscal year, to the extent applicable with respect to any Plan, during which the Distribution Date occurs. Cypress 401(k) Plans: the Cypress Packaging, Inc. Union Employees 401(k) Pension Plan and the Cypress Packaging, Inc. 401(k) Retirement Plan. Deferred Compensation Plan: the W. R. Grace & Co. Deferred Compensation Program. Distribution Agreement: has the meaning assigned to it in the fourth paragraph hereof. Employee: with respect to any entity, an individual who is considered, according to the payroll and other records of such entity, to be employed by such entity, regardless of whether such individual is, at the relevant time, actively at work or on leave of absence (including vacation, holiday, sick leave, family and medical leave, disability leave, military leave, jury duty, layoff with rights of recall, and any other leave of absence or similar interruption of active employment -3- that is not considered, according to the policies or practices of such entity, to have resulted in a permanent termination of such individual's employment), but excluding any individual who is, as of the relevant time, on long-term disability leave. Foreign Plan: has the meaning assigned to it in Sec- tion 6.01. Grace: has the meaning assigned to it in the first paragraph hereof. Grace Dependent Care Plan: the W. R. Grace & Co. Dependent Care Plan. Grace LTIP: the Grace Long Term Incentive Program. Grace Medical Expense Plan: the W. R. Grace & Co. Health Care Reimbursement Account Plan. Grace Option: an option to purchase shares of Grace Common Stock granted pursuant to any Grace Stock Incentive Plan. Grace Severance Pay Plan: the W. R. Grace & Co. Sev- erance Pay Plan for Salaried Employees, as amended effective July 1, 1996. Grace Stock Incentive Plans: the Grace 1996 Stock Incentive Plan, the Grace 1994 Stock Incentive Plan, the Grace 1989 Stock Incentive Plan, the Grace 1986 Stock Incentive Plan, and the Grace 1981 Stock Incentive Plan. Hourly Non-Union Retirement Plan: the W. R. Grace & Co.-Conn. Retirement Plan for Non-Union Employees of Subsidiary Corporations. Hourly SIP: the W. R. Grace & Co. Hourly Employee Savings and Investment Plan. Insured Foreign Plan: a Foreign Plan that provides retirement or pension benefits and that is funded through indi- vidually allocated insurance contracts, each of which is iden- tified as such in the Packaging Business Disclosure Letter to the Merger Agreement. IRS: the Internal Revenue Service. Local Actuary: has the meaning assigned to it in Section 6.01. -4- LTIP Awards: has the meaning assigned to it in Sec- tion 3(a) hereof. Newco Ratio: the amount obtained by dividing (i) 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 ex-dividend date for the Distribu- tion, by (ii) 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. New Grace Benefit Plan: any Benefit Plan that is sponsored or maintained by a member of the New Grace Group as of the Distribution Date. New Grace Employee: any Employee who is allocated to the New Grace Group pursuant to Section 2.01 of this Agreement and who is not hired by any member of the Packco Group pursuant to Section 6.11(b) of the Merger Agreement. New Grace Participant: any individual who is a New Grace Employee or a beneficiary, dependent or Alternate Payee of such an individual. New Grace Ratio: the amount obtained by dividing (i) the average of the arithmetic mean between the highest and low- est 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 ex-dividend date for the Distri- bution by (ii) the average of the arithmetic mean between the highest and lowest sales prices of a share of New Grace 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. Noninsured Foreign Pension Plan: a Foreign Plan that is a defined benefit pension plan and is not an Insured Foreign Plan, each Noninsured Foreign Pension Plan being identified as such in the Packaging Business Disclosure Schedule to the Merger Agreement. Packco Benefit Plan: any Benefit Plan that is spon- sored or maintained by a member of the Packco Group following the Distribution Date. Packco Employee: any Employee who is allocated to the Packco Group pursuant to Section 2.01 of this Agreement or who is hired by any member of the Packco Group pursuant to Sec- tion 6.11(b) of the Merger Agreement. -5- Packco Health Plan: the Blue Cross Blue Shield Health Plan for Cryovac and Formpac Employees. Packco Hourly Non-Union Retirement Plan: has the meaning assigned to it in Section 4.01(d). Packco Medical and Dependent Care Expense Plan: the Health Care and Dependent Care Spending Account Plan for Cryo- vac and Formpac Employees. Packco Participant: any individual who is a Packco Employee or a beneficiary, dependent or Alternate Payee of such an individual. Packco Savings Plan: a Qualified Plan designated by Grace to receive a transfer of assets from the Hourly SIP and/or the Salaried SIP pursuant to Section 4.02(b). Pension Plan: any Benefit Plan that is an "employee pension benefit plan" (within the meaning of section 3(2) of ERISA), whether or not that Plan is a Qualified Plan. Plan: any bonus, incentive compensation, deferred compensation, pension, profit sharing, retirement, stock pur- chase, stock option, stock ownership, stock appreciation rights, phantom stock, company car, fringe benefit, leave of absence, layoff, vacation, day or dependent care, legal ser- vices, cafeteria, life, health, medical, accident, disability, workman's compensation or other insurance, severance, separa- tion or other employee benefit plan, practice, policy or other arrangement of any kind (including, but not limited to, any "employee benefit plan" (within the meaning of section 3(3) of ERISA)). Qualified Plan: any Benefit Plan that is an "em- ployee pension benefit plan" (within the meaning of section 3(2) of ERISA) and which is intended to qualify under section 401(a) of the Code. Salaried Retirement Plan: the W. R. Grace & Co. Re- tirement Plan for Salaried Employees. Salaried SIP: the W. R. Grace & Co. Salaried Employ- ees Savings and Investment Plan. Salary Protection Plan: the W.R. Grace & Co. Execu- tive Salary Protection Plan. Schurpack 401(k) Plan: the Schurpack Employees 401(k) Thrift Plan. -6- SERP: the W. R. Grace & Co. Supplemental Executive Retirement Plan. Split Dollar Program: the W. R. Grace & Co. Execu- tive Split Dollar Life Insurance Program. Terminated Grace Employee: any individual who is, as of the Distribution Date, a former Employee of any member of the New Grace Group or the Packco Group. Terminated Grace Participant: a Terminated Grace Em- ployee or a beneficiary, dependent or Alternate Payee of a Ter- minated Grace Employee. Termination Benefits: has the meaning assigned to it in Section 2.02(a) hereof. Union Retirement Plan: the Retirement Plan of W. R. Grace & Co.-Conn. Chemical Group (Cedar Rapids Plant). U.S. Welfare Plan: a Welfare Plan other than a Wel- fare Plan that is maintained outside of the United States pri- marily for the benefit of individuals substantially all of whom are nonresident aliens with respect to the United States. Welfare Plan: any Benefit Plan that is an "employee welfare benefit plan" (within the meaning of section 3(1) of ERISA). ARTICLE II TRANSFER OF EMPLOYEES; TERMINATION BENEFITS SECTION 2.01 Transfer of Employees. (a) Grace and New Grace shall take all steps necessary or appropriate so that all of the Employees of Grace and its subsidiaries are allo- cated between the New Grace Group and the Packco Group in ac- cordance with the principles set forth in the Section 2.01(b), and so that each individual who is so allocated to the Packco Group is, as of the Distribution Date, an Employee of a member of the Packco Group, and each other individual who is, as of the Distribution Date, an Employee of Grace or any of its Sub- sidiaries is an Employee of a member of the New Grace Group. (b) In making the allocation provided for in Section 2.01, Grace and New Grace shall allocate each Employee who is exclusively employed in the Packaging Business to the Packco Group and each Employee who is exclusively employed in the New Grace Business to the New Grace Group. All other Employees -7- shall be allocated in a mutually agreeable manner that, to the extent possible, takes into account the Employees' expertise, experience and existing positions and duties and does not un- reasonably disrupt either the Packaging Business or the New Grace Business and maximizes the ability of each of the Packco Group and the New Grace Group to manage and operate their re- spective businesses after the Distribution Date, taking into account the respective needs of such businesses as established by past practice. SECTION 2.02 Change of Control Benefits; Termination Benefits. (a) No New Grace Employee and no Packco Employee shall be deemed, as a result of the steps called for by Section 2.01 or otherwise as a result of the consummation of the trans- actions contemplated by the Distribution Agreement and the Merger, to have become entitled to any benefits under any Ben- efit Plan, contract, agreement, statute, regulation or other arrangement that provides for the payment of severance pay, salary continuation, pay in lieu of notice, unused vacation pay, or similar benefits in connection with actual or construc- tive termination or alleged actual or constructive termination of employment (collectively, "Termination Benefits"). Without limiting the generality of the foregoing, none of the transac- tions contemplated by the Distribution Agreement and the Merger Agreement constitute a "change in control" for purposes of any Benefit Plan. Grace shall take all steps necessary and ap- propriate so that any Change in Control Severance Agreement between Grace and any Packco Employee terminates before the Distribution Date. (b) All Liabilities (other than for Severance Costs as defined in Section 8.04 of the Distribution Agreement) re- lating to or arising out of claims made by or on behalf of New Grace Participants or Packco Participants for, or with respect to, Termination Benefits relating to the actual or constructive termination or alleged actual or constructive termination of employment of any New Grace Employee or Packco Employee with any member of the Packco Group or the New Grace Group, which claims arise as a result of the consummation of the transac- tions contemplated by the Distribution Agreement, shall be con- sidered other Transaction Costs that are governed by clause (ii) of the first sentence of Section 8.04 of the Distribution Agreement. (c) Except as specifically provided otherwise in Section 2.02(b) above and in Section 8.04 of the Distribution Agreement, effective as of the Distribution Date, the New Grace Group shall assume or retain, as appropriate, all Liabilities relating to or arising out of claims made by or on behalf of New Grace Participants for, or with respect to, Termination -8- Benefits relating to the actual or constructive termination or alleged actual or constructive termination of employment of any New Grace Employee with any member of the Packco Group or the New Grace Group, whether before, on or after the Distribution Date. In addition, the New Grace Group shall assume or retain, as appropriate, all Liabilities (including with respect to Packco Employees) pursuant to the Change in Control Severance Plan and the Change in Control Severance Agreements. (d) Except as specifically provided otherwise in Sections 2.02(b) and (c) above and in Section 8.04 of the Dis- tribution Agreement, effective as of the Distribution Date, the Packco Group shall assume or retain, as appropriate, all Li- abilities relating to or arising out of claims made by or on behalf of Packco Participants for, or with respect to, Termina- tion Benefits relating to the actual or constructive termina- tion or alleged actual or constructive termination of employ- ment of any Packco Employee with any member of the Packco Group or the New Grace Group, whether before (in the case of con- structive termination), on or after the Distribution Date. ARTICLE III INCENTIVE PLANS SECTION 3.01 Grace LTIP. (a) The contingent awards for Current Performance Periods held by New Grace Participants and Packco Participants (such contingent awards, the "LTIP Awards") under the Grace LTIP shall be adjusted and paid in cash by New Grace in accordance with such methodology as New Grace determines in its sole discretion. (b) Effective as of the Distribution Date, the New Grace Group shall assume or retain, as appropriate, all Li- abilities relating to or arising out of awards payable under the Grace LTIP. SECTION 3.02 Grace Options. (a) New Grace shall assume and adopt, effective as of the Distribution Date, each of the Grace Stock Incentive Plans, with such changes as may be necessary to reflect the change in the issuer of awards there- under and such other changes as New Grace shall, in its sole discretion, determine. As soon as practicable after and effec- tive as of the Distribution Date, all Grace Options that are then outstanding shall be adjusted or replaced as set forth in this Section 3.02, or in such other manner as the parties hereto shall agree. -9- (b) Each such Grace Option that is held by a New Grace Employee or a Terminated Grace Participant shall be re- placed with an option (a "New Grace Option") to acquire a num- ber of New Grace Common Shares that equals the number of shares subject to such Grace Option immediately before such replace- ment, times the New Grace Ratio (rounded up to the nearest whole share), with a per-share exercise price that equals the per-share exercise price of such Grace Option immediately be- fore such replacement, divided by the New Grace Ratio (rounded up to the nearest one hundredth of a cent). Each New Grace Option shall otherwise have the same terms and conditions as the Grace Option it replaces, except that references to employ- ment by or termination of employment with Grace and its affili- ates shall be changed to references to employment by or termi- nation of employment with New Grace and its affiliates. Effec- tive as of the Distribution Date, New Grace shall assume all Liabilities relating to or arising under the New Grace Options or the Grace Stock Incentive Plans. (c) Each such Grace Option that is held by a Packco Employee shall be adjusted so that the number of Newco Common Shares subject to such Grace Option equals the number of shares subject to such Grace Option immediately before such adjust- ment, times the Newco Ratio (rounded down to the nearest whole share), and the per-share exercise price equals the per-share exercise price of such Grace Option immediately before such adjustment, divided by the Newco Ratio (rounded up to the near- est whole cent). Each Grace Option as so adjusted shall other- wise have the same terms and conditions as were in effect be- fore such adjustment. Effective as of the Distribution Date, Grace shall retain all Liabilities relating to or arising under the Grace Options held by Packco Employees. SECTION 3.03 Annual Incentive Compensation Plan. (a) New Grace shall pay, or cause to be paid by another member of the New Grace Group, all bonuses earned by Packco Employees and New Grace Employees for the 1997 calendar year under the AICP, in accordance with the terms of the AICP as interpreted by New Grace in its sole discretion. Effective as of the Dis- tribution Date, the New Grace Group shall assume all Liabili- ties relating to or arising under the AICP. (b) Packco Employees shall not be eligible to earn bonuses under the AICP for 1998 or any subsequent year. How- ever, if the Distribution Date occurs later than March 31, 1998, then Grace and New Grace shall use reasonable best ef- forts to develop and implement an annual incentive program for Packco Employees, the cost of which will be shared between the New Grace Group and the Packco Group in a manner relating to -10- the relative portions of the 1998 calendar year that precede and follow the Distribution Date. ARTICLE IV PENSION AND SAVINGS PLANS SECTION 4.01 Retirement Plans and Supplemental Re- tirement Plan. (a) Grace, New Grace and Grace-Conn. shall take all steps necessary or appropriate so that, effective no later than the Distribution Date: (i) one or more members of the New Grace Group are the sole sponsors of the Salaried Re- tirement Plan, the SERP and the Hourly Non-Union Retirement Plan; and (ii) one or more members of the Packco Group are the sole sponsors of the Union Retirement Plan. Such