~~================================================================================~~

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION ~~WASHINGTON,~~

Washington, D.C. 20549 ~~-------------------------------~~

FORM 10-K/A

Amendment No. 1

☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ~~AND~~ EXCHANGE ACT OF 1934

For the fiscal year ended December 31, ~~2003~~ 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission file number 1-13953

W. R. GRACE & CO. ~~Incorporated under~~

(Exact name of registrant as specified in its charter)


Delaware						65-0773649
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

7500 Grace Drive, Columbia, Maryland 21044-4098

(Address of principal executive offices) (Zip Code)

(410) 531-4000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value per share

GRA

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the ~~Laws~~registrant is a well-known seasoned issuer, as defined in Rule 405 of the ~~I.R.S. Employer Identification No. State~~Securities Act. Yes ☑ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of Delaware 65-0773649 7500 GRACE DRIVE, COLUMBIA, MARYLAND 21044-4098 410/531-4000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED ------------------- ---------------- Common Stock, $.01 par value } New York Stock Exchange, Inc. Preferred Stock Purchase Rights } SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None the Act. Yes ☐ No ☑

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ~~[X]~~☑ No ~~[ ]~~ ☐

Indicate by check mark ~~if disclosure of delinquent filers~~whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to ~~Item~~Rule 405 of ~~Regulations S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III~~Regulation S-T (§ 232.405 of this ~~Form 10-K or any amendment~~chapter) during the preceding 12 months (or for such shorter period that the registrant was required to ~~this Form 10-K. [ ]~~ submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the ~~Exchange~~ Act). Yes ~~[X]~~☐ No ~~[ ]~~ ☑

The aggregate market value of W. R. Grace & Co. voting and non-voting common equity held by non-affiliates as of June 30, ~~2003~~2020 (the last business day of the ~~registrant's~~registrant’s most recently completed second fiscal quarter) was ~~$239,410,239.~~ $2,844,898,340.

At ~~February 24, 2004, 65,614,064~~March 31, 2021, 66,248,119 shares of W. R. Grace & Co. Common Stock, ~~$.01~~$0.01 par value per share, were outstanding.

DOCUMENTS INCORPORATED BY ~~REFERENCE~~REFERENCE: None. ~~================================================================================~~ ~~PORTIONS AMENDED The Registrant hereby amends Part II - Items 6, 8 and 9A and Part IV - Item 15 contained in its report~~

EXPLANATORY NOTE

This Amendment No. 1 to Form 10-K (this “Amendment No.1” or “Form 10-K/A”) is being filed to amend the Annual Report on Form 10-K for the fiscal year ended December 31, ~~2003 for~~2020, of W. R. Grace & Co., a Delaware corporation, originally filed February 26, 2021, with the ~~restatement~~United States Securities and Exchange Commission, or the “SEC” (the “Original Filing”). We are filing this Amendment No. 1 to include in the Original Filing the information required by Part III (Items 10, 11, 12, 13, and 14) of Form 10-K. This information was previously omitted from the Original Filing in reliance on General Instruction G(3) to Form 10-K, which permits the information required by such items of Part III of Form 10-K to be incorporated into by reference from a registrant’s definitive proxy statement, if such definitive proxy statement is filed with the SEC not later than 120 days after the end of the ~~Registrant's consolidated financial statements as of December 31, 2003,~~registrant’s fiscal year covered by such Form 10-K. We are filing this Amendment No. 1 to include Part III information in the Original Filing because we will not file a definitive proxy statement within such 120-day period.

Part III (Items 10, 11, 12, 13 and for the year ended December 31, 2003 to correct the Consolidated Balance Sheet as of December 31, 2003, and the Consolidated Statement of Shareholders' Equity (Deficit), the Consolidated Statement of Cash Flows, and the Consolidated Statement of Comprehensive Income (Loss) for the year ended December 31, 2003, for the U.S. dollar translation of a third party's interest in a small consolidated joint venture. Due to a currency conversion error, the third party interest was mistakenly calculated at $20.0 million instead of $200,000, a condition that was discovered as part of Grace's second quarter 2004 financial review. The effect of this non-cash correction to Grace's December 31, 2003 balance sheet was to increase shareholders' equity by $19.8 million and to decrease liabilities by the same amount. This condition had no effect on originally reported net loss, per share amounts, net sales, operating income or any other element of Grace's Consolidated Statement of Operations for the year ended December 31, 2003 or on any14) of the ~~financial statements for~~Original Filing is hereby deleted in its entirety and replaced with the ~~interim quarters in 2003.~~ ~~TABLE OF CONTENTS~~

~~PART II ITEM 6. SELECTED FINANCIAL DATA The information called for~~following Part III set forth below, and Item 15 of Part IV of the Original Filing is being amended to add new exhibits, including certifications. As required by ~~this Item appears~~Rule 12b-15 under the ~~heading "Financial Summary" (page F-36~~Securities Exchange Act of ~~the Financial Supplement) and in Notes 1, 2, 3, 4, 10, 13 and 14~~1934, as amended, currently dated certifications pursuant to the Consolidated Financial Statements (pages F-10 through F-20, and F-23 through F-28 of the Financial Supplement), which is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the Index to Consolidated Financial Statements and Financial Statement Schedule on page F-2 of the Financial Supplement, which is incorporated herein by reference. ITEM 9A. CONTROLS AND PROCEDURES The information called for by this Item appears under the heading "Report on Internal Controls and Procedures" on page F-37 of the Financial Supplement, which is incorporated herein by reference. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K Financial Statements and Schedules. See the Index to Consolidated Financial Statements and Financial Statement Schedule on page F-2 of the Financial Supplement. Exhibits. The exhibits to this amended Report are listed below and are filed herewith. Exhibit no. ---- 23 Consent of Independent Registered Public Accounting Firm 31.1 Certification of Periodic Report by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002 ~~31.2 Certification~~are attached hereto as Exhibit 31(i).3 and Exhibit 31(i).4, respectively. Because no financial statements are included in this Amendment No. 1 and this Amendment No. 1 does not contain or amend any disclosure with respect to Items 307 and 308 of ~~Periodic Report by Chief Financial Officer~~Regulation S-K, paragraphs 3, 4 and 5 of the certifications have been omitted. Also, we are not including the certifications under Section ~~302~~906 of Sarbanes-Oxley Act of 2002 as no financial statements are being filed with this Amendment No. 1. Further, we are amending the cover page to update the number of ordinary shares outstanding and to remove the statement that information is being incorporated by reference from our definitive proxy statement.

Except as described above, no other changes have been made to the Original Filing. Accordingly, this Amendment No. 1 should be read in conjunction with the Original Filing and our other filings with the SEC. The Original Filing continues to speak as of the date of the Original Filing, and we have not updated the disclosures contained therein to reflect any events that occurred at a date subsequent to the filing of the Original Filing.

TABLE OF CONTENTS


EXPLANATORY NOTE
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	5
Item 11.	Executive Compensation	24
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	63
Item 13.	Certain Relationships and Related Transactions, and Director Independence	66
Item 14.	Principal Accountant Fees and Services	71
PART IV
Item 15.	Exhibits, Financial Statement Schedules	72
SIGNATURES		76

GENERAL REFERENCES

Notes on references that we use in this disclosure. Unless the context indicates otherwise, the terms “Grace,” the “Company,” “we,” “us,” or “our” mean (i) W. R. Grace & Co. itself, or (ii) W. R. Grace & Co. and/or one or more of its consolidated subsidiaries and affiliates and, in certain cases, their respective predecessors. Unless otherwise indicated, the contents of websites that we mention are not incorporated by reference or otherwise made a part of this Report.

We refer to the Financial Accounting Standards Board as the “FASB.” The FASB issues, among other things, Accounting Standards Codifications (which we refer to as “ASC”) and Accounting Standards Updates (which we refer to as “ASU”). We refer to the U.S. Internal Revenue Service as the “IRS.”