steps shall include, without limitation, the appointment or reappointment by New Grace (by action after the Distribution Date to approve or ratify such appointment or reappointment) of all named fidu- ciaries, trustees, custodians, recordkeepers and other fiducia- ries and service providers to the Salaried Retirement Plan, the SERP and the Hourly Non-Union Retirement Plan, and the appoint- ment or reappointment by Grace of all named fiduciaries, trust- ees, custodians, recordkeepers and other fiduciaries and ser- vice providers to the Union Retirement Plan. (b) Effective as of the Distribution Date, the Packco Employees shall cease accruing benefits under the Sala- ried Retirement Plan, the SERP and the Hourly Non-Union Retire- ment Plan. As promptly as practicable following the Distribu- tion Date, and effective as of the Distribution Date, Grace in- tends to implement a program for Packco Employees who partici- pated in the Salaried Retirement Plan before the Distribution Date designed to substantially make up for any anticipated ma- terial adverse impact on them resulting from the termination of such participation as of the Distribution Date. Such program will assume that each such Packco Participant works as an em- ployee until normal retirement (age 65) and that he or she will achieve a reasonable investment return on his or her account in the Sealed Air Corporation Profit Sharing Plan. Upon the implementation of such program by Grace, New Grace shall (i) cause the Salaried Retirement Plan to be amended so that, ef- fective immediately before the Distribution Date: (A) the ac- crued benefit of each Packco Employee who is a participant therein is increased by crediting such Packco Employee with an additional year of service; (B) the accrued benefit of each such Packco Employee who is at least 40 years old as of the Distribution Date is also increased by an amount equal to the lesser of (x) 13 percent of the amount of such accrued benefit (after giving effect to the increase described in clause (A) of -11- this sentence) or (y) the increase that results from crediting such Packco Employee with an additional four years of service, and (C) the accrued benefits of all such Packco Employees, as so increased, shall be fully vested as of the Distribution Date; or (ii) provide additional retirement benefits to such Packco Employees as a group having, in the aggregate, a value substantially equivalent to the increased benefits described in clause (i); provided, that the aggregate expense associated with the benefits described in clause (i) or (ii) (as ap- plicable) shall be limited to the extent necessary so that the Accrued Benefit Obligation, calculated in accordance with FAS 87 ("ABO"), of such benefits does not exceed $15 million. Such ABO shall be determined by Actuarial Sciences Associates ("ASA") in accordance with the actuarial assumptions set forth in Schedule II hereto and in a manner consistent with past practice with respect to the Salaried Retirement Plan. (c) Effective as of the Distribution Date, the New Grace Group shall assume or retain (as applicable) all Li- abilities relating to or arising under the Salaried Retirement Plan and the SERP, including without limitation for benefits payable thereunder to Packco Participants. Effective as of the Distribution Date, the Packco Group shall assume or retain (as applicable) all Liabilities relating to or arising under the Union Retirement Plan. (d) (i) Effective immediately after the Effective Time, Grace shall establish, cause to be established or desig- nate a defined benefit pension plan (the "Packco Hourly Non- Union Retirement Plan") to provide benefits and assume liabil- ities and accept a transfer of assets from the Hourly Non-Union Retirement Plan, as provided for in this Section 4.01(d). (ii) As soon as practicable after the Effective Time, following (A) the receipt by New Grace of a copy of a favorable determination letter or Grace's certification to New Grace, in a manner reasonably acceptable to New Grace, that the Packco Hourly Non-Union Retirement Plan is qualified under Sec- tion 401(a) of the Code and the related trust is exempt from taxation under Section 501(a) of the Code, and (B) the receipt by Grace of a copy of a favorable determination letter or New Grace's certification to Grace, in a manner reasonably accept- able to Grace, that the Hourly Non-Union Retirement Plan is qualified under Section 401(a) of the Code and the related trust is exempt from taxation under Section 501(a) of the Code, New Grace shall direct the trustee of the trust funding the Hourly Non-Union Retirement Plan to transfer to the trustee of the trust established to fund the Packco Hourly Non-Union Re- tirement Plan the amount described in Section 4.01(d)(iii) be- low. Such transfer shall be in cash unless otherwise agreed by -12- Grace and New Grace. As of the date of such transfer, and ef- fective immediately after the Effective Time, the Packco Group and the Packco Hourly Non-Union Retirement Plan shall assume all Liabilities for benefits payable to Packco Participants under the Hourly Non-Union Retirement Plan, and the New Grace Group and the Hourly Non-Union Retirement Plan shall retain no Liabilities for such benefits. (iii) The amount transferred pursuant to this Section 4.01(d) shall be an amount equal to (A) less (B), as adjusted by (C); where (A) equals a portion of the assets of the Hourly Non-Union Retirement Plan having a fair market value equal to the ABO as of the Distribution Date attributable to Packco Participants; where (B) equals the aggregate payments made from the trust funding the Hourly Non-Union Retirement Plan in respect of Packco Participants from the Effective Time through the date the transfer occurs; and where (C) equals the amount of the net earnings or losses, as the case may be, from the Effective Time through the date the transfer occurs, on the average of the daily balances of the foregoing and based upon the actual rate of return earned by the Hourly Non-Union Re- tirement Plan during such period. All of the foregoing calcu- lations shall be made by ASA in accordance with the assumptions set forth on Schedule III hereto. Grace shall be entitled to review and comment on such calculations as ASA is in the pro- cess of performing them. Notwithstanding the foregoing, how- ever, in no event shall the amount so transferred be less than the amount necessary to comply with, nor more than the maximum amount permitted by, Section 414(l) of the Code and the reg- ulations promulgated thereunder, as determined by ASA. (iv) Grace, New Grace and Grace-Conn. shall, in connection with the transfer described in this Section 4.01(d), cooperate in making any and all appropriate filings required under the Code or ERISA, and the regulations thereunder and any applicable securities laws, and take all such action as may be necessary and appropriate to cause such transfers to take place as soon as practicable after the Effective Time. New Grace and Grace-Conn. agree, during the period ending with the date of the transfer of assets to the Packco Hourly Non-Union Retire- ment Plan, to cause distributions in respect of Packco Par- ticipants to be made in the ordinary course from the Hourly Non-Union Retirement Plan in accordance with applicable law and pursuant to plan provisions. SECTION 4.02 Savings Plans. (a) Grace, New Grace and Grace-Conn. shall take all steps necessary or appropriate so that, effective no later than the Distribution Date: (i) one or more members of the New Grace Group are the sole spon- sors of the Hourly SIP and the Salaried SIP; and (ii) one or -13- more members of the Packco Group are the sole sponsors of the Cypress 401(k) Plans and the Schurpack 401(k) Plan. Effective as of the Distribution Date, the Packco Group shall assume all Liabilities relating to or arising under the Cypress 401(k) Plans and the Schurpack 401(k) Plan. Such steps shall include, without limitation, the appointment or reappointment by New Grace (by action after the Distribution Date to approve or ratify such appointment or reappointment) of all named fiducia- ries, trustees, custodians, recordkeepers and other fiduciaries and service providers to the Hourly SIP and the Salaried SIP, and the appointment or reappointment by Grace of all named fi- duciaries, trustees, custodians, recordkeepers and other fidu- ciaries and service providers to the Cypress 401(k) Plans and the Schurpack 401(k) Plan. (b) Each of the transfers provided for in this Sec- tion 4.02(b) shall be implemented only if both Grace and New Grace so agree after the Distribution Date. (i) Grace, New Grace and Grace-Conn. shall take all steps necessary or appropriate in order to transfer to a Packco Savings Plan and the related trust, as soon as practi- cable after the Effective Time, all account balances (including the pre-tax, after-tax and rollover account balances) under each of the Hourly SIP and the Salaried SIP of all Packco Par- ticipants. Such assets shall be transferred in kind, to the extent elected by New Grace with the consent of Grace (which consent shall not be unreasonably withheld), and otherwise shall be made in cash; provided, that in any event, unless the parties agree otherwise, any outstanding participant loans and FMC American Depositary Receipts shall be transferred in kind. It is the intention of Grace, New Grace and Grace-Conn. to carry out such transfer so as to preserve, to the extent prac- ticable, the investment elections of participants as in effect immediately before the transfer, unless the parties agree oth- erwise. (ii) Grace, New Grace and Grace-Conn. shall co- operate in making all appropriate filings required under the Code or ERISA, and the regulations thereunder and any applica- ble securities laws, implementing all appropriate communica- tions with participants, maintaining and transferring appro- priate records, and taking all such other actions as may be necessary and appropriate to implement the provisions of this Section 4.02(b) and to cause the transfers of assets pursuant to this Section 4.02(b) to take place as soon as practicable after the Effective Time; provided, that each of such transfers shall take place only after (A) the receipt by New Grace of a favorable determination letter or Grace's certification, in a manner reasonably acceptable to New Grace, that the relevant -14- Packco Savings Plan is qualified under Section 401(a) of the Code and the related trust is exempt from taxation under Sec- tion 501(a) of the Code, and (B) the receipt by Grace of a fa- vorable determination letter or New Grace's certification, in a manner reasonably acceptable to Grace, that the Hourly SIP or the Salaried SIP, as applicable, is qualified under Section 401(a) of the Code and the related trust is exempt from taxa- tion under Section 501(a) of the Code. (c) If Grace and New Grace agree to implement the transfers provided for in Section 4.02(b), subject to the com- pletion of such transfer and effective as of the Distribution Date, the members of the Packco Group and the SAC Savings Plan shall assume all Liabilities to or relating to Packco Partici- pants relating to or arising under the Hourly SIP and the Sala- ried SIP. Effective as of the Distribution Date, the New Grace Group shall assume or retain (as applicable) all Liabilities relating to or arising under the Hourly SIP and the Salaried SIP, including without limitation for benefits payable thereun- der to Packco Participants, that are not assumed by the Packco Group and the relevant Packco Savings Plan pursuant to the pre- ceding sentence. SECTION 4.03 Qualification of Plans. The New Grace Group shall be responsible for all Liabilities incurred by the Packco Group as a result of the failure of any of the Hourly Non-Union Retirement Plan, the Union Retirement Plan, the Hourly SIP, the Salaried SIP, the Cypress 401(k) Plans or the Schurpack 401(k) Plan to be qualified under Section 401(a) of the Code on or before the date assets are transferred from such Plan to a Packco Benefit Plan, or the date sponsorship of such Plan is assumed by any member of the Packco Group, as ap- plicable. The Packco Group shall be responsible for all Li- abilities incurred by the New Grace Group as a result of the failure of the Packco Hourly Non-Union Retirement Plan or any Packco Savings Plan to be qualified under Section 401(a) of the Code on or before the date assets are transferred to such Plan from a New Grace Benefit Plan. The parties hereto agree that to the extent any of them becomes aware that any such Plan fails or may fail to be so qualified, it shall notify the other parties and the parties shall cooperate and use best efforts to avoid such disqualification, including using the Internal Rev- enue Service's Voluntary Compliance Resolution program or simi- lar programs, and taking any steps available pursuant to such program to avoid disqualification, as determined by the party who is made responsible under this Section 4.03 for the Li- abilities that would result from such disqualification (and the Liabilities for which such party is responsible shall include all costs and expenses resulting from such steps, including -15- fines, penalties, contributions, attorneys' fees and expenses and administrative expenses). ARTICLE V WELFARE AND OTHER BENEFITS SECTION 5.01 Benefits for Active Employees. (a) Grace, New Grace and Grace-Conn. shall take all steps necessary or appropriate so that, effective no later than the Distribu- tion Date, one or more members of the Packco Group are the sole sponsors of the Packco Health Plan. Such steps shall include, without limitation, the appointment or reappointment by Grace of all named fiduciaries, trustees, custodians, recordkeepers and other fiduciaries and service providers to the Packco Health Plan, to the extent such appointments or reappointments are necessary. (b) Effective as of the Distribution Date, the New Grace Group shall assume or retain (as applicable) all Liabil- ities relating to or arising out of claims for benefits under U.S. Welfare Plans by New Grace Participants and Terminated Grace Participants, whenever such claims are incurred, and (ii) by Packco Participants to the extent such claims are incurred before the Distribution Date and reported within 365 days thereafter. Effective as of the Distribution Date, the Packco Group shall assume or retain (as applicable) all Liabilities relating to or arising out of all other claims for benefits under U.S. Welfare Plans by Packco Participants, except as spe- cifically provided in Section 5.02. SECTION 5.02 Retiree Welfare Benefits. Effective as of the Distribution Date, the New Grace Group shall assume all Liabilities for providing post-retirement medical and life in- surance benefits under U.S. Welfare Plans sponsored by Grace or any of its subsidiaries before the Distribution Date or any members of the New Grace Group on or after the Distribution Date, to: (i) Terminated Grace Participants; (ii) Packco Par- ticipants who would have been eligible to receive such benefits if they had retired at any time on or before the first anniver- sary of the Distribution Date (regardless of when they actually do retire); and (iii) any New Grace Participants who become eligible for such benefits after the Distribution Date pursuant to the Grace Severance Pay Plan as a result of a termination of employment as of the Distribution Date. Effective as of the Distribution Date, the Packco Group shall provide Packco Par- ticipants who retire after the Distribution Date for whom the New Grace has not assumed Liabilities for providing post- retirement medical and life insurance benefits pursuant to the -16- preceding sentence with such benefits pursuant to one or more group insurance or group self-insured programs; provided, that the Packco Group may require such Packco Participants to bear the entire cost of such benefits, together with a reasonable fee for their allocable share of the Packco Group's costs of administering such programs. SECTION 5.03 Severance. The Packco Group shall adopt, effective as of the Distribution Date, and shall main- tain in effect without amendment adverse to participants, at least through the first anniversary of the Distribution Date, a severance plan providing Packco Employees with severance ben- efits as outlined in Exhibit A hereto. SECTION 5.04 Split Dollar Plan; Deferred Compensa- tion Plan; Salary Protection Plan. Effective as of the Distri- bution Date, each Packco Employee who participates in the Split Dollar Plan, the Deferred Compensation Plan or the Salary Pro- tection Plan shall be treated as a terminated participant under such Plan, and shall have the same options with respect to such Plan as are available to any other participant in such Plan upon termination of employment, in accordance with the terms of such Plan as in effect immediately before the Distribution Date. Effective as of the Distribution Date, the New Grace Group shall assume all Liabilities relating to or arising under the Split Dollar Plan, the Deferred Compensation Plan and the Salary Protection Plan. SECTION 5.05 Dependent Care and Medical Expense Plans. (a) Grace, New Grace and Grace-Conn. shall take all steps necessary or appropriate so that, effective no later than the Distribution Date, one or more members of the New Grace Group are the sole sponsors of the Grace Dependent Care Plan and the Grace Medical Expense Plan, and the New Grace Group shall assume all Liabilities under such Plans. Such steps shall include, without limitation, the appointment or reap- pointment by New Grace (by action after the Distribution Date to approve or ratify such appointment or reappointment) of all named fiduciaries, trustees, custodians, recordkeepers and other fiduciaries and service providers to such Plans, to the extent such appointments or reappointments are necessary. (b) Grace, New Grace and Grace-Conn. shall take all steps necessary or appropriate so that, effective no later than the Distribution Date, one or more members of the Packco Group are the sole sponsors of the Packco Medical and Dependent Care Expense Plan, and the Packco Group shall assume all Liabilities under such Plan. Such steps shall include, without limitation, the appointment or reappointment by Grace of all named fiducia- ries, trustees, custodians, recordkeepers and other fiduciaries -17- and service providers to such Plan, to the extent such appoint- ments or reappointments are necessary. No employer contribu- tions to such Plan shall be made or promised with respect to the 1998 plan year unless the parties otherwise agree. ARTICLE VI NON-U.S. PLANS SECTION 6.01 Non-U.S. Plans Generally. As soon as practicable after the date of this Agreement, the parties here- to shall enter into one or more agreements or memoranda of un- derstanding (collectively, the "Foreign Plans Agreement") re- garding the treatment and allocation of Liabilities relating to or arising under Benefit Plans (the "Foreign Plans") for Em- ployees located outside the United States, including without limitation expatriates, and to expatriate employees located in the United States. The Foreign Plans Agreement shall provide for the treatment of each Foreign Plan, which treatment may include (without limitation) (i) the retention or assumption of such Foreign Plan by the Packco Group, (ii) the retention or assumption of such Foreign Plan by the New Grace Group, or (iii) an allocation of the liabilities and assets (if any) of the Foreign Plan between a Plan (which may include the Foreign Plan) that is intended to be maintained by the New Grace Group and a Plan (which may include the Foreign Plan) that is in- tended to be maintained by the Packco Group, after the Distri- bution Date; provided, that the insurance contracts funding each Insured Foreign Pension Plan (and any assets related thereto) shall be divided between the appropriate Packco Ben- efit Plan and New Grace Benefit Plan by the insurer in accor- dance with applicable law, regulation and practice. Any trans- fers of assets or liabilities from a Noninsured Foreign Pension Plan shall be made on the basis of reasonable methods and as- sumptions determined by the local actuarial firm that is, as of the date of this Agreement, serving as the actuary for such Noninsured Foreign Pension Plan (or another actuarial firm if the parties hereto so agree) (the "Local Actuary"), in ac- cordance with applicable legal and regulatory requirements, local practice and the past practice of Grace; provided, that each of Grace, Grace-Conn. and New Grace shall be entitled to review such methods and assumptions and object to them if they are unreasonable, and to review all calculations and determina- tions of the Local Actuary for accuracy. It is the intention of the parties hereto that the Packco Group will assume or re- tain Liabilities for Packco Employees under Foreign Plans and that to the extent permitted and practicable under legal and regulatory requirements and local practice, assets transferred from Noninsured Foreign Pension Plans pursuant to the Foreign -18- Plans Agreement shall equal the Projected Benefit Obligation, calculated in accordance with FAS 87, for the liabilities as- sumed by Packco Benefit Plans pursuant to the Foreign Plans Agreement. ARTICLE VII GENERAL SECTION 7.01 Preservation of Rights to Amend or Ter- minate Plans and to Terminate or Change Terms of Employment. No provision of this Agreement shall be construed as a limita- tion on the rights of any member of the Packco Group or the New Grace Group to amend or terminate any Benefit Plan or other plan, program or arrangement relating to employees. No provi- sion of this Agreement shall be construed to create a right in any employee or former employee or beneficiary or dependent of such employee or former employee under a Benefit Plan which such employee or former employee or beneficiary would not oth- erwise have under the terms of the Benefit Plan itself. Noth- ing contained in this Agreement shall confer upon any indi- vidual the right to remain an employee of any member of the Packco Group or the New Grace Group or restrain any member of the Packco Group or the New Grace Group from changing the terms and conditions of employment of any individual at any time fol- lowing the Distribution Date, except as provided in Section 5.03 of this Agreement. SECTION 7.02 Other Liabilities; Guarantee of Obliga- tions. Effective as of the Distribution Date, the New Grace Group shall assume or retain (as applicable) all Liabilities relating to or arising out of claims for compensation and ben- efits made by or on behalf of any New Grace Participant, in- cluding salary, wages, bonuses, incentive compensation, sever- ance benefits, separation pay, accrued sick, holiday, vacation, health, dental or retirement benefits, or other compensation under applicable law or otherwise, relating to or arising out of employment by Grace or any of its subsidiaries before the Distribution Date or employment by any member of the New Grace Group on or after the Distribution Date. Effective as of the Distribution Date, the Packco Group shall assume or retain (as applicable) responsibility for all Liabilities relating to or arising out of claims for compensation and benefits made by or on behalf of any Packco Participant, including salary, wages, bonuses, incentive compensation, severance benefits, separation pay, accrued sick, holiday, vacation, health, dental or re- tirement benefits, or other compensation under applicable law or otherwise, relating to or arising out of employment by Grace -19- or any of its subsidiaries before the Distribution Date or em- ployment by any member of the Packco Group on or after the Dis- tribution Date. Notwithstanding the foregoing, this Section 7.02 shall not apply to any Liability that is specifically pro- vided for elsewhere in this Agreement. SECTION 7.03 Assumption of Plans; Termination of Participation. Except as specifically provided otherwise in this Agreement, Grace, New Grace and Grace-Conn. shall take all steps necessary or appropriate so that, effective no later than the Distribution Date, one or more members of the New Grace Group are the sole sponsors of all Benefit Plans that are, as of the date of this Agreement, sponsored by Grace, and the New Grace Group shall assume or retain (as applicable) all Li- abilities relating to or arising under such Benefit Plans. Such steps shall include, without limitation and where ap- propriate, the appointment or reappointment by New Grace (by action after the Distribution Date to approve or ratify such appointment or reappointment) of all named fiduciaries, trust- ees, custodians, recordkeepers and other fiduciaries and ser- vice providers to such Benefit Plans. Except as specifically provided otherwise in this Agreement or in the agreement pro- vided for in Section 6.01 of this Agreement, the accrual of benefits by Packco Participants in any New Grace Benefit Plan shall cease not later than the Distribution Date. SECTION 7.04 Information. The parties hereto shall, before the Distribution Date or as soon as practicable thereaf- ter, provide each other with all information as may reasonably be requested and necessary to administer each Benefit Plan ef- fectively in compliance with applicable law. Such information shall be provided in the form requested if, at the time of such request, it exists in such form or can readily be converted to such form. If a request would require a party providing infor- mation to incur any expenses in order to receive advice from any actuary, consultant or consulting firm, the information need not be provided unless the requesting party reimburses the party providing the information for all such expenses. SECTION 7.05 Complete Agreement; Coordination with Tax Sharing Agreement. (a) This Agreement, the Exhibits and Schedules hereto and the agreements and other documents re- ferred to herein, shall constitute the entire agreement between the parties hereto with respect to the subject matter hereof (other than the Distribution Agreement, the Merger Agreement and the schedules and exhibits thereto) and shall supersede all previous negotiations, commitments and writings with respect to such subject matter. -20- (b) This Agreement, and not the Tax Sharing Agree- ment, constitutes the sole agreement of the parties regarding responsibility for any excise taxes, penalties or similar lev- ies that may be imposed by any taxing authority on, or with respect to, any Benefit Plan, except as otherwise specifically provided in the Tax Sharing Agreement with respect to payroll taxes. SECTION 7.06 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware (other than the laws regarding choice of laws and conflict of laws that would apply the sub- stantive laws of any other jurisdiction) as to all matters, in- cluding matters of validity, construction, effect, performance and remedies, except to the extent preempted by federal law. SECTION 7.07 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given as provided in the Distribution Agreement. SECTION 7.08 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 party (which consent shall not be unreasonably withheld). Without limiting the generality of the foregoing, it is expressly acknowledged that at the Ef- fective Time, the Certificate of Incorporation of Grace will be amended (the "Newco Amendment") to change the name of Grace to "Sealed Air Corporation" and that references herein to "Grace" include, from and after the Effective Time, such corporation (which is also referred to in the Merger Agreement as Newco). Accordingly, to the extent this Agreement calls for the agree- ment of "Grace" or of "the parties" from and after the Effec- tive Time, the agreement of Newco (as defined in the Merger Agreement) will be required. This Agreement is solely for the benefit of the parties hereto and their Subsidiaries and is not intended to confer, nor shall it confer, upon any other Persons (including New Grace Participants and Packco Participants) any rights or remedies hereunder. SECTION 7.09 Amendment and Modification. This Agreement may be amended, modified or supplemented only by a written agreement signed by all of the parties hereto. -21- SECTION 7.10 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 7.11 Interpretation. The Article and Sec- tion headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the par- ties hereto and shall not in any way affect the meaning or in- terpretation of this Agreement. SECTION 7.12 Indemnity Procedures. The provisions of Article IV of the Distribution Agreement shall apply with respect to Liabilities allocated under this Agreement. SECTION 7.13 Severability. If any provision of this Agreement or the application thereof to any person or circum- stance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions here- of, or the application of such provision to persons or circum- stances 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 7.14 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 7.15 SAC Reasonable Consent. The parties hereto agree that any actions to be taken by Grace, Grace-Conn. or New Grace to implement the terms of this Agreement that are not specifically required herein that relate to Packco or the Packaging Business, and any actions that are to be taken pursu- ant to this Agreement only by agreement of the parties, must be reasonably satisfactory to SAC. -22- 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: GENERAL SPECIALTY CHEMICALS, INC. By:------------------------------ Name: Title: -23- EX-10 5 EXHIBIT 10.2 EXHIBIT 10.2 FORM OF TAX SHARING AGREEMENT This TAX SHARING 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 Sealed Air Corporation, a Delaware corporation ("Sealed Air"). RECITALS WHEREAS, Grace, Packco Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of Grace, and Sealed Air have entered into an Agreement and Plan of Merger (the "Merger Agreement"); WHEREAS, Grace, Grace-Conn. and Grace Specialty Chemicals, Inc., a Delaware corporation and a wholly owned subsidiary of Grace ("New Grace"), have entered into the Distribution Agreement; AND WHEREAS, Grace, on behalf of itself and the Packco Group, and Grace-Conn., on behalf of itself and the New Grace Group, wish to provide for the allocation between the Packco Group and the New Grace Group of all responsibilities, liabilities and benefits relating to or affecting Taxes (as hereinafter defined) paid or payable by either of them for all taxable periods, whether beginning before, on or after the Distribution Date (as hereinafter defined) and to provide for certain other matters. 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 Capitalized terms used but not defined herein shall have the respective meanings assigned to them in the Distribution Agreement or the Merger Agreement. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and the plural forms of the terms defined): "Action": as defined in Section 5.3(a). "Active New Grace Businesses": as defined in Section 5.2(b). "Active Packo Business": as defined in Section 5.1(b). "Adjusted Item": as defined in Section 3.2(a)(v). "Adjusted Party" means the party for the account of which is an Adjusted Item. "Affiliated Group" means the affiliated group of which Grace is the common parent or any predecessor or successor thereto. "Code" means the Internal Revenue Code of 1986, as amended, and shall include corresponding provisions of any subsequently enacted federal tax laws. "Conn Prepared Returns": as defined in Section 2.2(a). "Conn Prior Payments": as defined in Section 3.2(c)(iii). "Consistency/Basis Disagreement": as defined in Section 2.2(b). "Corresponding Item": as defined in Section 3.2(a)(v). "Corresponding Party" means the party for the account of which is a Corresponding Item. "Del Prepared Returns": as defined in Section 2.2(a). "Discontinued Businesses": shall mean (x) the can sealing and coating portion of the New Grace Business which portion is described in the proviso to the definition of the Packaging Business and (y) certain other businesses currently accounted for as discontinued operations. "Distribution Date" means the date on which the Distribution occurs. For purposes of this Agreement, the Distribution shall be deemed effective as of the close of business on the Distribution Date. "Equity Securities" means any stock or other equity securities treated as stock for tax purposes, or options, warrants, rights, convertible debt, or any other instrument or security that affords any Person the right, whether conditional or otherwise, to acquire stock. "Final Determination" means the final resolution of liability for any Tax for a taxable period (i) by a duly executed IRS Form 870 or 870-AD (or any successor forms thereto), on the date such Form is effective, or by a comparable form under the laws of other jurisdictions; except that a Form 870 or 870-AD or comparable form that reserves (whether by its terms or by operation of law) the right of the taxpayer to file a claim for refund and/or the right of the taxing authority to assert a further deficiency shall not constitute a Final Determination -2- with respect to the right so reserved; (ii) by a decision, judgment, decree, or other order by a court of competent jurisdiction, which has become final and unappealable; (iii) by a closing agreement or accepted offer in compromise under Section 7121 or 7122 of the Code, or comparable agreements under the laws of other jurisdictions; (iv) by any allowance of a refund or credit in respect of an overpayment of Tax, but only after the expiration of all periods during which such refund may be recovered (including by way of offset) by the jurisdiction imposing Tax; or (v) by any other final disposition, including by reason of the expiration of the applicable statute of limitations or by mutual agreement of the parties. "Foreign Cap" shall mean $3 million. "Foreign Packco Subsidiary" means a Packco Subsidiary organized in a foreign jurisdiction. "Foreign Packco Tax Item" means a Tax Item of a Foreign Packco Subsidiary arising in the Pre-Distribution Period attributable to the Packaging Business conducted by such Subsidiary other than any Tax Item of a Foreign Packco Subsidiary arising as a result of a Foreign Transfer. "Foreign New Grace Subsidiary" means a New Grace Subsidiary organized in a foreign jurisdiction. "Forwarding Party": as defined in Section 4.1. "Forwarding Responsibilities": as defined in Section 4.1. "Hypothetical Pre-Distribution Tax": as defined in Section 2.2(d). "Hypothetical Pre-Distribution Overall Tax Benefit": as defined in Section 2.2(d). "Indemnified Amount": as defined in Section 4.1. "Indemnitee": as defined in Section 4.2(a). "Indemnitor": as defined in Section 4.2(a). "Indemnity Issue": as defined in Section 4.2(a). "Interest": as defined under "Taxes" below. "IRS" means the Internal Revenue Service. "New Grace Tax Item" means a Tax Item arising in the Pre-Distribution Period attributable to (i) New Grace, Grace- Conn., Packco, any Foreign New Grace Subsidiary, any member of the Affiliated Group which was a member prior to the Distribution -3- Date or any member of the affiliated group for United States federal income tax purposes of which W. R. Grace & Co., a New York corporation, was the common parent or (ii) the New Grace Business conducted by any Foreign Packco Subsidiary. "Overall Tax Benefit" shall mean, for any taxable period, the net operating loss, unused credits (taking into account foreign tax credits when realized regardless of the period for which the associated earnings and profits were earned) and any other aggregate net unused Tax Benefit not used to reduce Taxes for the period. "Packco Prior Payments": as defined in Section 3.2(c)(iii). "Packaging Tax Item" means a Tax Item attributable to Sealed Air, any member of the Packco Group or otherwise relating to the Packaging Business or the Packaging Assets that is not a New Grace Tax Item or a Foreign Packco Tax Item. "Payee": as defined in Section 3.2(c). "Payor": as defined in Section 3.2(c). "Post-Distribution Period" means the Post-Distribution Taxable Periods and the portion of any Straddle Period beginning on the date after the Distribution Date. "Post-Distribution Taxable Period" means any taxable period beginning after the Distribution Date. "Pre-Distribution Period" means the Pre-Distribution Taxable Periods and the portion of any Straddle Period ending on the Distribution Date. "Pre-Distribution Schedules": as defined in Section 2.2(b). "Pre-Distribution Taxable Period" means any taxable period ending on or before the Distribution Date "Proceeding" shall mean any audit or other examination, judicial or administrative proceeding relating to liability for or refunds or adjustments with respect to Taxes. "Recipient Group": as defined in Section 4.1. "Restriction Period" means the period beginning on the date hereof and ending on the two-year anniversary of the Effective Time. "Reviewing Party": as defined in Section 5.3(c). "Ruling/Opinion Exception": as defined in Section 5.1. -4- "Sealed Air Parties" means Sealed Air and each of its past, present or future Affiliates, other than any member of the Packco Group. "Straddle Period" means a taxable period that includes, but does not end on, the Distribution Date. "Substantial Authority": as defined in Section 2.1. "Tax Benefit" means any item of loss, deduction, credit or any other Tax Item which decreases Taxes paid or payable. "Tax Deficiency" means an assessment of Taxes, as a result of a Final Determination. "Tax Detriment" means any item of income, gain, recapture of credit or any other Tax Item which increases Taxes paid or payable. "Tax-Free Status" means the qualification of the Distribution (i) as a transaction described in Section 355(a)(1) of the Code, (ii) as a transaction in which the stock distributed thereby is qualified property for purposes of Section 355(c)(2) of the Code and (iii) as a transaction in which each of Grace, Grace-Conn., Packco, New Grace and each member of the New Grace Group recognizes no income or gain. "Tax Item" means any item of income, gain, loss, deduction, credit, recapture of credit or any other item which increases or decreases Taxes paid or payable, including an adjustment under Code Section 481 resulting from a change in accounting method. "Tax Opinions" shall mean the Grace Tax Opinion and the Sealed Air Tax Opinion. "Tax Refund" means a refund of Taxes as the result of a Final Determination. "Tax Return" means any return, filing, questionnaire, information return or other document required to be filed, including requests for extensions of time, filings made with estimated tax payments, claims for refund and amended returns that may be filed, for any period with any taxing authority (whether domestic or foreign) in connection with any Tax or Taxes (whether or not a payment is required to be made with respect to such filing). "Taxes" means all forms of taxation, whenever created or imposed, and whether of the United States or elsewhere, and whether imposed by a local, municipal, governmental, state, foreign, federation or other body, and, without limiting the generality of the foregoing, shall include income, sales, use, ad valorem, gross receipts, trade, license, value added, franchise, -5- transfer, recording, withholding, payroll, employment, excise, occupation, unemployment insurance, social security, business license, business organization, stamp, environmental, premium and property taxes, together with any related interest, penalties and additions to any such tax, or additional amounts imposed by any taxing authority (domestic or foreign) (such interest, penalties, additions and additional amounts, "Interest"). "Transaction Party": as defined in Section 5.3(c). ARTICLE II. FILING OF TAX RETURNS Section 2.1. Manner of Filing. All Tax Returns filed after the Distribution Date and the Pre-Distribution Schedules shall be prepared on a basis which is consistent with the consummation of the transactions as set forth in the Distribution Agreement, the Grace Tax Matters Certificate, the Sealed Air Tax Matters Certificate, the Tax Opinions and any opinions, rulings, agreements or written advice relating to Foreign Transfers (in the absence of a controlling change in law or circumstances) and shall be filed on a timely basis (including extensions) by the party responsible for such filing under this Agreement. The Pre- Distribution Schedules and all Tax Returns in respect of a Pre- Distribution Taxable Period or portion, ending on the Distribution Date of any Straddle Period, that include any member of the New Grace Group or the Packco Group shall be prepared on the basis of substantial authority or on a reasonable basis with (if applicable) appropriate disclosure (each, "Substantial Authority"); provided, however, that such Schedules and Returns shall be prepared on a basis consistent with the elections (other than elections relating to carrybacks and carryforwards described in Section 3.3(a)), accounting methods, conventions and principles of taxation used for the most recent taxable periods of members of the New Grace Group for which Tax Returns involving similar Tax Items have been filed, to the extent that a failure to do so would result in a Tax Detriment, or a reduction in a Tax Benefit, to a member of the Packco Group, as long as such consistent position has Substantial Authority. All Tax Returns in respect of a Post-Distribution Taxable Period or portion, beginning after the Distribution Date, of any Straddle Period, shall be prepared with Substantial Authority; provided, however, that such Returns shall be prepared on a basis consistent with the elections (other than elections relating to carrybacks and carryforwards described in Section 3.3(a)), accounting methods, conventions and principles of taxation used for the most recent taxable periods of members of the New Grace Group for which Tax Returns involving similar Tax Items have been filed, to the extent that a failure to do so would result in a Tax Detriment, or a reduction in a Tax Benefit, to a member of the other Group, as long as such consistent position has Substantial Authority. In the event of a conflict with respect to a Straddle Period between the requirements of the immediately preceding sentence -6- and the second preceding sentence, the second preceding sentence shall prevail. Subject to the provisions of this Agreement, all decisions relating to the preparation of Tax Returns shall be made in the sole discretion of the party responsible under this Agreement for such preparation. Grace shall provide Grace-Conn. with copies of all Tax Returns filed after the Distribution Date that relate to any member of the New Grace Group. Grace-Conn. shall provide Grace with a copy of any portion of a Tax Return necessary to confirm Grace-Conn.'s entitlement to payment hereunder in respect of a carryback or refund. Section 2.2. Pre-Distribution and Straddle Period Tax Returns. (a) Grace shall prepare and file, or cause to be prepared and filed, any Tax Returns required to be filed by a member or members of the New Grace Group or the Packco Group for any Pre-Distribution Taxable Period and any Straddle Period; provided, however, that Grace-Conn. shall prepare and file, or cause to be prepared and filed, any Tax Returns relating solely to a member or members of the New Grace Group or their respective assets or businesses (such Tax Returns to be prepared and filed, or caused to be prepared and filed, by Grace, the "Del Prepared Returns", and by Grace-Conn., the "Conn Prepared Returns", respectively). (b) With respect to any Del Prepared Return that has not been filed as of the Distribution Date and relates to a Pre- Distribution Taxable Period or a Straddle Period, Grace-Conn. shall, 25 calendar days before the due date (including extensions) for such Return, provide Grace with a schedule (collectively, the "Pre-Distribution Schedules") detailing the computation of (i) in the case of a Pre-Distribution Taxable Period, the Tax and/or Overall Tax Benefit and (ii) in the case of a Straddle Period, the Hypothetical Pre-Distribution Tax and/ or Hypothetical Pre-Distribution Overall Tax Benefit, in either case, attributable to the member or members of the New Grace Group or the Packco Group included in such Return. Any Pre- Distribution Schedule relating to a Pre-Distribution Taxable Period shall be delivered to Grace in the form of a completed, but unexecuted Tax Return. If Grace so requests, Grace-Conn. shall discuss with Grace the preparation of, and allow Grace periodically to review major issues with respect to, any Pre- Distribution Schedule. In the event that Grace disagrees with any Tax Item reflected (or anticipated to be reflected) on a Pre- Distribution Schedule and demonstrates (by means of a written explanation in sufficient detail to permit such conclusion to be verified) its conclusion that Grace-Conn. has failed to comply with the requirements of the second sentence of Section 2.1 hereof (a "Consistency/Basis Disagreement"), Grace-Conn. shall explain its calculation of such Tax Item within 14 days of receipt of Grace's written explanation. The parties shall attempt in good faith mutually to resolve any Consistency/Basis -7- Disagreements prior to the due date for filing the relevant Tax Return. (c) Whether or not any Consistency/Basis Disagreements or any other disagreements relating to a Tax Item on a Pre- Distribution Schedule have been resolved by the applicable due date, Grace shall (i) prepare the Del Prepared Returns on the basis of, and in a manner consistent with, the Pre-Distribution Schedules, (ii) provide Grace-Conn. with a copy of each Del Prepared Return 14 calendar days before such Return is filed and reflect any comments thereon provided in good faith by Grace- Conn. and (iii) provide Grace-Conn. with a copy of each Del Prepared Return two business days after such Return is filed. In the event that any Consistency/Basis Disagreements relating to a Pre-Distribution Schedule have not been resolved prior to the filing of the relevant Tax Return, such disagreements shall be promptly resolved pursuant to Section 6.7 hereof. (d) The "Hypothetical Pre-Distribution Tax" shall mean the Tax that would have been due for the taxable period ending on the Distribution Date if the Distribution Date were the last day of the taxable period. The "Hypothetical Pre-Distribution Overall Tax Benefit" shall mean the Overall Tax Benefit that would have arisen in the taxable period ending on the Distribution Date if the Distribution Date were the last day of the taxable period. Such Tax or Overall Tax Benefit shall be computed by determining items of income, expense, deduction, loss and credit on a "closing of the books" basis, reflecting tax accounting principles as of the close of business on the Distribution Date. Section 2.3. Post-Distribution Tax Returns. Any Tax Return for a Post-Distribution Taxable Period shall be the responsibility of the New Grace Group if such Tax Return relates solely to a member or members of the New Grace Group or their respective assets or businesses, and shall be the responsibility of the Packco Group if such Tax Return relates solely to a member or members of the Packco Group or Sealed Air or their respective assets or businesses. ARTICLE III. PAYMENT OF TAXES Section 3.1. Allocation of Tax Liabilities With Respect to Unfiled Returns. (a) All Taxes shall be paid by the party responsible under this Agreement for filing the Tax Return pursuant to which such Taxes are due; provided, however, that (i) in the case of Taxes due with respect to Del Prepared Returns for Pre-Distribution Taxable Periods or Straddle Periods, Grace-Conn. shall pay Grace the amount, if any, -8- of the Tax or Hypothetical Pre-Distribution Tax, as the case may be, if any, reflected in the Pre-Distribution Schedule relating to such Tax Return attributable to the member or members of the New Grace Group or the Packco Group included in such Return. Such payment shall be made, at Grace-Conn.'s discretion, either in immediately available funds on the morning of the relevant date when payment is due to the governmental authority in respect of such Tax Return or, if not in immediately available funds, two business days prior to such due date. Grace shall forward any such payment that it receives from Grace-Conn. to the appropriate taxing authority. (ii) in the case of Del Prepared Returns for any taxable period, on the relevant date on which payment is due (or a refund is received) in respect of such Tax Return, Grace shall pay Grace-Conn. the amount, if any, of the actual reduction in Taxes, or the actual increase in the Tax refund, that would have been payable or receivable with respect to such Tax Return but for any Overall Tax Benefit (or Hypothetical Pre-Distribution Tax Benefit) that is for the account of Grace-Conn. under Section 3.2(a)(iii), below. In the case of a payment by Grace in respect of a reduction in Taxes, such payment shall be made in immediately available funds on the morning of the relevant due date or, if not in immediately available funds, two business days prior to the due date. (iii) the parties intend that, in implementing this Section 3.1(a), payment and reimbursement between the parties shall reflect the