TRADEMARKS AND OTHER INTELLECTUAL PROPERTY REFERENCED IN THIS DISCLOSURE

Trademarks and other intellectual property that we discuss in this disclosure. GRACE®, the GRACE® logo (and any other use of the term “Grace” as a tradename) as well as the other trademarks, service marks, or trade names used in this Report are trademarks, service marks, or trade names, registered in the United States and/or other countries, of Grace or its operating units, except as otherwise indicated. UNIPOL® and UNIPOL UNIPPAC® are trademarks of The Dow Chemical Company or an affiliated company of Dow. Grace and/or its affiliates are licensed to use the UNIPOL® and UNIPOL UNIPPAC® trademarks in the area of polypropylene. ART® and ADVANCED REFINING TECHNOLOGIES® are trademarks, registered in the United States and/or other countries, of Advanced Refining Technologies LLC. RESPONSIBLE CARE® and RESPONSIBLE CARE MANAGEMENT SYSTEM® are trademarks, registered in the United States and/or other countries, of the American Chemistry Council. ‡Sustainalytics, a leading independent provider of ESG and corporate governance ratings, research and analysis, has provided the ESG Risk Rating as set forth in the ESG Risk Rating Summary Report issued December 31, 2020.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this communication may contain forward-looking statements, that is, information related to future, not past, events. Such statements generally include the words “believes,” “plans,” “intends,” “targets,” “will,” “expects,” “suggests,” “anticipates,” “outlook,” “continues,” or similar expressions. Forward-looking statements include, without limitation, statements regarding: financial positions; results of operations; cash flows; financing plans; business strategy; operating plans; capital and other expenditures; impact of COVID-19 on our business; competitive positions; growth opportunities for existing products; benefits from new technology; benefits from cost reduction initiatives; succession planning; markets for securities; the anticipated timing of closing of the proposed transaction between the Company and affiliates of Standard Industries Holdings Inc. and the potential benefits of the proposed transaction. For these statements, we claim the protections of the safe harbor for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We are subject to risks and uncertainties that could cause actual results or events to differ materially from our projections or that could cause forward-looking statements to prove incorrect. Factors that could cause actual results or events to differ materially from those contained in the forward-looking statements include, without limitation: risks related to foreign operations, especially in areas of active conflicts and in emerging regions; the costs and availability of raw materials, energy and transportation; the effectiveness of our research and development and growth investments; acquisitions and divestitures of assets and businesses; developments affecting our outstanding indebtedness; developments affecting our pension obligations; legacy matters (including product, environmental, and other legacy liabilities) relating to past activities of Grace; our legal and environmental proceedings; environmental compliance costs (including existing and potential laws and regulations pertaining to climate change); the inability to establish or maintain certain business relationships; the inability to hire or retain key personnel; natural disasters such as storms and floods; fires and force majeure events; the economics of our customers’ industries, including the petroleum refining, petrochemicals, and plastics industries, and shifting consumer preferences; public health and safety concerns, including pandemics and quarantines; changes in tax laws and regulations; international trade disputes, tariffs, and sanctions; the potential effects of cyberattacks; the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement between Grace and Standard Industries Holdings Inc.’s affiliates; the failure to obtain Grace shareholder approval of the proposed transaction or the failure to satisfy any of the other conditions to the completion of the proposed transaction; risks relating to the financing required to complete the proposed transaction; the effect of the announcement of the proposed transaction on the ability of Grace to retain and hire key personnel and maintain relationships with its customers, vendors and others with whom it does business, or on its operating results and businesses generally; risks associated with the disruption of management’s attention from ongoing business operations due to the proposed transaction; the ability to meet expectations regarding the timing and completion of the transaction; significant transaction costs, fees, expenses and charges; the risk of litigation and/or regulatory actions related to the transaction; other business effects, including the effects of industry, market, economic, political, regulatory or world health conditions (including new or ongoing effects of the COVID-19 pandemic), and other factors detailed in the Original Filing and Grace’s other filings with the SEC, which are available at http://www.sec.gov and on Grace’s website at www.grace.com. Our reported results should not be considered as an indication of our future performance. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to release publicly any revisions to our projections and forward-looking statements, or to update them to reflect events or circumstances occurring after the dates those projections and statements are made.

PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Our Board of Directors

In 2020, our directors delivered strong leadership to manage the challenges that the pandemic and hurricanes presented. We met 16 times to support our management team in developing and implementing new safety protocols to protect our employees and our operations and to protect our ability to pursue our growth plan and deliver long-term value to our customers and shareholders — all of which we accomplished. In these meetings, we worked with our management team and advisors to undertake a thorough review of potential strategic alternatives to maximize value for shareholders.

Our directors’ wealth of leadership capabilities and experiences were critical to their effective guidance and oversight in a challenging year. Background information about the nominees and our other directors, including their business experience and directorships held during the past five years, ages as of February 15, 2021, and certain individual qualifications and skills that contribute to our effectiveness as a whole, are described below.

Class I—Term to expire at the 2021 Annual Meeting



Hudson La Force President & CEO, W. R. Grace & Co. Age 56 Director since 2017			Experience •President and Chief Executive Officer, W. R. Grace & Co. (November 2018 - present); President and Chief Operating Officer (2016 - 2018), where responsible for Grace’s Catalysts Technologies and Materials Technologies business segments and Grace’s global manufacturing and supply chain operations; Chief Financial Officer (2008 - 2016) •Chief Operating Officer and Senior Counselor to the Secretary, U.S. Department of Education and served as a member of the President’s Management Council •Held general management and financial leadership positions with Dell, Inc., AlliedSignal, Inc. (now Honeywell International Inc.), Emerson Electric Co., and Arthur Andersen & Co. Qualifications •Significant leadership, operations, and financial experience •In-depth knowledge of our growth strategy, customers and worldwide operations Education •BBA, Baylor University •MBA, Kellogg School of Management at Northwestern University Corporate Boards •Madison Industries, a Chicago-based private industrial holding company, Advisory Board

Mark E. Tomkins Age 65 Director since 2006			Experience •Retired Senior Vice President and Chief Financial Officer, Innovene, a petrochemical and oil refining company controlled by BP that is now part of the INEOS Group (2005 - 2006) •Chief Financial Officer, Vulcan Materials Company (2001 - 2005) •Chief Financial Officer, Great Lakes Chemical (1998 - 2001) •Held various mid- and upper-level financial positions with AlliedSignal (now Honeywell International Inc.) and Monsanto Company •Certified public accountant Qualifications •Intimate knowledge of the global chemicals and petroleum industries •Significant experience overseeing finance and business development in major corporations •Substantial governance and oversight experience Education •BS, Eastern Illinois University •MBA, Eastern Illinois University Corporate Boards •Terminix Global Holdings, Inc. (f/k/a ServiceMaster Holdings), Lead Director; formerly non-executive Chairman •Trinseo LLC Former Corporate Board Service •Klockner Pentaplast •Elevance Renewable Sciences Inc., a privately-held renewable polymer and energy company •CVR Energy, Inc.

Class II—Term to expire at the 2022 Annual Meeting



Robert F. Cummings, Jr. Age 71 Director since 2015			Experience •Retired Vice Chairman of Investment Banking, JPMorgan Chase & Co. (2010 - 2016) •Began his business career in the investment banking division of Goldman, Sachs & Co., where he was named a Partner and served as an advisory director Qualifications •More than 30 years of investment banking experience advising corporate clients on financings, business development, mergers and acquisitions, and other strategic financial issues •Significant knowledge of public markets, private equity, and real estate •Substantial governance and oversight experience Education •BA, Union College •MBA, University of Chicago Corporate Boards •Corning Inc. Former Corporate Board Service •Viasystems Group, Inc. (2002 - 2015)

Diane H. Gulyas Age 64 Director since 2015			Experience •Retired President, Performance Polymers business, E.I. du Pont de Nemours and Company (2009 - 2014) •Chief Marketing and Sales Officer, DuPont, responsible for corporate branding and marketing communications, market research, e-business, and marketing/sales capability worldwide (2004 - 2009) •Group Vice President of DuPont’s electronic and communication technologies platform •Vice President and General Manager for DuPont’s advanced fiber business •Joined DuPont in 1978 Qualifications •Substantial and varied management experience •Strong skills in engineering, manufacturing (domestic and international), marketing, and non-U.S. sales and distribution •Governance and oversight experience Education •BS, Chemical Engineering, University of Notre Dame Corporate Boards •Expeditors International of Washington, Inc. •Ingevity Corporation Former Corporate Board Service •Navistar International Corporation (2009 - 2012) •Mallinckrodt Pharmaceuticals (2013 - 2018)


Henry R. Slack Managing Director, Quarterwatch LLC Age 71 Director since 2019*			Experience •Managing Director of Quarterwatch LLC ( 2001 - present) •Director, E. Oppenheimer and Son International Limited and on its Investment Committee (1979 - 2017) •Executive Director, Anglo American plc (1980 - 2000) •Chief Executive Officer, Minorco SA, an international mining company (1991 - 1999) Qualifications •Significant industry and international experience and the perspectives of a public company chairman and chief executive officer •Background includes extended service on the boards of both a supplier of catalysts and a large consumer of materials •Extensive experience in the areas of business, finance and capital markets Education •BA, Princeton University Corporate Boards •Alico, Inc. (previously Chairman), a publicly-traded holding company with interests in agriculture and environmental resources Former Corporate Board Service •Terra Industries, an international nitrogen-based fertilizer company (1983 - 2010); Chairman (2001 - 2010) •SABMiller plc (1998 - 2002) •Minorco SA (1980 - 1999) •Salomon Brothers (1982 - 1988) •Englehard Corporation (1985 - 2006)

* For additional information regarding Mr. Slack’s election as a director of the Company, see Item 13, “Certain Relationships and Related Transactions, and Director Independence” under the captions “Related Party Transactions - Agreements with Certain of our Shareholders.”