principles of Section 3.2(a). (b) Notwithstanding anything to the contrary, any Tax Item resulting from any act or omission not in the ordinary course of business (other than transactions contemplated by this Agreement, the Distribution Agreement, the Merger Agreement or the Benefits Agreement) on the part of any member of the Packco Group or any of the Sealed Air Parties occurring on the Distribution Date after the Effective Time shall be deemed to arise in a taxable period which begins after the Distribution Date. Section 3.2. Indemnities; Redetermined Tax Liabilities. Except as otherwise provided in Article V: (a) Indemnities. (i) Grace-Conn. shall be responsible for (w) any Tax for a Pre-Distribution Taxable Period (and any Hypothetical Pre-Distribution Tax for a Straddle Period) of Grace, Grace- Conn., Packco, any Foreign New Grace Subsidiary, any current or former member of the Affiliated Group which was a member prior to the Distribution Date or any current or former member of the affiliated group for United States federal income tax purposes of which W. R. Grace & Co., a New York corporation, -9- was the common parent, (x) any Tax for a Pre-Distribution Taxable Period (and any Hypothetical Pre-Distribution Tax for a Straddle Period) of a Foreign Packco Subsidiary attributable to the Packaging Business reflected on a Tax Return filed by such Subsidiary on or before the Distribution Date or on a Pre- Distribution Schedule, (y) any Tax of any member of the New Grace Group or a Foreign Packco Subsidiary, in either case, to the extent attributable to the New Grace Business and (z) 75% (or if the Packco Group has borne an amount of Tax in respect of adjustments to Foreign Packco Tax Items (and fees and expenses in Proceedings relating to such adjustments) that exceeds the Foreign Cap, then 100%) of any increase in Tax of a member of the Packco Group attributable to an adjustment to a Foreign Packco Tax Item. (ii) Grace shall be responsible for any Taxes (x) of any member of the Packco Group or otherwise relating to the Packaging Business or the Packaging Assets (except to the extent that Grace-Conn. is responsible for such Taxes pursuant to clause (i) above) and (y) of any of the Sealed Air Parties, whether arising before, on or after the Distribution Date. (iii) Any Overall Tax Benefit (or Hypothetical Pre-Distribution Overall Tax Benefit) shall be for the account of Grace-Conn. to the extent that such Overall Tax Benefit (or Hypothetical Pre-Distribution Overall Tax Benefit) is attributable to (w) Grace, Grace-Conn., Packco, any Foreign New Grace Subsidiary, any current or former member of the Affiliated Group which was a member prior to the Distribution Date or any current or former member of the affiliated group for United States federal income tax purposes of which W. R. Grace & Co., a New York corporation, was the common parent, in each case, for the Pre-Distribution Period, (x) the Packaging Business of a Foreign Packco Subsidiary for the Pre-Distribution Period reflected on a Tax Return filed by such Subsidiary on or before the Distribution Date or on a Pre-Distribution Schedule (other than the Foreign NOLs), (y) a Pre-Distribution Period of any member of the New Grace Group or a Foreign Packco Subsidiary, in either case, to the extent attributable to the New Grace Business (other than the Foreign NOLs) or (z) any adjustment to a Foreign Packco Tax Item. (iv) For purposes of determining the amount for which Grace or Grace-Conn. is responsible for paying the other party, or entitled to receive from the other party, in the event of any adjustment, including a Final Determination, of a Tax Item of a Foreign Packaging Subsidiary (other than a Tax Item that arises as a result of a Foreign Transfer), Tax Items that are clearly attributable to the Packaging Business or the New Grace Business, respectively, shall be allocated to such Business and Tax Items that are not so attributable shall be allocated in the proportion that the earnings from operations of such Business operated by such Subsidiary bears to the total earnings from operations of such Subsidiary, as reflected in audited financial -10- statements for the most recent, as of the end of such taxable period, full-year accounting period. Tax Items so allocated shall be treated for all purposes of this Agreement as attributable to the Business to which they are allocated. (v) Timing Adjustments. In the event of any adjustment, including a Final Determination, of a Tax Item (the "Adjusted Item") which results in a Tax Benefit or Tax Detriment for the account of one party and a corresponding Tax Detriment or Tax Benefit (the "Corresponding Item") for the account of the other party, then (I) if the Corresponding Item is a Tax Benefit, the Corresponding Party shall pay the Adjusted Party and (II) if the Corresponding Item is a Tax Detriment, the Adjusted Party shall pay the Corresponding Party, in either case, for each taxable period in which a member of the Group of the party entitled to payment under this Section 3.2(a)(v) actually realizes the Tax Benefit, in the case of (I), or the Tax Detriment, in the case of (II), by reason of the adjustment, an amount equal to such realized Tax Benefit, in the case of (I), or realized Tax Detriment, in the case of (II), including interest (computed at a 5% annual rate) from the original due date (without extensions) for filing of the Return for such taxable period through the date of payment under this Section 3.2(a)(v). (b) Final Determinations. In the case of any Final Determination regarding a Tax Return, any Tax Deficiency shall be paid to the appropriate taxing authority by, and any Tax Refund received from the appropriate taxing authority shall be paid to, the party which filed such Return; provided, however, that whether or not there is a Tax Deficiency or Tax Refund and whether or not a payment is required to or from the appropriate taxing authority, Grace shall make payments to, or receive payments from, Grace-Conn. based upon the following principles: (i) Grace-Conn. shall make a payment to Grace in an amount equal to (x) any increase in the Tax of any of the Sealed Air Parties or any member of the Packco Group resulting from any adjustment to a New Grace Tax Item and (y) 75% (or, if the Packco Group has borne an amount of Tax in respect of adjustments to Foreign Packco Tax Items (and fees and expenses in Proceedings relating to such adjustments) that exceeds the Foreign Cap, then 100%) of any increase in the Tax of any of the Sealed Air Parties or any member of the Packco Group resulting from any adjustment to a Foreign Packco Tax Item, in either case (x) or (y), together with any Interest relating thereto that is or has been imposed by the relevant taxing authority (or would have been imposed but for an offsetting Packaging Tax Item). (ii) Grace shall pay to Grace-Conn. an amount equal to (x) any decrease in the Tax of any of the Sealed Air Parties or any member of the Packco Group resulting from any adjustment to a New Grace Tax Item and (y) any decrease in the Tax of any of the Sealed Air Parties or any member of the Packco Group resulting from any adjustment to a Foreign Packco Tax Item, -11- in either case (x) or (y), together with any Interest relating thereto that is or has been paid by the relevant taxing authority (or would have been paid but for an offsetting Packaging Tax Item). (iii) The parties intend that, in implementing this Section 3.2(b), payment and reimbursement between the parties shall reflect the principles of Section 3.2(a). (iv) Payments otherwise required to be made under this Section 3.2(b) with respect to a single Final Determination shall be netted and offset against each other so that either Grace shall make a payment to Grace-Conn. or Grace-Conn. shall make a payment to Grace, but not both. (c) Calculation and Payment of Amounts. (i) All calculations and determinations required to be made pursuant to this Article III shall initially be made by the party obligated to make such payment (the "Payor") in its good faith. If the party entitled to receive a payment (the "Payee") so requests, the Payor shall present its calculations and determinations to the Payee in writing. The Payee shall be deemed to consent to such calculations and determinations unless the Payee notifies the Payor in writing within 30 days of receiving such calculations and determinations. If the Payee disagrees with the Payor's calculations and determinations, the parties shall attempt in good faith mutually to resolve the disagreement. In the event that they cannot so resolve the disagreement, it shall be resolved promptly pursuant to Section 6.7 hereof. (ii) For all tax purposes, the parties hereto agree to treat, and to cause their respect affiliates to treat, (x) any payment required to be paid to a member of the other Group by this Agreement as an adjustment to the portion of the New Grace Capital Contribution that is contributed from Grace to New Grace and (ii) any payment of interest or Taxes (other than U.S. Federal income taxes) by or to a taxing authority as taxable or deductible, as the case may be, to the party entitled under this Agreement to retain such payment or required under this Agreement to make such payment, in either case except as otherwise mandated by the law or a Final Determination. In the event of such a Final Determination, the payment in question shall be adjusted to place the parties in the same after-tax position that they would have enjoyed absent such Final Determination. Any payment required by this Agreement that is not made on or before the date required hereunder shall bear interest, from and after such date through the date of payment, at the appropriate market interest rate. (iii) Payment of any amount required to be made pursuant to this Article III as a result of a Final -12- Determination shall become due and payable after such Final Determination has been made within ten business days of the receipt of written notice from the party entitled to receive such payment to the party required to make such payment. Any amounts required to be paid in respect of Taxes or Overall Tax Benefits pursuant to this Article III shall be adjusted to avoid duplication of payments and to take into account the sum of any payments previously made by any member of the Packco Group on or prior to the Distribution Date or by Grace-Conn. or any other member of the New Grace Group at any time in respect of such Taxes or Overall Tax Benefits (the "Conn Prior Payments") and the sum of any payments previously made by any member of the Packco Group after the Distribution Date in respect of such Taxes or Overall Tax Benefits (the "Packco Prior Payments"). Appropriate payments will be made between the parties in the event that the Conn Prior Payments or the Packco Prior Payments, respectively, exceed the amounts for which Grace-Conn. or Packco, respectively, is responsible under the principles of Section 3.2(a). (d) Other Tax Liabilities and Refunds. Any Tax or Tax refund that is not otherwise covered by Section 3.1 or 3.2(b) shall be allocated, and payment shall be made by Grace-Conn. or Grace, using the principles of Sections 3.2(a); provided, however, that any Tax refund (whether or not governed by Section 3.1 or 3.2(b)) arising as a result of an adjustment of a Foreign Packco Tax Item shall be allocated in the same manner and to the same extent as Taxes and expenses in respect of adjustments of Foreign Packco Tax Items have been borne (it being agreed and understood that to the extent that the Foreign Cap has been exceeded, such refund shall be entirely for the benefit of Grace- Conn. and to the extent that refunds are shared 75% by Grace- Conn. and 25% by Grace the Foreign Cap shall be increased by the amount refunded to Grace). Any Tax refund received by one party that is for the account of the other party shall be paid to such other party promptly upon receipt thereof. Any Tax paid by one party that is the responsibility of the other party shall be reimbursed promptly by the other party. Section 3.3. Carrybacks and Refund Claims. (a) Any Tax refund resulting from the carryback by any member of the New Grace Group of any Tax Item arising after the Distribution Date to a Pre-Distribution Taxable Period or a Straddle Period shall be for the account of Grace-Conn., and Grace shall promptly pay over to Grace-Conn. any such Tax refund that it receives. In the event that a member of the New Grace Group, on the one hand, and a member of the Packco Group or a Sealed Air Party, on the other hand, are each entitled to carryback a Tax Item to a Pre- Distribution Taxable Period or a Straddle Period, the respective Tax Items shall be utilized under the rules of applicable law (which shall be, in the case of carrybacks to such periods of the Affiliated Group and carrybacks under foreign or State law with respect to which there is no applicable rule regarding the priority of such utilization, the rules contained in Treasury Regulation Section 1.1502-21T). Any election affecting the carryback -13- or carryforward of any Tax Item of any member of the New Grace Group, or a payment to or by such a member under this Agreement in respect of a carryback or carryforward, including the elections under Section 172(b)(3) of the Code and Treasury Regulation Sections 1.1502-21T(b)(3) and 1.172-13(c) with respect to the taxable years of the Affiliated Group that begin on each of January 1, 1997, and January 1, 1998, shall not be made without the consent of Grace-Conn. and shall be made if Grace- Conn. so requests. (b) Grace-Conn. shall be permitted to file, and Grace shall fully cooperate with Grace-Conn. in connection with, any refund claim. To the extent that such a refund claim (other than a claim arising from a carryback) does not result in a Tax refund (or would not result in a refund if a claim were filed) as the result of an offsetting Packaging Tax Item (including a Packaging Tax Item carried back to a Pre-Distribution Taxable Period or a Straddle Period), Grace shall remit to Grace-Conn. the amount of any decrease in Tax that results or would have resulted from such refund claim. Section 3.4. Liability for Taxes with Respect to Post- Distribution Periods. Unless otherwise specifically provided in this Agreement or the Distribution Agreement, the New Grace Group shall pay all Taxes and shall be entitled to receive and retain all refunds of Taxes with respect to periods beginning after the Distribution Date which are attributable to the New Grace Business. Unless otherwise provided in this Agreement, the Packco Group shall pay all Taxes and shall be entitled to receive and retain all refunds of Taxes with respect to periods beginning after the Distribution Date which are attributable to the Packaging Business. ARTICLE IV. INDEMNITY, COOPERATION AND EXCHANGE OF INFORMATION Section 4.1. Breach. Grace-Conn. shall be liable for and shall indemnify, defend and hold harmless the Packco Indemnitees from and against, and Grace shall be liable for and shall indemnify, defend and hold harmless the New Grace Indemnitees from and against, any payment required to be made as a result of the breach by a member of the New Grace Group or the Packco Group, respectively, of any obligation under this Agreement. If any member of the Packco Group or the New Grace Group, fails to comply in any respect whatsoever with any of its responsibilities under this Agreement relating to promptly forwarding to any member of the other Group (the "Recipient Group") any communications with and refunds received from any taxing authority ("Forwarding Responsibilities"), then Grace or Grace-Conn., as the case may be, (the "Forwarding Party") shall be liable for and shall indemnify and hold the New Grace Indemnitees or the Packco Indemnitees, as the case may be, harmless from and against any costs or expenses (including, -14- without limitation, Taxes and reasonably incurred lawyers' and accountants' fees) ("Indemnified Amount") incurred by or imposed upon any member of the Recipient Group arising out of, in connection with or relating to such communication; provided, however, that the liability of the Forwarding Party with respect to any one such failure shall be equal to that portion of the Indemnified Amount that a member of the Recipient Group demonstrates is caused (directly or indirectly) by such failure. Section 4.2. Contests. (a) Whenever a party hereto (the "Indemnitee") becomes aware of the existence of an issue that could increase the liability for any Tax, or decrease the amount of any refund, of the other party hereto or any member of its Group or require a payment hereunder (an "Indemnity Issue"), the Indemnitee shall in good faith promptly give notice to such other party (the "Indemnitor") of such Indemnity Issue. The failure of any Indemnitee to give such notice shall not relieve any Indemnitor of its obligations under this Agreement, except to the extent that such Indemnitor or its affiliate is actually materially prejudiced by such failure to give notice. (b) The Indemnitor and its representatives, at the Indemnitor's expense, shall be entitled to participate (i) in all conferences, meetings or proceedings with any taxing authority, the subject matter of which is or includes an Indemnity Issue in respect of a Pre-Distribution Period and (ii) in all appearances before any court, the subject matter of which is or includes an Indemnity Issue in respect of a Pre-Distribution Period. (c) Except as provided in Section 4.2(d), Grace-Conn. shall have the right to decide as between the parties hereto how any Indemnity Issue for a Pre-Distribution Taxable Period is to be dealt with and finally resolved with the appropriate taxing authority and shall control all Proceedings relating thereto. Grace agrees to cooperate with Grace-Conn. in the settlement of any such Indemnity Issue; provided, however, that Grace-Conn. shall act in good faith in the conduct of such Proceedings and shall keep Grace reasonably informed of any developments which can reasonably be expected to affect adversely Grace. Such cooperation shall include permitting Grace-Conn. to litigate or otherwise resolve any such Indemnity Issue. It is expressly the intention of the parties to this Agreement to take, and the parties shall take, all actions necessary to establish Grace- Conn. as the sole agent for Tax purposes of each member of the Affiliated Group, as if Grace-Conn. were the common parent of the Affiliated Group, with respect to all combined, consolidated and unitary Tax Returns of the Affiliated Group for the Pre- Distribution Taxable Periods. (d) The parties jointly shall represent the interests of (i) the Affiliated Group in any Proceeding relating to any Straddle Period and (ii) any Foreign Packco Subsidiary in any Proceeding relating to any taxable period that involves an Indemnity Issue. Neither party shall settle any dispute relating -15- to any such period without the consent of the other party (which consent shall not be unreasonably withheld); provided, however, that if either party proposes a settlement and the other party does not consent thereto, the nonconsenting party shall assume control of the Proceeding (and bear all subsequently incurred costs, fees and expenses relating thereto) and the respective liabilities of the parties shall be determined pursuant to Section 6.7 based on the magnitude and likelihood of success of the issues involved in the Proceeding, the reasonableness of the settlement offer, the expense of continuing the Proceeding and other relevant factors. Any other disputes regarding the conduct or resolution of any such Proceeding shall be resolved pursuant to Section 6.7. All costs, fees and expenses paid to third parties in the course of such Proceeding shall be borne by the parties in the same ratio as the ratio in which, pursuant to the terms of this Agreement, the parties would share the responsibility for payment of the Taxes asserted by the taxing authority in its claim or assessment if such claim or assessment were sustained in its entirety; provided, however, that in the event that any party hereto retains its own advisors or experts in connection with any Proceeding, the costs and expenses thereof shall be borne solely by such party. Section 4.3. Cooperation and Exchange of Information. (a) Grace shall, and shall cause each appropriate member of the Packco Group to, prepare and submit to Grace-Conn., as soon as practicable, but in no event later than the date that is 30 days after a request from Grace-Conn. (i) all information as Grace-Conn. shall reasonably request to enable Grace-Conn. to file any Conn Prepared Return or prepare any Pre-Distribution Schedule (which information shall be provided in the form and of the quality in which comparable information was provided prior to the Distribution) and (ii) any Del Prepared Return (including any amended return) for any year within the carryback or carryforward period for an Overall Tax Benefit or Hypothetical Pre- Distribution Overall Tax Benefit that is for the account of Grace-Conn. or for any year with respect to which Grace is entitled to a payment under Section 3.2(a)(v). Grace-Conn. shall bear any out-of-pocket marginal expense paid by any member of the Packco Group in preparing and submitting such information in respect of a Pre-Distribution Schedule relating to a Pre- Distribution Taxable Period, and the parties shall share equally any such expenses in respect of a Pre-Distribution Schedule relating to a Straddle Period. (b) Each party on behalf of itself and each member of its Group, agrees to provide the other party and the members of such party's Group with such cooperation and information as the second party or its Group members shall reasonably request in connection with the preparation or filing of any Tax Return, Pre- Distribution Schedule or claim for refund not inconsistent with this Agreement or in conducting any Proceeding in respect of Taxes. Such cooperation and information shall include, without -16- limitation, (i) execution and delivery of a power of attorney by Grace or any other member of the Packco Group to Grace-Conn. or another member of the New Grace Group or designation of an officer of Grace-Conn. or another member of the New Grace Group as an officer of Grace or any other member of the Packco Group for the purpose of signing Tax Returns, cashing refund checks and conducting Proceedings if Grace Conn. could not otherwise exercise its rights under this Agreement with respect to such Returns, refunds or Proceedings, (ii) promptly forwarding copies of appropriate notices and forms or other communications received from or sent to any taxing authority which relate to the Affiliated Group, the Packaging Business or the New Grace Business and (iii) providing copies of all relevant portions of Tax Returns, accompanying schedules, related workpapers, documents relating to rulings or other determinations by taxing authorities, including, without limitation, foreign taxing authorities, and records concerning the ownership and Tax basis of property, which either party may possess. Each party shall make, and shall cause the members of the Packco Group to make, their employees and facilities available on a mutually convenient basis to provide explanation of any documents or information provided hereunder. (c) Grace and Grace-Conn. agree to retain all Tax Returns, related schedules and workpapers, and all material records and other documents as required under Section 6001 of the Code and the regulations promulgated thereunder relating thereto existing on the date hereof or created through the Distribution Date, until the expiration of the statute of limitations (including extensions) of the taxable years to which such Tax Returns and other documents relate and until the Final Determination of any payments which may be required in respect of such years under this Agreement. Grace-Conn. and Grace agree to advise each other promptly of any such Final Determination. Any information obtained under this Section shall be kept confidential, except as may be otherwise necessary in connection with the filing of Tax Returns or claims for refund or in conducting any audit or other proceeding. (d) If (i) any member of the Packco Group fails to provide any information requested pursuant to this Section 4.3(a) by the dates and in the manner specified in Section 4.3(a) hereof or (ii) with respect to information not requested pursuant to Section 4.3(a) hereof, any member of either Group fails to provide any information requested pursuant to this Section 4.3, within a reasonable period, then the requesting party shall have the right to engage a "Big Six" public accounting firm of its choice to gather such information. Each party agrees upon two business days' notice, in the case of a failure to provide information pursuant to Section 4.3 hereof to permit any such "Big Six" public accounting firm full access to all appropriate records or other information in the possession of any member of the party's Group during reasonable business hours, and promptly -17- to reimburse or pay directly all costs and expenses in connection with the engagement of such public accountants. (e) If any member of either Group supplies information pursuant to this Agreement and an officer of any member of the other Group signs a statement or other document under penalties of perjury in reliance upon the accuracy of such information and so requests, then a duly authorized officer of the member supplying such information shall certify, under penalties of perjury, the accuracy and completeness of the information so supplied. Grace agrees to indemnify and hold harmless each New Grace Indemnitee, and Grace-Conn. agrees to indemnify and hold harmless each Packco Indemnitee, from and against any cost, fine, penalty or other expense of any kind attributable to the gross negligence or willful misconduct of a member of the Packco Group, or New Grace Group, as the case may be, in supplying a member of the other Group with inaccurate or incomplete information. ARTICLE V. CERTAIN POST-DISTRIBUTION TRANSACTIONS Section 5.1 Sealed Air and Packco Group Covenants. Unless, in the case of any of Sections 5.1(a) through (f) below, Grace has obtained a ruling letter from the IRS or an opinion of nationally recognized counsel to Grace, in either case, to the effect that, without material qualification, such act or omission will not adversely affect the federal income tax consequences of the Distribution to any of Grace, Grace-Conn. or the stockholders of Grace-Conn., as set forth in the Tax Opinions, and the substance of, and basis for, such conclusion in such ruling or opinion is reasonably satisfactory to Grace-Conn. in its good faith solely with regard to preserving the Tax-Free Status of the Distribution (the "Ruling/Opinion Exception"): (a) No Sealed Air Party at any time nor any member of the Packco Group at any time after the Effective Time shall take any action, or fail or omit to take any action, that would cause any representation made in the Sealed Air Tax Matters Certificate or the Grace Tax Matters Certificate to be untrue in a manner that would have an adverse effect on the Tax-Free Status of the Distribution. (b) Until the first day after the Restriction Period, the Packco Group shall continue the active conduct of the Packaging Business (the "Active Packco Business"). The Packco Group shall not liquidate, dispose of, or otherwise discontinue the conduct of any material portion of the Active Packco Business. The Packco Group shall continue the active conduct of the Packaging Business primarily through officers and employees of the Packco Group (and not through independent contractors). (c) Until the first day after the Restriction Period, -18- no Sealed Air Party nor any member of the Packco Group shall sell or otherwise issue to any Person, or redeem or otherwise acquire from any Person (other than any member of the Packco Group), any Equity Securities of Grace or any other member of the Packco Group; provided, however, that purchases that, in the aggregate, meet the requirements of Section 4.05(1)(b) of Revenue Procedure 96-30 shall not constitute a redemption or acquisition of stock of Grace for purposes of this Section 5.1(c). (d) Until the first day after the Restriction Period, no Sealed Air Party nor any member of the Packco Group shall (i) solicit any Person to make a tender offer for, or otherwise acquire or sell, the Equity Securities of Grace, (ii) participate in or support any unsolicited tender offer for, or other acquisition or disposition of, the Equity Securities of Grace or (iii) approve or otherwise permit any proposed business combination or any transaction which, in the case of (i), (ii) or (iii), individually or in the aggregate, together with the transactions contemplated under the Distribution Agreement, the Merger Agreement, the Benefits Agreement and this Agreement, results in one or more Persons acquiring (other than in acquisitions not taken into account for purposes of Section 355(e)) directly or indirectly stock representing a 50 percent or greater interest (within the meaning of Section 355(e) of the Code) in Grace. In addition, no Sealed Air Party nor any member of the Packco Group shall at any time, whether before or subsequent to the expiration of the Restriction Period, engage in any action described in clauses (i), (ii) or (iii) of the preceding sentence if it is pursuant to an arrangement negotiated (in whole or in part) prior to the Distribution, even if at the time of the Distribution it is subject to various conditions, nor shall any such Party or member take any action, or fail or omit to take any action, that would cause Section 355(d) or (e) to apply to the Distribution. (e) Until the first day after the Restriction Period, no Sealed Air Party nor the members of the Packco Group shall sell, transfer, or otherwise dispose of or agree to dispose of assets (including, for such purpose, any shares of capital stock of a Subsidiary) that, in the aggregate, constitute more than 60% of the gross assets of Packco, nor shall they sell, transfer, or otherwise dispose of or agree to dispose of assets (including, for such purpose, any shares of capital stock of a Subsidiary) that, in the aggregate, constitute more than 60% of the consolidated gross assets of the Packco Group. The foregoing sentence shall not apply to sales, transfers, or dispositions of assets in the ordinary course of business. The percentages of gross assets or consolidated gross assets of Packco or the Packco Group, as the case may be, sold, transferred, or otherwise disposed of, shall be based on the fair market value of the gross assets of Packco and the Packco Group as of the Effective Time, and for this purpose, the values set forth in the Packaging Business Disclosure Letter Balance Sheet shall be conclusive. -19- (f) Until the first day after the Restriction Period, neither Packco nor its Subsidiaries shall voluntarily dissolve or liquidate or engage in any merger, consolidation or other re- organization. The foregoing sentence shall not apply to transactions in which Packco acquires another corporation, limited liability company, limited partnership, general partner-ship or joint venture solely for cash or other consideration that is not Equity Securities. Reorganizations of Packco with its Affiliates, and liquidations of Packco's Affiliates, are not subject to Section 5.1(b) or this Section 5.1(f) to the extent not inconsistent with the structure necessary for the Distribution to qualify for Tax-Free Status. (g) Until the first day after the Restriction Period, Grace shall furnish Grace-Conn. with a copy of any ruling request that Sealed Air, Grace or any of their Affiliates may file with the IRS and any opinion received that relates to or otherwise reasonably could be expected to have an effect on the Tax-Free Status of the Distribution. Section 5.2 New Grace Covenants. Unless, in the case of any of Sections 5.2(a) through (e) below, Grace-Conn. has obtained a ruling letter from the IRS or an opinion of nationally recognized counsel to Grace-Conn., in either case, to the effect that, without material qualification, such act or omission will not adversely affect the federal income tax consequences of the Distribution to any of Grace, Grace-Conn. or the stockholders of Grace-Conn., as set forth in the Tax Opinions, and the substance of, and basis for, such conclusion in such ruling or opinion is reasonably satisfactory to Grace in its good faith solely with regard to preserving the Tax-Free Status of the Distribution: (a) No member of the New Grace Group shall take any action, or fail or omit to take any action, that would cause any representation made in the Sealed Air Tax Matters Certificate or the Grace Tax Matters Certificate to be untrue in a manner that would have