Class III—Term to expire at the 2023 Annual Meeting



Julie Fasone Holder Chief Executive Officer, JFH Insights LLC Age 68 Director since 2016			Experience •Chief Executive Officer, JFH Insights LLC, a consulting firm primarily dedicated to leadership coaching for high potential women executives (2009 - present) •Retired Senior Vice President, Chief Marketing, Sales and Reputation Officer, U.S. Area Executive Oversight, The Dow Chemical Company (2007 - 2009); Corporate Vice President, Human Resources, Public Affairs and Diversity and Inclusion (2006 - 2007); Business Vice President Specialty Plastics, (2004 - 2006); Business Vice President Industrial Chemicals (2000 - 2004); joined in 1975 Qualifications •Strong international business management, including sales, marketing, and operations •Deep chemical industry knowledge and experience that provides an important depth of understanding of how our businesses operate and interact with customers and suppliers •Substantial human capital management experience including diversity, equity and inclusion Education •BA, Michigan State University Corporate Boards •Eastman Chemical Company •McLaren Northern MI Hospital, Board of Trustees

Christopher J. Steffen Non-Executive Chairman, W. R. Grace & Co. Age 78 Director since 2006			Experience •Appointed non-executive Chairman of the Board of Directors on November 7, 2019; previously, Lead Independent Director, presiding at all executive sessions of the Board •Retired Vice Chairman, Citicorp and its principal subsidiary, Citibank N.A. (1993 - 1996) •Senior Vice President and Chief Financial Officer, Eastman Kodak (1993) •Executive Vice President and Chief Financial and Administrative Officer, Honeywell International, Inc. (1989 -1993) •Vice President and Controller, Chrysler Corporation (1981 - 1988) Qualifications •Background as a financial and operational leader with companies with global operations in various industries •Extensive international business expertise and knowledge of financial matters and financial reporting •Substantial governance and oversight experience Education •BA, University of Michigan •MBA, Wayne State University Former Corporate Board Service •Viasystems Group, Inc. (2003 - 2015), Chairman •Platinum Underwriters Holdings, Ltd. (2010 - 2015) •Accelrys, Inc. (2004 - 2012) •Citicorp and its principal subsidiary, Citibank N.A. (1993 - 1996) •Honeywell International, Inc. (1990 - 1992)



Shlomo Yanai Board Chair, Lumenis Age 68 Director since 2018			Experience •Board Chair, Lumenis (2020 - present) •Senior Advisor, Moelis & Company (2016 - present) •Retired President and Chief Executive Officer, Teva Pharmaceutical Industries Ltd. (2007 - 2012) •Chief Executive Officer and President, ADAMA Agricultural Solutions Ltd. (2002 - 2006) •Served for 32 years with the Israeli Defense Forces in a variety of leadership roles, retired as a Major General Qualifications •Global industry leadership •Successful completion of over 20 acquisitions •Specialty chemicals and pharmaceutical experience •Perspective of a former Chief Executive Officer and Chair of three boards Education •BA, Tel Aviv University •MPA, George Washington University •AMP, Harvard Business School Corporate Boards •Amneal Pharmaceuticals, Inc. •Current nominee to serve as member of Board of Directors of Philip Morris International Inc. Former Corporate Board Service •PDL BioPharma, Inc. (2018 - 2020) •Cambrex Corporation, Chairman (2014 - 2019) •Protalix Biotherapeutics, Inc., Chairman (2014 - 2019) •Perrigo Company plc (2015 - 2017) •Sagent Pharmaceuticals, Inc. (2015 - 2017)

Our Executive Officers

Certain information required by this Item regarding Grace’s executive officers appears at Part I after Item 4 in the Original Filing under the caption, “Information about our Executive Officers.” As Mr. La Force is also a director of the Company, additional information regarding his experience is set forth above under the caption “Our Board of Directors.” Further information regarding our executive officers required by this Item is set forth below.

Family Relationships

There are no family relationships among any of our directors or executive officers.


Corporate Governance

How the Board is Selected, Elected, Evaluated and Refreshed

Number and Independence of Directors

Our Board determines the number of directors. Currently, our Board consists of eight members. Under our Corporate Governance Principles, a substantial majority of Grace’s directors are required to be “independent” as determined under guidelines set forth in the listing standards of the New York Stock Exchange, or “NYSE.” Our Board, at its February 25, 2021, meeting, affirmatively determined that all of our directors, other than Mr. La Force, are independent under NYSE rules, because none of the directors has any direct or indirect material relationship with Grace or our subsidiaries under those rules.

The independence determination by the Board with respect to all directors (other than Mr. La Force) included the following:

•None of these directors has any material relationship with Grace (either directly or as a partner, shareholder or officer of an organization that has a relationship with Grace).

•None of these directors are, or have been within the last three years, an employee of Grace, nor is there an immediate family member who is, or has been within the last three years, an executive officer of Grace.

•None of these directors received, nor is there an immediate family member who has received, during any 12-month period within the last three years, more than $120,000 in direct compensation from Grace, other than director and committee fees.

•None of these directors: (i) is a current partner or employee of a firm that is Grace’s internal or external auditor; (ii) has an immediate family member who is a current partner of such a firm; (iii) has an immediate family member who is a current employee of such a firm and personally works on Grace’s audit; and (iv) was, or has an immediate family member who was within the last three years a partner or employee of such a firm and personally worked on Grace’s audit within that time.

•None of these directors or any immediate family member is, or has been within the last three years, employed as an executive officer of another company where any of Grace’s present executive officers at the same time serves or served on that company’s compensation committee.

•None of these directors or any immediate family member is a current executive officer of a company that has made payments to, or received payments from, Grace for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million, or 2% of such other company’s consolidated gross revenues.

•None of these directors, nor any member of their immediate families, is an executive officer of any other entity with whom Grace does any material amount of business.

•None of these directors serve, or within the last five years served, as an executive officer, director, trustee or fiduciary of any charitable organization to which Grace made any material charitable donation.

Two directors resigned from our Board in 2020: (i) Jeffry N. Quinn resigned from our Board, effective March 1, 2020; and (ii) Kathleen G. Reiland, resigned from our Board, effective October 13, 2020, based on her disagreement with the Board regarding Grace’s strategic direction. Both Mr. Quinn and Ms. Reiland had served on the Board’s Audit, Compensation, Nominating and Governance, and Corporate Responsibility Committees prior to their resignations, and each was an independent director under NYSE rules and the aforementioned independence standards.

Director Terms

Our Amended and Restated Certificate of Incorporation provides for the division of our Board into three classes, each to serve for a three-year term and until their respective successors are duly elected and qualify. The term of one class of directors currently expires each year at the annual meeting of shareholders. Our Board may fill a vacancy by electing a new director to the same class as the director being replaced. Our Board may also create a new director position in any class and elect a director to hold the newly created position.

Over the last several years, the Board has undergone significant refreshment through the addition of new members and the departure of longer-serving members.

Director Identification and Selection

When our Board or the Nominating and Governance Committee has identified the need to add a new Board member with specific qualifications or to fill a vacancy on our Board, the Chair of the Nominating and Governance Committee will initiate a search, seeking input from other directors and management, review any candidates that the committee has previously identified or that have been recommended by shareholders in that year, and may retain a search firm. The committee will identify the initial list of candidates who satisfy the specific criteria, if any, and otherwise qualify for membership on our Board. Generally, the Chair of the Nominating and Governance Committee, together with two other members of that committee, and our CEO, will interview each qualified candidate. Other directors may also interview the candidate if practicable. Based on a successful outcome of those reviews, the committee will make its recommendation on the candidate to our Board.

The Nominating and Governance Committee has the sole authority to retain and terminate any search firm to be used to identify director candidates and the sole authority to approve the search firm’s fees and other retention terms.

Based on the belief that the Board’s effectiveness is enhanced by having an appropriate mix of longer-serving directors, who have a valuable understanding of our businesses, and newcomers who bring fresh viewpoints, the Nominating and Governance Committee has pursued a multi-year refreshment initiative which has significantly improved our Board’s diversity. As of March 31, 2021, the median tenure of our independent directors was slightly over six years, with only two independent directors having served for more than ten years. Presently, 29% of our independent directors are women.

Director Evaluations

Our Board conducts a self-evaluation process every year and periodically reviews the skills and characteristics needed by our Board. As part of the director evaluation review process, our Board considers the skill areas represented on our Board, those skill areas represented by directors expected to retire or leave our Board in the near future, and recommendations of directors regarding skills that could improve the ability of our Board to carry out its responsibilities.

Our Board and committee self-evaluation process starts with the distribution of extensive questionnaires seeking feedback regarding, among other things: responsibilities and contributions; culture and atmosphere; meetings and materials; and continuous improvement. The compiled responses become the basis for discussions in executive sessions in Board and committee meetings early each year. Thereafter, based on the evaluation results, the Board and committees consider changes to their practices and implement such improvements, when appropriate. As a

result of these evaluations and discussions, the Board has taken actions such as updating Board and Committee Charters, responsibilities, and information management practices.

How We Are Organized

Under our Corporate Governance Principles, our Board makes a determination as to whether our CEO should also serve as the Board Chair. The Board makes this determination as part of the succession planning process, based upon the composition of our Board, and the circumstances of Grace at the relevant time. In 2019, the Board appointed Mr. Steffen to serve as independent, non-executive Chairman of our Board. Our Board believes that this leadership structure is appropriate for Grace and is in the best interests of Grace shareholders at this time.