an adverse effect on the Tax-Free Status of the Distribution. (b) Until the first day after the Restriction Period, the New Grace Group shall continue the active conduct of one of the Active New Grace Businesses. "Active New Grace Businesses" shall mean each of the Grace Davison business and the Grace Construction Business. The New Grace Group may dispose of, liquidate or discontinue the conduct of the Grace Davison business or the Grace Construction Products business if it actively continues the conduct of the other. The New Grace Group shall continue the active conduct of at least one of the Active New Grace Businesses primarily through officers and employees of the New Grace Group (and not through independent contractors). (c) Until the first day after the Restriction Period, -20- no member of the New Grace Group shall sell or otherwise issue to any Person, or redeem or otherwise acquire from any Person (other than any member of the New Grace Group), any Equity Securities of New Grace or any other member of the New Grace Group; provided, however, that purchases that, in the aggregate, meet the requirements of Section 4.05(1)(b) of Revenue Procedure 96-30 shall not constitute a redemption or acquisition of stock of New Grace for purposes of this Section 5.2(c). (d) Until the first day after the Restriction Period, no member of the New Grace Group shall (i) solicit any Person to make a tender offer for, or otherwise acquire or sell, the Equity Securities of New Grace, (ii) participate in or support any unsolicited tender offer for, or other acquisition or disposition of, the Equity Securities of New Grace or (iii) approve or otherwise permit any proposed business combination or any transaction which, in the case of (i), (ii) or (iii), individually or in the aggregate, together with the transactions contemplated under the Distribution Agreement, the Merger Agreement, the Benefits Agreement and this Agreement, results in one or more Persons acquiring (other than in acquisitions not taken into account for purposes of Section 355(e)) directly or indirectly stock representing a 50 percent or greater interest (within the meaning of Section 355(e) of the Code) in New Grace. In addition, no member of the New Grace Group shall at any time, whether before or subsequent to the expiration of the Restriction Period, engage in any action described in clauses (i), (ii) or (iii) of the preceding sentence if it is pursuant to an arrangement negotiated (in whole or in part) prior to the Distribution, even if at the time of the Distribution it is subject to various conditions, nor shall any such member take any action, or fail or omit to take any action, that would cause Section 355(d) or (e) of the Code to apply to the Distribution. (e) Until the first day after the Restriction Period, no member of the New Grace Group shall sell, transfer, or otherwise dispose of or agree to dispose of assets (including, for such purpose, any shares of capital stock of a Subsidiary) that, in the aggregate, constitute more than 60% of the gross assets of New Grace, nor shall they sell, transfer, or otherwise dispose of or agree to dispose of assets (including, for such purpose, any shares of capital stock of a Subsidiary) that, in the aggregate, constitute more than 60% of the consolidated gross assets of the New Grace Group. The foregoing sentence shall not apply to sales, transfers, or dispositions of assets in the ordinary course of business or to a sale, transfer or disposition of any or all of the Discontinued Businesses and either of the Active New Grace Businesses; provided, however, that in the event of a sale, transfer or disposition of one of the Active New Grace Businesses, the retained Active New Grace Business shall be conducted by a member of the New Grace Group at substantially the same level as on the Distribution Date. The percentages of gross assets or consolidated gross assets of New Grace or the New Grace Group, as the case may be, sold, transferred, or otherwise -21- disposed of, shall be based on the fair market value of the gross assets of New Grace and the New Grace Group as of the Effective Time, and for this purpose, the values set forth in the [Registration Statements] shall be conclusive. (f) Until the first day after the Restriction Period, Grace-Conn. shall furnish Grace with a copy of any ruling request that Grace-Conn. or any of its Affiliates may file with the IRS and any opinion received that relates to or otherwise reasonably could be expected to have an effect on the Tax-Free Status of the Distribution. Section 5.3. Responsibility for Taxes. (a) Sealed Air and Grace agree to indemnify and hold the Grace-Conn. Indemnitees harmless from and against all Indemnifiable Losses resulting from (x) any Action which causes the Distribution to fail to have Tax-Free Status or (y) the Merger failing to qualify as a reorganization under Section 368 of the Code. An "Action" shall mean any act or omission which fails to comply with any of the representations in the Sealed Air Tax Matters Certificate or the covenants in Section 5.1 and any act or omission which would fail to comply with any of the covenants in Section 5.1 but for compliance with the Ruling/ Opinion Exception. An "Action" shall also include an action or omission which would be a breach of the covenant contained in the first sentence of Section 5.1(d), if such covenant were in effect until the day which is five years after the Effective Time instead of until the first day after the Restriction Period. (b) Grace-Conn. agrees to indemnify and hold the Packco Indemnitees harmless from and against any Tax resulting from the failure of the Distribution to have Tax-Free Status, except where such failure is attributable to an Action. (c) For purposes of Sections 5.1 and 5.2 hereof, when a tax opinion or ruling of one party (the "Transaction Party") is required to be reasonably satisfactory to the other party (the "Reviewing Party"), the Reviewing Party at the request of the Transaction Party shall designate nationally recognized counsel to review such opinion or ruling without revealing the substance of the underlying transaction to the Reviewing Party and the concurrence of such outside counsel to the sufficiency of such opinion or ruling shall constitute "reasonable satisfaction" to the Reviewing Party for purposes of this Agreement. Section 5.4. Injunction. The parties hereto agree that the payment of monetary compensation would not be an adequate remedy for a breach of the obligations contained in Article V hereof, and each party consents to the issuance and entry of an injunction against the taking of any action by it or a member of its Group that would constitute such a breach; provided, however, that the foregoing shall be without prejudice -22- to and shall not constitute a waiver of any other remedy either party may be entitled to at law or at equity hereunder. ARTICLE VI. MISCELLANEOUS Section 6.1. Expenses. Unless otherwise expressly provided in this Agreement, the Distribution Agreement or the Merger Agreement, each party shall bear any and all expenses that arise from their respective obligations under this Agreement. Section 6.2. Foreign Transfer Taxes. Adjusted Foreign Transfer Taxes shall be shared by the parties as provided in the Distribution Agreement. Audit adjustments and Final Determinations of such Taxes shall be governed by the Distribution Agreement. This Agreement governs responsibilities of the parties with respect to filing Tax Returns relating to Foreign Transfer Taxes, paying Foreign Transfer Taxes reflected on such Tax Returns to the applicable governmental authority and conducting Proceedings relating to Foreign Transfer Taxes. For purposes of determining indemnity and reimbursement obligations of the parties under this Agreement, Tax Items arising as a result of the Foreign Transfers (but not Tax Items arising from any actual distribution of Subsidiary Excess Cash) shall be disregarded, and the Pre-Distribution Schedules shall not reflect such Tax Items. Section 6.3. Payments Paid or Received on Behalf of Indemnitees; Right to Designate Payee. Each of Grace-Conn. and Grace shall be entitled to designate an Affiliate of such party as payee with respect to any payment that would otherwise be made to Grace-Conn. or Grace, respectively, under this Agreement. Any payment received by Grace-Conn. or Grace, respectively, or its respective designees shall be received on behalf of the relevant Grace-Conn. Indemnitees or Packco Indemnitees. Section 6.4. Foreign Exchange Rate. If any amount required to be paid hereunder is determined by reference to a Tax, Tax refund, Tax Benefit or Tax Detriment that 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 that such Tax is paid, such Tax refund is received or such Tax Benefit or Tax Detriment reduces or increases the amount of Tax or Tax refund that would otherwise be paid or received. Section 6.5. Amendment. This Agreement may not be amended except by an agreement in writing, signed by the parties hereto. Anything in this Agreement or the Distribution Agreement to the contrary notwithstanding, in the event and to the extent that there shall be a conflict between the provisions of this Agreement and the Distribution Agreement, the provisions of this Agreement shall control. -23- Section 6.6. Notices. All notices and other communications hereunder shall be in writing and shall be delivered by hand including overnight business courier or mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other addresses for a party as shall be specified by like notice) and shall be deemed given on the date on which such notice is received: (a) To Grace-Conn. or any member of the New Grace Group: W. R. Grace & Co.-Conn. One Town Center Road Boca Raton, Florida 33486-1010 Attention: Secretary Fax: (561) 362-1635 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 (b) To Grace or any member of the Packco Group: care of Sealed Air Park 80 East Saddle Brook, New Jersey 07663 Attention: [ ] Fax: [ ] with a copy to: Davis Polk & Wardwell 450 Lexington Ave. New York, New York 10017 Attention: Christopher Mayer, Esq. Fax: (212) 450-4800 Section 6.7. Resolution of Disputes. Any disputes between the parties with respect to this Agreement regarding the practice and preparation of returns or the calculation of amounts shall be resolved by a "Big Six" public accounting firm whose determination shall be conclusive and binding on the parties. The fees and expenses of such firm shall be shared equally by Grace-Conn. and Grace, except as otherwise provided herein. Any other disputes shall be resolved by a "Big Six" public accounting firm or a law firm or by any other procedure that the parties may choose. Section 6.8. Application to Present and Future Subsidiaries. This Agreement is being entered into by Grace- -24- Conn. and Grace on behalf of themselves and each member of the New Grace Group and Packco Group, respectively. This Agreement shall constitute a direct obligation of each such member. Grace- Conn. and Grace hereby guarantee the performance of all actions, agreements and obligations provided for under this Agreement of each member of the New Grace Group and the Packco Group, respectively. Grace-Conn. and Grace shall, upon the written request of the other, cause any of their respective Group members formally to execute this Agreement. This Agreement shall be binding upon, and shall inure to the benefit of, the successors and assigns of any of the corporations bound hereby. Section 6.9. Term. This Agreement shall commence on the date of execution indicated below and shall continue in effect until otherwise agreed to in writing by Grace-Conn. and Grace, or their successors. Section 6.10. Titles and Headings. Titles and head- ings to Sections herein are inserted for the convenience of reference only and are not intended to be a part or to affect the meaning or interpretation of this Agreement. Section 6.11. Legal Enforceability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. Any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Without prejudice to any rights or remedies otherwise available to any party hereto, each party hereto acknowledges that damages would be an inadequate remedy for any breach of the provisions of this Agreement and agrees that the obligations of the parties hereunder shall be specifically enforceable. Section 6.12. Governing Law. This Agreement shall be governed by the laws of the State of Delaware. -25- IN WITNESS WHEREOF, the parties have executed this Agreement as of the __ day of ___________, 1997. W. R. GRACE & CO. By: ____________________________ Name: Title: W. R. GRACE & CO.-CONN. By: ____________________________ Name: Title: SEALED AIR CORPORATION By: ____________________________ Name: Title: -26- EX-99 6 EXHIBIT 99.1 EXHIBIT 99.1 Contacts: For W. R. Grace & Co.: For Sealed Air Corporation: Mary Lou Kromer Mary Coventry W. R. Grace & Co. Sealed Air Corporation 561-362-2600 201-791-7600 Ruth Pachman Harry Savage Kekst and Company Robert Marston & Associates 212-521-4800 212-371-2200 For Immediate Release GRACE TO MERGE CRYOVAC (REGISTERED) BUSINESS WITH SEALED AIR IN TAX-FREE TRANSACTION CREATING TWO NEW PUBLIC COMPANIES NEW SEALED AIR, LED BY T.J. DERMOT DUNPHY, WILL BE WORLD'S LEADING PROTECTIVE AND SPECIALTY PACKAGING COMPANY GRACE SHAREHOLDERS TO OWN 63% OF NEW PACKAGING COMPANY AND RETAIN 100% OWNERSHIP OF NEW GRACE SPECIALTY CHEMICALS COMPANY TRANSACTION VALUE TO GRACE AND ITS SHAREHOLDERS IS APPROXIMATELY $5 BILLION, INCLUDING $1.2 BILLION CASH CONTRIBUTION TO THE NEW GRACE BOCA RATON, FL AND SADDLE BROOK, NJ, August 14,1997 -- W. R. Grace & Co. (NYSE: GRA) and Sealed Air Corporation (NYSE: SEE) today announced they have entered into a definitive agreement to combine Grace's packaging business with Sealed Air to create a new publicly owned company, to be called Sealed Air, that will be the world's leading protective and specialty packaging company, with annual sales in excess of $2.5 billion. The transaction, tax-free to both companies and their shareholders, is expected to be completed in early 1998. Prior to the merger, Grace's specialty chemicals businesses will become a new publicly traded company that will be spun off to Grace shareholders. The new company will consist of Grace Davison, Grace Construction Products and DAREX Container Products, have annual sales of approximately $1.5 billion and retain the Grace name. The transaction will be preceded by a $1.2 billion capital contribution to the new Grace specialty chemicals company, which will use the cash to pay down substantially all of its debt. Grace shareholders will receive approximately 40.9 million common shares and 36 million new convertible preferred shares in the new Sealed Air. The convertible preferred shares will have a stated value of $1.8 billion, be convertible into approximately 31.8 million common shares of the new Sealed Air at a per share conversion price of $56.525 and will pay dividends at a four percent annual rate. On a fully diluted basis, Grace shareholders and current Sealed Air shareholders will own 63 percent and 37 percent, respectively, of the new Sealed Air. Based on Sealed Air's stock price at the close on August 13, the merger has an estimated value to Grace and Grace shareholders of approximately $5 billion, including $1.9 billion of Sealed Air common stock, $1.8 billion face amount of the convertible preferred shares and the $1.2 billion cash contribution to Grace at the time of the merger. Excluding the effect of transaction and integration costs, the transaction is expected to be accretive to Sealed Air's earnings per share going forward. 