As the independent Board Chair, Mr. Steffen presides at all meetings of our Board; calls and presides over executive sessions of the independent directors at each Board meeting; acts as primary liaison with the independent directors; approves Board meeting agendas; approves meeting schedules to assure that there is sufficient time for discussion of all agenda items; consults with the CEO on major issues in advance of each Board meeting; and calls meetings of the independent directors. He also serves as a contact for Grace shareholders who wish to communicate with our Board. Prior to Mr. Steffen’s appointment as non-executive Chairman, he served as the Company’s Lead Independent Director.

Interested parties may communicate with Mr. Steffen by writing to him at the following address: Christopher J. Steffen, Chairman, c/o W. R. Grace & Co., 7500 Grace Drive, Columbia, Maryland 21044.

Standing Committees of our Board of Directors

Our Board has the following four standing committees: (i) Audit Committee; (ii) Nominating and Governance Committee; (iii) Compensation Committee; and (iv) Corporate Responsibility Committee. Only independent directors, as independence is determined in accordance with NYSE rules, are permitted to serve on the standing committees. The Board annually selects, from among its members, the members and Chair of each standing committee.

The table below provides information with respect to current standing committee memberships of the directors as of March 15, 2021. The table also sets forth the number of meetings (including teleconference and videoconference meetings) held by each Board committee in 2020. We reimburse directors for expenses they incur in attending Board and committee meetings and other activities incidental to their service as directors, but we do not pay our directors any separate meeting fees.

Director

Audit

Compensation

Nominating and Governance

Corporate Responsibility

Robert F. Cummings, Jr.

•

Julie Fasone Holder

•

Diane H. Gulyas

•

Hudson La Force

Henry R. Slack

•

Christopher J. Steffen*

•

Mark E. Tomkins

•

Shlomo Yanai

•

Number of 2020 Meetings

_______________________________________________________________________________

•Committee Member and Independent Director

CCommittee Member, Independent Director, and Committee Chair

*Chairman of the Board

Each standing committee has a written charter that describes its responsibilities. Each of the standing committees has the authority, as it deems appropriate, to independently engage outside legal, accounting or other advisors or consultants. In addition, each standing committee annually conducts a review and evaluation of its performance and reviews and reassesses its charter. You can find the current charters of each standing committee on our website at www.grace.com/en-us/corporate-leadership/Pages/Governance.aspx.

Audit Committee

The Audit Committee has been established in accordance with the provisions of the Securities Exchange Act of 1934, as amended, or the “Exchange Act,” the rules of the NYSE, and our Corporate Governance Principles. The Audit Committee assists our Board in overseeing:

•the integrity of Grace’s financial statements;

•Grace’s compliance with legal and regulatory requirements;

•the qualifications and independence of the independent auditors;

•the performance of Grace’s internal audit function and independent auditors;

•Grace’s systems of disclosure controls and procedures and internal controls over financial reporting; and

•the preparation of the internal control report and an audit committee report as required by the United States Securities and Exchange Commission, or the “SEC.”

The Audit Committee has the authority and responsibility for the appointment, retention, compensation, oversight and, if circumstances dictate, discharge of Grace’s independent auditors, including pre-approval of all audit and non-audit services to be performed by the independent auditors. The independent auditors report directly to the Audit Committee and, with the internal auditors, have full access to the Audit Committee and routinely meet with the Audit Committee without management being present. The Audit Committee is also responsible for reviewing, approving and ratifying any related party transaction.

All of the members of our Audit Committee meet the independence standards of the SEC and NYSE, are financially literate within the meaning of the NYSE listing standards and meet the experience and financial requirements of the NYSE listing standards. Mr. Tomkins serves as Chair of the Audit Committee. Our Board determined that Mr. Tomkins is an “audit committee financial expert” as defined by SEC rules and regulations. A number of our other independent directors would also qualify as audit committee financial experts.

Nominating and Governance Committee

The Nominating and Governance Committee

•sets criteria for the selection of directors, identifies individuals qualified to become directors, and recommends to our Board the director nominees for the annual meeting of shareholders;

•develops and recommends to our Board appropriate corporate governance principles applicable to Grace; and

•oversees and administers the evaluation of our Board, its committees and management.

In considering candidates for election to our Board (including candidates recommended by shareholders), we believe that our Board should be comprised of individuals having the leadership capabilities, experience, backgrounds, skills and diversity important for our business. We value diversity in all its forms and work to ensure that our Board reflects diversity of gender and other attributes as well as diversity of industry experience, and functional background. When we undertake searches for new members of our Board, we focus on gender and racial/ethnic diversity as well as candidate’s skills, experiences and other attributes. We also believe that a substantial majority of our Board should be independent, as defined by NYSE rules and applicable laws and regulations.

Each member of the Nominating and Governance Committee meets the independence standards of the NYSE. Mr. Steffen serves as Chair of the Nominating and Governance Committee.

Compensation Committee

The Compensation Committee

•approves all compensation actions with respect to nonemployee members of the Board and executive officers of the Company;

•evaluates and approves the Grace annual and long-term incentive compensation plans (including equity-based plans);

•oversees the development of succession plans for the CEO and the other executive officers; and

•produces and approves an annual report on executive officer compensation as required by applicable law.

The committee engaged Willis Towers Watson, or “WTW,” a leading global advisory, broking and solutions company, as its independent provider of compensation consulting services for decisions relating to 2020 compensation. Please see “Executive Compensation—Compensation Discussion and Analysis” in this Form 10-K/A for more discussion about the role of WTW. The committee also utilizes external legal advisors as necessary and assesses the independence of all of its advisors.

Representatives of WTW regularly attended meetings of the committee. For portions of those meetings, our President and CEO, and our Senior Vice President, Human Resources and Information Technology, and Chief Human Resources Officer (our “CHRO”), also attended and were given the opportunity to express their views on executive compensation to the committee.

Each member of the Compensation Committee is independent under the independence standards of the NYSE; a “nonemployee director” of Grace as defined under Rule 16b-3 of the Exchange Act; and an “outside director” for the purposes of the corporate compensation provisions (previously) contained in Section 162(m) of the Internal Revenue Code of 1986, as amended, or Tax Code. Ms. Gulyas serves as Chair of the Compensation Committee.

Corporate Responsibility Committee

The Corporate Responsibility Committee assists our Board and management in addressing Grace’s environmental and social responsibilities to its various stakeholders. In particular, the committee counsels and advises management with respect to:

•the development, implementation and continuous improvement of procedures, programs, policies and practices relating to Grace’s environmental and social responsibilities, including ethical business practices, sustainability, and diversity and inclusion;

•the adherence to those procedures, programs, policies and practices at all levels of Grace; and

•the maintenance of open communications to ensure that issues are brought to the attention of, and considered by, all appropriate parties.

Each member of the Corporate Responsibility Committee is: independent under the independence standards of the NYSE; a “nonemployee director” of Grace as defined under Rule 16b-3 of the Exchange Act; and an “outside director” for the purposes of the corporate compensation provisions (previously) contained in Section 162(m) of the Tax Code. Ms. Holder serves as Chair of the Corporate Responsibility Committee.

How We Govern

Corporate Governance Principles

Our Board has adopted the Grace Corporate Governance Principles to provide a framework for the governance of Grace, and to promote the efficient functioning of our Board. These principles are reviewed, and updated as appropriate, our governance highlights include:

•An independent board chair

•A majority voting standard for uncontested director elections

•A small, steadily refreshed board

•Seven independent directors two of whom are women

•A management team of ten that, as of early 2021, includes two minorities and four women; three of four business leaders are diverse

•Best practice internal and external pay parity

•100% of NEOs have made personal investments in company equity

•A clawback policy covering ethics violations and financial misconduct resulting in restatements

You can find the Grace Corporate Governance Principles on our website at www.grace.com/en-us/corporate-leadership/Pages/Governance.aspx.

Director Attendance at Board of Directors Meetings

Our Board generally holds six regular meetings per year and meets on other occasions when circumstances require. Directors spend additional time preparing for Board and committee meetings and participating in conference calls to discuss quarterly earnings announcements or significant transactions or developments. Additionally, we may call upon directors for advice between meetings. Our Corporate Governance Principles provide that our Board will meet regularly in executive session without management in attendance. Under our Corporate Governance Principles, we expect directors to regularly attend meetings of our Board and of all committees on which they serve and to review the materials sent to them in advance of those meetings. We expect nominees for election at each annual meeting of shareholders to attend the annual meeting.

Our Board held 16 meetings in 2020. Each director currently serving on our Board attended 75% or more of the 2020 meetings of our Board and the Board committees on which the director served in 2020.

Director Attendance at the Annual Meeting

All of our directors serving on our Board at the time of the 2020 Annual Meeting of Shareholders attended that meeting. We expect our directors to attend Annual Meetings pursuant to our Corporate Governance Principles.

Board Role in Strategy Oversight

A key responsibility of our Board is the oversight of the Company’s short-term and long-term strategy. Our directors take an active role in the oversight of the Company’s strategy at both a Board and committee level and hold management accountable for the execution of our strategy. Each of our directors has an obligation to keep informed about the Company’s business and strategy. In doing so, they can better provide guidance to management in

formulating and developing plans and knowledgeably exercise their decision-making authority on matters of importance to the Company.

Each year, our executive team meets to review and, when in the best interests of the Company, adjust the Company’s corporate strategy. Our Board, in turn, conducts its own review of the Company’s long-term strategic plan including its annual operating plan, and advises management on key priorities and our long-term strategy. Throughout the year, the Board receives information and updates from management and actively engages with senior leaders regarding the Company’s progress against its strategic goals.

Board Role in Risk Oversight

Our Board actively oversees the risk management of Grace, including the risks inherent in the implementation of our strategic plan and the operation of our businesses. Our Board reviews the Grace enterprise risk management program at least annually and considers whether risk management processes are functioning properly and are appropriately aligned to Grace’s strategy, culture, risk appetite and value-generation objectives. The Grace enterprise risk management program includes reviews of privacy and cybersecurity vulnerability and the actions necessary to enhance the controls and security of our information systems. Our Board provides guidance to management regarding risk management as appropriate for the risks faced by companies in our industry. These activities are supplemented by a rigorous internal audit function that reports directly to the Audit Committee. Our Board also oversees the risks posed by the COVID-19 pandemic and oversees our response to the COVID-19 pandemic.

Standing Board committees are responsible for overseeing risk management practices relevant to their functions. The Audit Committee oversees the management of market and operational risks that could have a financial impact, such as those relating to internal controls and financial liquidity. The Nominating and Governance Committee oversees risks related to governance issues, such as the independence of directors and the breadth of skills on our Board. The Compensation Committee manages risks related to Grace’s executive compensation plans and the succession of the CEO and other executive officers, and other talent-related risks. The Corporate Responsibility Committee manages certain risks related to government regulation and environment, health and safety matters, including the physical and transitional risks associated with climate change.

Board Role in Human Capital Management

Our Board believes that it has an important responsibility to oversee risks related to human capital, and this responsibility is shared by multiple Board committees as well as the full Board. While the full Board has oversight responsibilities for the overall management of human capital, the Corporate Responsibility Committee has specific responsibilities for reviewing management’s initiatives to promote diversity and inclusion in its talent acquisition, development, and retention programs. In addition, the Compensation Committee has specific responsibilities to review compensation policies and plans to promote the Company’s ability to attract, retain and motivate the talent required to execute our strategy.

Our Board believes it plays an important role as a resource to management in finding ways to extend our inclusive culture. Together, our Board and management seek and support top talent from diverse backgrounds to enhance innovation and to signal the importance of fairness and opportunity as ingredients supporting sustainable performance.

Share Ownership Guidelines

To ensure that the long-term financial interests of our directors and senior executives are fully aligned with the long-term interests of our shareholders, our Board implemented share ownership guidelines. The current guidelines are as follows:


Category						Ownership Guideline
Directors (Outside)						5 times cash portion of annual retainer
CEO						5 times base salary
Executive Officers, other than CEO						3 times base salary
Presidents of Operating Segments						2 times base salary
Certain Key Vice Presidents						1 times base salary

Directors and executives subject to the share ownership guidelines generally have five years from the later of 2016 or the year of their initial election or appointment within the relevant category above to comply with the guideline. 100% of Grace’s NEOs have invested personally in company equity in addition to the equity granted as part of their compensation.

Policy regarding Hedging and Pledging

Our policy regarding hedging and pledging provides that our directors and executive officers are not permitted to hedge their economic exposure to Grace common stock or other Company securities through put or call options, short sales, derivatives, or similar instruments or transactions, or pledge any Grace common stock or other Company securities as collateral or to secure any loan or other liability or obligation. The application of our hedging and pledging policy does not extend to officers or employees of the Company who are not directors or executive officers of Grace. The policy covers Grace common stock or other Company securities purchased by or granted to the directors and executive officers as part of Company compensation and would apply to such Grace common stock or other Company securities held directly or indirectly by our directors and executive officers.

Clawback Policy

To reinforce the alignment of management’s interests with those of our shareholders, and to support good governance practices, the Board has adopted an Executive Compensation Recovery Policy. The policy applies to recovery of both cash and equity incentive compensation in the case of: (i) misconduct that contributes to a restatement of the Company’s financial statements; (ii) breach of non-competition, non-solicitation or confidentiality obligations; or (iii) violations of the Company’s code of business ethics. The policy applies to all our NEOs.

Environment, Health, Safety, and Security (or “EHSS”) Programs

We continuously seek to improve our environment, health and safety performance. To the extent applicable, we extend the basic elements of the American Chemistry Council’s RESPONSIBLE CARE ® program to all our locations worldwide, embracing specific performance objectives in the key areas of management systems, product stewardship, employee health and safety, community awareness and emergency response, distribution, process safety and pollution prevention.

Sustainability

Overview
We succeed when we deliver value to our customers, and that success is increasingly based on how we help customers meet their sustainability goals. Many of our products and technical services improve the efficiency of our customers’ processes or products, or enable them to reduce energy or water use, cut harmful emissions, conserve material inputs, and/or reduce waste. Several of our technologies enable our customers to make products that meet

the toughest environmental standards, or to reformulate products to address rising consumer and regulatory expectations for sustainability, human health, and safety. As a leading manufacturer of process catalysts, we have become an active participant in the circular economy, with increasing business in assisting our customers with the recycling or reprocessing of spent catalysts. As part of our commitment to RESPONSIBLE CARE®, we systematically track safety and environmental performance through a comprehensive, global EHS management system covering the environmental, health, safety (including process safety and product safety) and security aspects of our operations, and track progress through pertinent metrics. In 2020, we also provided disclosures in line with the Sustainability Accounting Standards Board (SASB) standard for the chemical industry, and publicly reported our facility carbon emissions and water usage to the Carbon Disclosure Project (CDP). Our Board oversees the Company’s sustainability initiatives, including through its Corporate Responsibility Committee.

Product Portfolio
As part of our periodic strategic review of our product portfolio, we work to identify products that contribute to our customers’ sustainability objectives, including:

•Products designed for use-phase efficiency — defined by SASB as products that “through their use-can be shown to improve energy efficiency, eliminate or lower greenhouse gas (GHG) emissions, reduce raw materials consumption, increase product longevity, and/or reduce water consumption,” either through:

◦Improved products — by increasing the efficiency of a product during its use phase, or

◦Improved processes — by increasing the efficiency of the manufacturing processes used to make products;

•Meeting Strict Environmental Standards — products that directly enable customers to meet environmental regulatory/legal requirements applicable to their products or manufacturing processes; and

•Cleaner/Safer Products — products that enable customers to reformulate their products to avoid or reduce to de minimis levels substances of concern to their customers.

This year, we reviewed the requested disclosures from SASB, CDP as well as other ESG ratings organizations and expanded our product categories to include products that make a significant contribution to the move towards a more circular economy through:

•Circularity/Enabling Material Recycling and Renewable Feeds — products that are tailored to enable customers to replace petroleum inputs with bio-based and recycled materials, and FCC catalyst sales (not counted above) where Grace takes back spent FCC catalysts for recycling, or otherwise enables the reuse or recycling of spent catalysts.

Together, the products in our portfolio that address these sustainability endpoints accounted for approximately $1.1 billion or 49% of our total revenue in 2020 (including the revenues of our Advanced Refining Technologies LLC joint venture).

ESG Rankings
For 2020, Grace again earned a Gold Rating from EcoVadis, placing the Company in the 95th percentile of all companies ranked by EcoVadis on their sustainability performance. EcoVadis is a leading third-party entity that evaluates suppliers on a complex scale of sustainability and environmental, social, and governance, or “ESG,” factors. Also, in 2020, the ESG Risk Rating from Sustainalytics‡ placed us in the top quintile of both chemical and specialty companies.

Further Information
Shareholders and other interested persons can visit our website for additional sustainability information at http://www.grace.com/sustainability/en-us, including our disclosures to SASB and CDP. That further information is not incorporated by reference and is not a part of this Form 10-K/A.

Security

We have implemented the RESPONSIBLE CARE® Security Code through a Company-wide security program focused on the security of our people, processes, and systems. We have reviewed existing security, including cybersecurity and vulnerability, and have taken actions to enhance security systems where deemed necessary. In addition, we are complying with the Department of Homeland Security’s Chemical Facility Anti-Terrorism Standards, including identifying facilities subject to the standards, conducting security vulnerability assessments and developing site security plans, as necessary.

How You Can Communicate With Us

Communicating with the Board of Directors

We believe it is important for us as a board to cast a wide net to gather information and input, including individuals and entities who are not compensated by the Company. We therefore have established numerous engagement channels

•Participating in our annual meeting

•Requesting an engagement with our Independent Board Chair (contact information on website)

•Contacting the chair of our Audit Committee (contact information on website)

•Using our independently monitored reporting hotline available toll free for anonymous use if desired in 30 countries, staffed by multi-lingual case managers

•Corresponding with us by writing to Mr. Steffen, Chairman of the Board, at the following address: Christopher J. Steffen, Chairman of the Board, c/o W. R. Grace & Co., 7500 Grace Drive, Columbia, Maryland 21044

The Board and management recognize the importance of proactive shareholder engagement. Throughout the year, our CEO/director, CFO and Vice President for Investor Relations engage regularly with shareholders on a variety of topics to ensure that we are aware of their viewpoints, address their questions and concerns, and provide a forum to receive their input and perspectives.