2 Albert J. Costello, chairman, president and chief executive officer of Grace, will continue to be chairman, president and chief executive officer of the new Grace specialty chemicals company, and T.J. Dermot Dunphy, chairman and chief executive officer of Sealed Air, will be chairman and chief executive officer of the new Sealed Air. Mr. Costello said, "This transaction provides Grace shareholders with an immediate premium for Grace's packaging business, the opportunity to continue to participate in the future value of an even stronger packaging company with excellent growth prospects, and an ongoing stake in what will now be a highly focused and strong specialty chemicals company. It represents another significant achievement in our ongoing mission to deliver substantial value to Grace shareholders, both from operational improvements and creative transactions." THE NEW SEALED AIR Mr. Dunphy said, "The combination of Sealed Air and Grace Packaging will create an outstanding protective and specialty packaging company that will serve the needs of a broad range of customers throughout the world. The rationale behind the merger of these two packaging businesses, both leaders in technological innovation and marketing effectiveness, is clearly evident." Mr. Dunphy continued, "The combined packaging company will have global reach and will be well positioned to grow at above- average rates in the rapidly changing global marketplace, to penetrate new geographic markets with its full range of products, and to seek out additional strategic alliances that will 3 further strengthen its global position. We expect that the combined company will benefit from a broad range of operating synergies." On a pro forma basis, the new Sealed Air would have sales in excess of $2.5 billion and, based on Sealed Air's current stock price, a total market capitalization, including debt and preferred stock, of approximately $7 billion. The new Sealed Air will be headquartered in Saddle Brook, New Jersey. In addition to Mr. Dunphy, other key executives will include William V. Hickey, president and chief operating officer of Sealed Air, and J. Gary Kaenzig, Jr., president of Grace Packaging. All current officers of Sealed Air as well as several executives of the current Grace packaging organization will be officers of the new Sealed Air. The board of the new Sealed Air will consist of the seven current Sealed Air directors as well as several non-management directors from the current board of Grace, who will resign from the Grace board upon transaction completion. Grace's packaging business, best known by the Cryovac (Registered) brand, is the world's leader in packaging materials and systems to preserve perishable foods. Cryovac (Registered) provides value-added packaging systems, including packaging materials, equipment, technical support and graphical design, for a global customer base in the food, consumer goods and industrial products industries. Other product lines include Omicron (Trademark) rigid plastic cups and tubs for dairy foods and Formpac (Trademark) foam trays for supermarkets and institutional food service. 4 Sealed Air is a global leader in protective and specialty packaging materials and systems. Sealed Air's wide range of protective and specialty packaging materials and systems include Instapak (Registered) polyurethane foam packaging systems, engineered polyethylene foams, Bubble Wrap (Registered) air cellular cushioning materials, Cell-Aire (Registered) polyethylene foam, a wide range of protective and durable mailers, including mailers sold under the widely recognized Jiffy (Trademark) trademark, and Dri-Loc (Registered) absorbent pads used for retail packaging of meat, fish and poultry. Certain Cryovac (Registered) products, such as vacuum- sealed food packaging, are used by customers in conjunction with Sealed Air products, such as Dri-Loc (Registered) absorbent pads. THE NEW GRACE SPECIALTY CHEMICALS COMPANY "I am enthusiastic about the future growth opportunities for the new Grace specialty chemicals company," said Mr. Costello. "Our new Grace specialty chemicals company will be financially strong, and will continue to build upon its market leadership, technological strengths, and global presence. At the same time, we will continue our aggressive cost reduction and capital management efforts which have proven so successful over the past few years, leading to consistent operating margin improvements. Furthermore, our new financial position will allow added flexibility to invest in new product development, geographic expansion and strategic acquisitions." The new Grace specialty chemicals company will maintain its headquarters in Boca Raton, Florida. Grace Davison is the world's leading 5 supplier of fluid cracking catalysts, silica-based polyolefin catalysts and silica gels. Grace Construction Products is a leading global supplier of specialty products to the construction industry, including concrete additives, structural waterproofing and fireproofing products. DAREX Container Products is a leading supplier of container sealants and coatings. OTHER HIGHLIGHTS OF THE TRANSACTION The definitive agreement is subject to customary conditions, including approval of both companies' shareholders and certain regulatory approvals. The historic liabilities of Grace, including asbestos and environmental liabilities of the non-packaging business, will remain with the specialty chemicals company. The shares of both the new Sealed Air and the new Grace specialty chemicals company are expected to be listed on the New York Stock Exchange. COMPANY PROFILES Grace is a leading global supplier of flexible packaging and specialty chemicals with annual sales of approximately $3.5 billion. The company operates in more than 100 countries. To view more information about Grace online via the World Wide Web, visit Grace's page at http://www.prnewswire.com. Sealed Air is engaged primarily in the manufacture and sale of a complementary line of protective and specialty packaging materials and systems and selected food packaging products, and has operations in 27 countries. Sealed Air's annual sales, which have grown over the last 20 years at an 6 average annual rate of 19%, exceed $800 million. To view Sealed Air's latest financial news online via the World Wide Web, visit http://www.cfonews.com/see. Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: The statements contained in this release which are not historical facts, such as those concerning future financial performance and growth, are forward looking statements that are subject to change based on various factors which may be beyond Sealed Air's and Grace's control. Accordingly, the future performance and financial results of Sealed Air and/or Grace and their respective businesses may differ materially from those expressed or implied in any such forward looking statements. Such factors include, but are not limited to, those described in Grace's and Sealed Air's filings with the Securities and Exchange Commission, as well as various factors related to the transaction described in this release, including the costs of integrating the businesses of Sealed Air and Cryovac (Registered) and the realization of synergies anticipated with respect to the transaction. 7 W.R. GRACE AND SEALED AIR CORPORATION CONFERENCE CALL FRIDAY, AUGUST 15,1997 8:30 A.M. (EASTERN) You are cordially invited to participate in a conference call scheduled by W. R. Grace & Co. (NYSE: GRA) and Sealed Air Corporation (NYSE:SEE). The conference call will take place in three parts: 8:30A.M. PART ONE: A DISCUSSION OF THE TRANSACTION 9:00 A.M. PART TWO: A DISCUSSION OF THE NEW SEALED AIR - A HIGHLY DIVERSIFIED GLOBAL PACKAGING COMPANY 10:00 A.M. BREAK 10:20 A.M. PART THREE: A DISCUSSION OF THE NEW GRACE SPECIALTY CHEMICALS COMPANY During part one, the management of the two companies will first discuss the details of the transaction in which Grace's packaging business will be merged with Sealed Air. During part two, management will discuss the new packaging company, which will be the world's leading protective and specialty packaging enterprise. The management presentation will be followed by a question and answer session. During part three, which will begin at approximately 10:20 a.m., Grace's management will discuss the new Grace specialty chemicals businesses. The management presentation will be followed by a question and answer session. There will be a break between parts two and three from approximately 10:00 a.m. until 10:20 a.m., during which time you may either place the call on hold or hang up and call in again approximately 10 minutes prior to the start of the third part of the call. THE CONFERENCE CALL WILL BEGIN AT 8:30 A.M. (EASTERN TIME) ON FRIDAY, AUGUST 15,1997. TO PARTICIPATE, PLEASE CALL (719) 448-2040 APPROXIMATELY 10 MINUTES PRIOR TO THE START OF THE CALL. A replay of the call will be available from 3:00 p.m. (eastern) August 15, 1997 through 8:00 p.m. (eastern) August 19, 1997 by dialing (402) 222-9907. If you have any questions regarding the conference call, please contact Andrea Bergofin, Kekst and Company, (212) 521-4800. Editor's note: The following is supplemental information related to a news release issued earlier today about the Grace and Sealed Air transaction. TRANSACTION FACT SHEET THE TRANSACTION The Transaction has two components: 1. Prior to the merger, Grace's specialty chemicals operations, comprised of Grace Davison, Grace Construction Products and DAREX Container Products will be spun off to Grace shareholders. The specialty chemicals operations will become a separate company, which will retain the Grace name and is expected to be listed on the New York Stock Exchange. In addition, the transaction will be preceded by a $1.2 billion capital contribution to the new Grace specialty chemicals company, which will use the cash to pay down substantially all of its debt. 2. Grace's packaging business will be merged with Sealed Air to create the world's leading protective and specialty packaging company. This company will be named Sealed Air, and its shares are expected to be listed on the New York Stock Exchange. KEY TRANSACTION POINTS The transaction will be tax-free to both Grace and Sealed Air and their respective shareholders Grace shareholders will own 63% on a fully diluted basis of the new Sealed Air and will retain ownership of 100% of the new Grace specialty chemicals company Sealed Air shareholders will own 37% on a fully diluted basis of the new Sealed Air packaging company Transaction value to Grace shareholders of approximately $5 billion: $1.9 billion in common stock of the new Sealed Air (40.9 million common shares of the new Sealed Air) $1.8 billion in new convertible preferred stock (36.0 million convertible preferred shares, convertible into approximately 31.8 million common shares) $1.2 billion cash contribution to the new Grace, to be used to pay down substantially all of its debt Excluding the effect of transaction and integration costs, the transaction is expected to be accretive to Sealed Air's earnings per share going forward. The new Grace specialty chemicals company will be a substantially debt-free company. Editor's note: The following is supplemental information related to a news release issued earlier today about the Grace and Sealed Air transaction. THE NEW GRACE SPECIALTY CHEMICALS COMPANY Chairman, President and CEO: Albert J. Costello Pro Forma Revenues: Approximately $1.5 billion Employees: 6,000 worldwide Headquarters: Boca Raton, Florida The new Grace specialty chemicals company will consist of Grace Davison, a leading global supplier of fluid cracking catalysts, silica-based polyolefin catalysts and silica gels; Grace Construction Products, a leading global supplier of specialty products to the construction industry; and DAREX Container Products, a leading supplier of container sealants and coatings. GRACE DAVISON CATALYSTS AND SILICA PRODUCTS - Annual sales of more than $730 million. Headquartered in Baltimore, Maryland, employs 2,700 people worldwide. Grace Davison is the world's leading supplier of petroleum fluid cracking catalysts used to refine crude oil into transportation fuels and other petroleum-based products. It also is expanding its market position in hydroprocessing catalysts used to remove impurities from crude oil prior to the use of petroleum cracking catalysts. Grace Davison's polyolefin catalysts are critical in the manufacture of polyethylene resins for plastic film, gas distribution pipe and household containers. More than one-third of the world's polyethylene production relies on Grace Davison polyolefin catalysts. Grace Davison also is a leading global supplier of silica products and zeolite adsorbents, which are used to improve the performance of plastic films, coatings, pharmaceuticals, cosmetics, multi-pane window systems, dentifrices, powdered foods, edible oils and high-quality papers. Grace Davison technology focuses on innovations in polymeric systems, catalysis, silica-based systems and environmentally compatible fluid cracking catalysts for cleaner-burning fuels. GRACE CONSTRUCTION PRODUCTS - Annual sales of more than $450 million. Headquartered in Cambridge, Massachusetts, employs 1,900 people worldwide. Grace Construction Products manufactures and sells construction products worldwide to meet critical performance requirements. Its concrete admixtures, cement additives, masonry products, fire protection products and waterproofing materials perform some of construction's most vital jobs - they strengthen concrete, fight corrosion, prevent water damage and protect structural steel against collapse in the event of fire. Research and development efforts focus on designing products that add measurable value by significantly enhancing performance, for example, enhancers that create higher strength concrete. DAREX CONTAINER PRODUCTS -- Annual revenues of approximately $320 million. Headquartered in Lexington, Massachusetts, employs approximately 1,400 employees worldwide. DAREX Container Products is the world leader in can sealing and bottle crown technology. DAREX container sealants are vital to the safety and sealing integrity of more that 450 billion cans and bottles each year. Grace's innovative oxygen-absorbing technology maintains food and beverage quality - without preservatives - and increases shelf life to help customers reduce product rotation and distribution costs. RECENT HIGHLIGHTS Grace has implemented numerous changes over the past two years that have enabled the Company to enhance performance while focusing on profitably growing its global businesses, including the packaging business being merged with Sealed Air. Prior to this transaction, Grace has emerged as an integrated, global operating company, dedicated to continuously improving its product portfolio and its financial performance. Achieved record sales and earnings in each of its core businesses in 1996. Divested noncore businesses, including National Medical Care, Dearborn, Grace Cocoa, Grace's TEC metal catalysts business, Grace Specialty Polymers, Amicon and Agracetus. Significantly improved the capital structure of Grace by using more than $3.5 billion in investment proceeds to significantly reduce debt and repurchase shares. Repurchased 28 million shares of Grace common stock in 1996 and 1997. Reduced annual costs by more than $100 million and instituted rigorous financial and working capital controls. GRACE DAVISON Announced plans to commercialize a new catalyst in 1997 to reduce nitrogen dioxide emissions from refineries. Increased hydroprocessing catalyst production capabilities by expanding Curtis Bay, Maryland facility in 1996; also began construction of new Lake Charles, Louisiana, scheduled to begin operation in 1998. Started up new Kuantan, Malaysia silicas plant to provide regional silica products manufacturing capability in the Asia Pacific region. GRACE CONSTRUCTION PRODUCTS Achieved record three-fold improvement in pretax operating income and 10% sales growth in 1996. Increased sales of new and enhanced products nearly 35% in 1996, representing over 25% of total construction products sales. Acquired the cement additives business of Imporextran Quimica S.A. of Barcelona, Spain, and the concrete admixtures manufacturing assets of CSR Limited in Australia. Introduced innovative Eclipse (Registered) shrinkage- reducing concrete admixture to minimize concrete cracking. Introduced Polarset (Registered) noncorrosive set accelerator to enable customers to pour and work concrete in cold temperatures without using corrosion-causing chemicals. Introduced Vycor Ultra (Trademark) self-adhered roofing underlayment for commericial use to protect against ice dams and wind-driven rain. Trained 100% of its workforce in quality management techniques. DAREX CONTAINER PRODUCTS Introduced patented oxygen-scavenging technology worldwide for beer bottle crowns. Acquired Bayem S.A. de C.V. in Mexico, providing greater access to the rapidly growing Latin American can closure and sealants market. Formed joint venture with Shalimar Paints Ltd. in India to produce and market container coatings, closures and can sealing compounds. -----END PRIVACY-ENHANCED MESSAGE-----