Our management’s proactive shareholder outreach and engagement provide an opportunity to discuss our strategy, financial results and business performance with investors and analysts. It occurs in many forms, including:

•Investor conferences

•Analyst meetings

•Headquarters events

•One-on-one meetings

•Investor days

•Investor presentations

•Video and telephonic conference calls

•E-mail communications

•Independent perception studies and quarterly sentiment reports (interviews with investors)

During 2020, representatives of the Company presented at eight investor conferences and conducted six “non-deal roadshows” (where our officers held discussions with current and potential investors in our Company, but not as part of an offering of Grace securities), many of which were in a virtual format this year in response to the pandemic. Our efforts led to over 300 unique “touch point” engagements with more than 200 buy-side and sell-side firms over the course of the year. Shareholder feedback from our robust engagement program is provided to our Board and management, and these viewpoints are considered in our decision-making.

We provide additional forms of communications directed toward our shareholders, including:

•Our annual report, SEC filings and proxy statement

•Our quarterly earnings releases and earnings presentations

•News releases

•Conference calls with question and answer sessions for our quarterly earnings releases and other major corporate events

•Our website and social media activity

Where can I find Grace corporate governance materials?

We have provided our Corporate Governance Principles, Business Ethics and Conflicts of Interest policies, and the Charters for the Audit, Compensation, Nominating and Governance, and Corporate Responsibility Committees of our Board on our website at www.grace.com/en-us/corporate-leadership/Pages/Governance.aspx. Our filings with the Securities and Exchange Commission (including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and Section 16 insider trading transactions forms) are available at www.sec.gov.

Our Business Ethics and Conflicts of Interest policies are applicable to the members of our Board and to all of our employees, including, but not limited to, our principal executive officer, principal financial officer, principal accounting officer, and controller, or any person performing similar functions. Any amendments to or waivers of our Business Ethics and Conflicts of Interest policies that our Board approves will be disclosed on our website. We are not including the information contained on our website as part of, or incorporating it by reference into, this Form 10-K/A.

How can I obtain Grace corporate governance materials if I do not have access to the internet?

You may receive a copy of our corporate governance materials free of charge by:

•contacting Grace Shareholder Services at 410-531-4167; or

•writing to:

W. R. Grace & Co.
Attention: Grace Shareholder Services
7500 Grace Drive
Columbia, Maryland 21044

What is the process for reporting possible violations of the Grace Business Ethics and Conflicts of Interest policies?

Employees and other interested persons may anonymously report a possible violation of the Grace Business Ethics and Conflicts of Interest policies by calling NAVEX Global, a third-party service, at 866-458-3947 in the U.S. and Canada, or via the website at www.grace.ethicspoint.com. Toll-free telephone numbers for other countries can be found at https://grace.com/sustainability/en-us/Values-Ethics-Governance/Pages/Ethics-and-Business-Conduct.aspx. Reports of possible violations of the Grace Business Ethics and Conflicts of Interest policies may also be made to Cherée H. Johnson, our Chief Ethics and Compliance Officer at W. R. Grace & Co., 7500 Grace Drive, Columbia, Maryland 21044. Reports may be made anonymously, subject to certain restrictions outside the U.S.

Reports of possible violations of the Grace Business Ethics and Conflicts of Interest policies that the complainant wishes to go directly to our Board may be addressed to the Chair of the Nominating and Governance Committee, Christopher J. Steffen. Mr. Steffen can be contacted with a letter to his attention at W. R. Grace & Co., 7500 Grace Drive, Columbia, Maryland 21044.

Reports of possible violations of financial or accounting policies may be made to the Chair of the Audit Committee, Mark E. Tomkins. Mr. Tomkins can be contacted with a letter to his attention at W. R. Grace & Co., 7500 Grace Drive, Columbia, Maryland 21044.

Item 11. EXECUTIVE COMPENSATION

How We are Paid

Director Compensation Program

Under our compensation program for nonemployee directors, each nonemployee director receives an annual retainer of $210,000 that is divided between cash and equity. For the equity-based portion of the retainer which is paid in fully vested shares of our common stock, we calculate the number of shares of common stock to be issued by dividing the grant date dollar amount to be paid in shares of common stock by the fair market value per share of our common stock. This fair market value per share is the average of the high and low trading prices of our common stock on the NYSE on the date of grant. If any calculation would result in a fractional share being issued, we round the number of shares to be issued up to the nearest whole share. Under this program, in 2020, each nonemployee director receives an annual retainer of $95,000 paid quarterly in cash and an annual award of approximately $115,000 of Grace common stock issued in May. The non-executive Chairman is paid an additional annual cash retainer of $100,000. Other additional annual cash retainers are as follows: the Audit Committee Chair receives $18,000; the Chair of the Compensation Committee receives $15,000; the Chair of the Nominating and Governance Committee receives $10,000; and the Chair of the Corporate Responsibility Committee receives $10,000. We reimburse nonemployee directors for expenses they incur in attending Board and committee meetings and other activities incidental to their service as directors; however, we do not pay our directors any separate meeting fees. Our nonemployee directors, and all Grace employees, are entitled to participate in the Grace Foundation’s Matching Grants Program.

Mr. La Force’s 2020 compensation, payable in respect of his services as President and Chief Executive Officer of the Company, is described in the Compensation Discussion and Analysis and compensation tables below. Mr. La Force does not receive any additional compensation for serving as a member of our Board.

The following table sets forth amounts that we paid to our nonemployee directors in connection with their services to Grace during 2020.


Name	Fees Earned or Paid in Cash ($)(a)	Stock Awards ($)(b)	Option Awards ($)	Non-Equity Incentive Plan Compensation ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)	All Other Compensation ($)(c)	Total ($)
Robert F. Cummings, Jr.	95,000	115,015	—	—	—	—	210,015
Julie Fasone Holder	105,000	115,015	—	—	—	3,000	223,015
Diane H. Gulyas	110,000	115,015	—	—	—	—	225,015
Jeffry N. Quinn (d)	15,834	—	—	—	—	—	15,834
Kathleen G. Reiland (e)	—	—	—	—	—	—	—
Henry R. Slack	95,000	115,015	—	—	—	—	210,015
Christopher J. Steffen	205,000	115,015	—	—	—	3,000	323,015
Mark E. Tomkins	113,000	115,015	—	—	—	—	228,015
Shlomo Yanai	95,000	115,015	—	—	—	—	210,015

_______________________________________________________________________________

(a)Amount consists of cash portion of annual retainer in the amount of $95,000 and additional payments to: Ms. Fasone Holder for serving as Chair of the Corporate Responsibility Committee in the amount of $10,000; Ms. Gulyas for serving as Chair of the Compensation Committee in the amount of $15,000; Mr. Tomkins for serving as Chair of the Audit Committee in the amount of $18,000; and Mr. Steffen for serving as Chairman of the Board in the amount of $100,000 and for serving as Chair of the Nominating and Governance Committee in the amount of $10,000.

(b)Reflects the aggregate grant date fair value of the equity portion of the annual retainer 2,280 shares of Grace common stock calculated in accordance with FASB ASC Topic 718.

(c)Consists of charitable contributions paid during 2020 to academic institutions at the request of the director pursuant to the W. R. Grace Foundation Inc.’s Matching Grants to Education Program. The program’s purpose is to assist the primary educational objectives of approved institutions of higher education in the United States and Canada. The foundation will match, dollar for dollar, personal gifts made by employees and nonemployee directors to qualified colleges, universities and secondary schools up to a maximum of $3,000 per year.

(d)Mr. Quinn resigned from our Board effective March 1, 2020 and therefore received prorated fees in respect of his service in 2020.

(e)Ms. Reiland did not receive any compensation from the Company for her service on our Board per a letter agreement with 40 North (see “Agreements with Certain of our Shareholders,” below).

Director Compensation Process

Our director compensation program is intended to enhance our ability to attract, retain and motivate nonemployee directors of exceptional ability and to promote the common interests of directors and shareholders in enhancing the value of Grace. The Compensation Committee reviews director compensation at least annually. The Compensation Committee has the sole authority to engage a consulting firm to evaluate director compensation and, in 2020, engaged Willis Towers Watson (WTW) to assist in establishing director compensation. The Compensation Committee determines director compensation based on recommendations and information provided by WTW and based on reviewing commercially available survey data from WTW related to general industry director compensation trends at companies of comparable size and our peer group companies (using the same peer group as is used for benchmarking our NEOs’ compensation as described under the caption “Executive Compensation—Compensation Discussion and Analysis”).

Compensation Discussion and Analysis

Overview

Our Company

Grace is a leading global supplier of specialty chemicals. Our products are used in the production of goods ranging from safe food packaging to pharmaceuticals to cleaner transportation fuels.

Our two industry-leading business segments—Catalysts Technologies and Materials Technologies—provide innovative products, technologies, and services that enhance the products and processes of our customers around the world. Through customer-driven innovation, strategic acquisitions, flexible worldwide manufacturing, and the talent of our approximately 4,000 employees, we maintain strong strategic positions and unmatched customer relationships with many of the world’s best companies. Over 80% of our sales were in segments where we are #1 or #2. Grace is committed to delivering value, safely and sustainably, to customers, to shareholders, and to the communities in which we operate.

Our profitable growth strategy has four well-defined elements, founded on our focused, high-value business portfolio, our strong strategic positions, and the sustainable growth drivers in the industries we serve:

1.Invest to accelerate growth and extend our competitive advantages;

2.Invest in great people to strengthen our high-performance culture;

3.Execute the Grace Value Model to drive operating excellence; and

4.Acquire to build our technology and manufacturing capabilities for our customers.

Our Named Executive Officers

Our NEOs for fiscal year 2020 were:


Hudson La Force						President and Chief Executive Officer
William C. Dockman						Senior Vice President and Chief Financial Officer
Elizabeth C. Brown						Senior Vice President, Human Resources and Information Technology, and Chief Human Resources Officer
Keith N. Cole						Senior Vice President, Public Affairs and Environment, Health, Safety, and Chief Sustainability Officer
Mark A. Shelnitz						Former Senior Vice President, General Counsel and Secretary

In connection with his mutually agreed departure from Grace, Mr. Shelnitz resigned on December 31, 2020.

Our Culture

Grace’s great talent and high-performance culture are the most important sources of our competitive advantage and long-term ability to deliver value to customers and investors. We have invested heavily in our global talent and talent management system, which includes aligned goal setting, ongoing feedback and coaching, effective performance reviews, and a continuous cycle of professional development.

Our high-performance culture is based on our commitment to performance and our five Grace Leadership Behaviors: Deliver Results; Think Critically; Be Authentic; Communicate; and Engage and Include. We expect our colleagues to model these behaviors and our values in their daily business conduct. We aspire to continually strengthen our talent and culture by welcoming and valuing the unique backgrounds, cultures, experiences, perspectives, and contributions of our employees around the globe as a core element of executing our profitable growth strategy and achieving our value-creation goals.

Finally, a commitment to safety is integral to our culture. We have an overarching goal of No One Hurt, which we interpret as zero OSHA recordable injuries. We regularly benchmark our safety performance against peers, invest in building a safe and healthful workplace, and every meeting we hold across the business begins with a safety message and is expected at all levels of the organization.

Our Response to COVID-19 and Hurricanes Laura and Delta

While our business suffered the disruptions that many other companies experienced due to COVID-19, we believe we differentiated ourselves in proactively managing our business and protecting our great talent. In addition, we were also impacted by two hurricanes – including the most powerful hurricane to ever hit Southwest Louisiana. Hurricane Laura delivered a direct blow to our Lake Charles facility, the largest refining catalyst plant in the world. Less than six weeks later, Hurricane Delta affected the same region again.

The following table highlights some of the actions taken in response to COVID-19 and the hurricanes:



Employees	Customers	Shareholders
•Formed Global COVID Response Team to drive decisions, processes and practices •Limited furloughs and prevented layoffs •Maintained salaries and benefits for employees; paid for COVID-19 testing •Provided health and wellness resources, including mental and physical health •Moved to remote work for all feasible roles •Provided PPE and safe work protocols for employees not working remotely •Procured temporary housing, trailers, food and supplies to support employees impacted by hurricanes •Provided comprehensive support for affected employees, including flexible absence policies •Supported communities through donations to local food banks and disaster relief •Achieved exceptional employee engagement and discretionary effort •Continued to hire and onboard key positions supporting recovery and long-term growth	•Limited manufacturing and laboratory downtime due to the pandemic •Continued product supply while managing severe impact of hurricanes in Louisiana •Built on-site power generation to quickly return Lake Charles facility to service •Leveraged new remote technologies to connect, educate and value-sell products and services to current and potential customers •Shifted customer start-up and technical support to virtual platforms, maintaining industry-leading technical service •Accelerated R&D collaboration with key customers to define and develop new products •Built healthy pipeline of new sales opportunities, some derived from market shortfalls in service and supply •Developed products directly supporting COVID-19 test kits, therapies, and vaccines	•Improved cash flow. Reduced costs, improved working capital and lowered capital spending, adding more than $125 million to 2020 cash flow •Delivered more than 95% of pre-pandemic Adjusted Free Cash Flow, despite 34% drop in Adjusted EBIT •Continued dividend at established rate •Re-formulated catalysts to maximize profitability in rapidly changing economic environment •Continued new product development and testing without interruption •Safely started two significant capacity expansions •Optimized manufacturing network driving productivity and incremental capacity with limited investment •Improved systems and processes to accelerate collection of receivables and reduced inventories •Positioned Grace for long-term growth by strengthening commercial excellence and operating excellence initiatives

2020 Executive Compensation Program Summary

CEO and NEO Compensation Mix At Target

The majority of compensation paid to our CEO and the other NEOs is at risk. As shown in the following graphics, 66% of our CEO’s target compensation is at risk, 64% is long-term oriented, and 50% is performance-based. For our other NEOs, 56% of target compensation is at risk, 44% is long-term oriented, and 45% is performance-based.

Elements of CEO and NEO Compensation

Our compensation programs are a key element of our high-performance culture. The compensation of our NEOs is directly linked to our success in delivering value to our customers and investors. Our leaders are expected to drive performance and be role models for delivering results the right way. The following table provides an overview of our executive compensation program structure and outcomes:


Component and Proportion of Mix	Metrics & Weightings	Outcomes
Base Salary 18% of CEO pay 33% of other NEO pay	N/A	N/A
Annual Incentive Cash Plan (AICP) 18% of CEO pay 23% of other NEO pay	Performance-based cash (100%) Adjusted EBIT (50%) Adjusted Net Sales (25%) Adjusted Free Cash Flow (25%)	Pre-COVID-19 goals resulted in calculated payout at 16% of target. Board exercised discretion to increase payout from 16% to an average of 60% for NEOs based on individual performance.
Long-Term Incentive 64% of CEO pay 44% of other NEO pay	PBUs (50%) Adjusted EPS (100%) Relative TSR Modifier (+/- 25%) Stock Options (25%) RSUs (25%)	Board exercised discretion to bifurcate Adjusted EPS performance period with pro-rated payout opportunities; (1) one for the period 2018-2019 and (2) the second for 2020 calendar year. The 2018-2020 LTIP cycle earned at 55% of target overall (2018-2019 earned at 109% and 2020 earned at 0%). Relative TSR metric continued through full three-year period, resulting in 25% downward payout adjustment.

Annual Say-On-Pay Vote Results and Shareholder Engagement

At our annual meeting in May 2020, approximately 99% of the shareholder votes cast supported our executive compensation program in an advisory “say-on-pay” vote. Based on its review and consideration of the 2020 shareholder advisory vote, the committee believes these results indicate strong support for our compensation policies and structure and confirm the importance of our maintaining a strong link between pay and performance in our compensation philosophy and market-best practices.

The committee welcomes the continued input of shareholders. Each year, the Company engages with a broad set of shareholders on a wide range of topics including strategy, operations, financial results, and sustainability and social responsibility. The Company has also sought the input of shareholders on our executive compensation program by means of the annual advisory “say-on-pay” vote, or in specific discussions about “say-on-pay” or our compensation programs and policies.

Compensation Governance Best Practices

The following are some of the key elements of our Executive Compensation Program.


What We Do						What We Don’t Do
Carefully align compensation with shareholder interests						No individual severance agreements (excluding change in control termination protection arrangements)
Foster direct pay-for-performance linkage						No granting options below fair market value
Conduct thorough assessments of executive and Company performance						No option repricing without shareholder approval
Hold an annual say-on-pay vote						No tax gross-ups, except on relocations
Maintain robust share ownership guidelines, which are reviewed annually (for additional information, see ”Share Ownership Guidelines” in Item 10 of this Amendment No. 1).						No hedging or pledging of Grace securities by directors or executive officers*
Benchmark peer and industry data annually for competitive analysis of CEO / other NEO compensation						Limited transferability of stock incentive compensation
Provide appropriate mix of compensation; with a significant portion of compensation “at-risk”						No excessive perquisites
Structure our compensation plans to mitigate risk
Include clawback policy for misconduct leading to a restatement of financial results
Have an entirely independent Compensation Committee
Include double trigger change in control equity treatment in our current stock incentive plan
Retain an independent compensation consultant for the Compensation Committee

* See “Policy regarding Hedging and Pledging” under “Corporate Governance” which disclosure is incorporated by reference in this Compensation Discussion and Analysis.

2020 Executive Compensation Elements, Targets and Results

The principal components of compensation under our executive compensation program are annual base salary, annual cash incentive awards, and long-term incentive awards, which, in 2020, consisted of PBUs, RSUs, and stock options. We use this mix of fixed and variable pay components with different payout forms (cash, full-value stock awards and stock options) to reward annual and sustained, long-term performance. These components afford the committee the appropriate mechanisms to reward management for Grace performance and align our executives’ interests with those of our shareholders. We continuously evaluate best practices and market data to ensure alignment between pay and performance in our compensation plan design.

Base Salary

The committee reviews base salaries and market movement for executive officers annually, but also when roles change significantly. The committee considers individual performance, achievement of individual strategic objectives, changes in the breadth or scope of responsibilities, and its review of competitive compensation information described above.


Named Executive Officer	Base Salary Rate as of 12/31/2020 ($)	Base Salary Rate as of 12/31/2019 ($)	Percentage Increase in Base Salary Rate (%)
Hudson La Force	925,000	850,000	8.8
William C. Dockman	470,004	415,000	13.3
Elizabeth C. Brown	420,000	420,000	—
Keith N. Cole	380,004	370,000	2.7
Mark A. Shelnitz	462,000	450,000	2.7

•Mr. La Force became President and CEO of the Company in 2018. His increase in base salary in the table above reflects an adjustment to better match peer group and broader industry compensation for similarly situated CEOs.

•Mr. Dockman was promoted to CFO in May 2019, and his increase in base salary reflects his promotional increase to better align with peer group and broader industry compensation for this position.

•Mr. Cole, who had not received a salary increase since 2018, received a modest increase in base salary in-line with general market movement.

•Mr. Shelnitz, who had not received a salary increase since 2018, received a modest increase in base salary in-line with general market movement.

Annual Incentive Compensation

The AICP is a cash-based, pay-for-performance incentive plan. Its purpose is to motivate and reward upper- and middle-level employees, including executive officers, for their contributions to our performance.

In 2020 prior to the pandemic, the AICP was based on earnings, cash generation, and revenue performance metrics, with the belief that those metrics closely aligned with short-term milestones in the Company’s strategy to achieve long-term value creation. Consistent with the 2019 AICP, the 2020 AICP used the following metrics to quantify performance:

•Adjusted EBIT (weighted 50%) — demonstrates our effectiveness at growing the Company profitably through our focus on value selling, manufacturing excellence, and operating cost productivity.

•Adjusted Net Sales (weighted 25%) — emphasizes the importance of top-line growth in measuring our market segment performance and confirmation of our ability to earn the confidence and trust of our customers.

•Adjusted Free Cash Flow (weighted 25%) — reflects how well we manage our business as a whole; including net sales and profit growth and the investment required to support that growth.

The committee established 2020 AICP targets in February 2020 prior to the pandemic, based on the performance targets in our 2020 annual operating plan and after considering the general economic environment in which we expected to be operating during the year.

Payouts under the AICP are determined using the following process:

In setting the actual amount of the AICP incentive pool, the committee has discretion to adjust the performance objectives, adjust the calculation of each performance measure, or adjust the size of the AICP incentive pool irrespective of the achievement of performance objectives in consideration of unforeseeable or one-time events occurring during the course of the year.

The 2020 AICP target percentages for our NEOs remained the same as the end of 2019.


Named Executive Officer	AICP Target as Percentage of Base Salary in 2020 (%)	AICP Target as Percentage of Base Salary in 2019 (%)
Hudson La Force	100	100
William C. Dockman	70	70
Elizabeth C. Brown	70	70
Keith N. Cole	70	70
Mark A. Shelnitz	70	70

Actual awards for executive officers may range from $0 to an amount equal to 200% of the target amount, based on the factors described above.

2020 AICP Performance Targets (For results in these three AICP target categories, see further below.)

The amount of the AICP incentive pool is the sum of the amounts funded in the Adjusted EBIT Pool, the Adjusted Free Cash Flow Pool, and the Adjusted Net Sales Pool. The funding of each pool is determined independently by reference to the Adjusted EBIT Target, Cash Target and Sales Target set forth in the Grace annual operating plan for the one-year performance period as follows:

2020 AICP Performance Target—Adjusted EBIT


Percentage Funded in Adjusted EBIT Pool (%)*	Grace Performance as a Percentage of Adjusted EBIT Target (%)	Grace Adjusted EBIT Target (in millions $)
200	120 or above	624
150	110	572
100	100	515-520
75	93	476
50	85	438
—	Below 85	Below 438

* Actual amount funded to the Adjusted EBIT Pool is prorated on a straight-line basis for performance that falls between the performance targets set forth in the table.

2020 AICP Performance Target—Adjusted Free Cash Flow


Percentage Funded in Adjusted Free Cash Flow Pool (%)*	Grace Performance as a Percentage of Adjusted Free Cash Flow Target (%)	Grace Adjusted Free Cash Flow Target (in millions $)
200	120 or above	330
150	110	303
100	100	265-275
75	93	245
50	85	225
—	Below 85	Below 225

* Actual amount funded to the Adjusted Free Cash Flow Pool is prorated on a straight-line basis for performance that falls between the performance targets set forth in the table.

2020 AICP Performance Target—Adjusted Net Sales


Percentage Funded in Adjusted Net Sales Pool (%)*	Grace Performance as a Percentage of Adjusted Net Sales Target (%)	Grace Adjusted Net Sales Target (in millions $)
200	110 or above	2,217
150	105	2,116
100	100	2,015
75	95	1,914
50	90	1,814
—	Below 90	Below 1,814

* Actual amount funded to the Adjusted Net Sales Pool is prorated on a straight-line basis for performance that falls between the performance targets set forth in the table.

2020 AICP Component Results and Funding

Grace’s 2020 AICP results for the one-year performance period were as follows:


	2020 Result (in millions $)	Funding Level (percentage of target)	Weight	AICP Incentive Pool Contribution
2020 AICP Adjusted EBIT	312.2	0%	50%	0%
2020 AICP Adjusted Free Cash Flow	236.9	65%	25%	16%
2020 AICP Adjusted Net Sales	1,734.5	0%	25%	0%
			Total	16%

As a result of performance delivered against criteria established prior to COVID-19 and Hurricanes Laura and Delta, the AICP Incentive Pool for the CEO and his Leadership Team (including NEOs) funded at 16% of target.

Leadership Team Actions and Individual NEO Contributions to Value Delivered

Our executive team remained focused on employee safety and well-being, meeting our customers’ expectations and protecting shareholder value despite the challenges imposed by the COVID-19 pandemic and Gulf Coast Hurricanes. In early 2021, the Board and the committee evaluated each NEO’s performance in the response to COVID-19 and Hurricanes Laura and Delta, and their contributions towards managing the pandemic, meeting customer and shareholder needs, delivering financial results, advancing the Grace Value Model, managing human capital risk, promoting diversity and reinforcing our inclusive culture, and taking actions to manage our environmental footprint.

Our executives demonstrated strong leadership, working hard to ensure the safety and well-being of our employees while proactively managing our business. In determining AICP payouts to the NEOs in respect of 2020 performance, considerations made by the Board and the committee focused on the NEOs’ continued leadership in the face of internal and external challenges and included:

•Immediate implementation of Grace’s global pandemic response plan designed to ensure employee health and safety and continuity of our business and manufacturing operations. Successful execution of our business continuity plan resulted in no customer disruptions as a result of the pandemic, a seamless transition to a remote work environment for nearly half of our employees, a new technology platform to support virtual customer business requirements and global communication, and the development of worksite safety protocols to protect our essential employees onsite.

•A proactive response to maximize cash flow, including lower capital spending, improved working capital, and reduced operating costs. This organizational priority was reinforced across the company by resetting the AICP metric below the Leadership Team to focus solely on adjusted free cash flow. As a result of these actions and our collective focus, we delivered adjusted free cash flow at more than 95% of 2019 levels and remain well placed for future growth and investments.

•The safe and successful launch of two significant capacity expansions which maintain our growth momentum and strong strategic position.

•A quick, effective and comprehensive response following Hurricanes Laura and Delta, focused on supporting our affected employees, promptly and safely restoring our manufacturing operations and minimizing the impact experienced by our customers.

•A commitment to our employees who worked tirelessly this year, with no layoffs and limited furloughs, no salary reductions, participation in a revised AICP which paid at an average of 71% of target (excluding our CEO and his Leadership Team), continued investments in employee development and the hiring of critical talent. This resulted in exceptionally high levels of engagement and productivity during the pandemic, ensuring we were able to meet the needs of our customers and that we are positioned well for future growth with a committed workforce.

As noted above, the committee approved the 2020 AICP goals in February 2020. Upon reviewing the plan during the year, the committee accepted that the performance goals no longer aligned with Grace’s operating plan given the impact of COVID-19 and Hurricanes Laura and Delta, and with continued uncertainty of COVID-19 no changes would be made to the pre-pandemic metrics or plan design for the CEO and his Leadership Team. Instead performance would be assessed holistically at year-end with consideration given to the application of discretion to provide appropriate payouts to participants.

In February 2021, the committee evaluated the formulaic AICP payout based on the goals approved in February 2020 and determined that the result did not fully represent the results that the executive team had delivered. After careful consideration of the above factors, the committee determined with the advice of its independent compensation consultant, it was appropriate to apply discretion to increase payouts from 16% of target to an average of approximately 60% of target for the CEO and his Leadership Team (including all NEOs) based on their individual contributions. The committee believed that these payouts, which remained both below target and below the payouts made to the broader employee population, were more appropriate reflections of both collective and individual NEO performance delivered during the year.

The following table describes the calculations for the AICP payout for each NEO, with the Individual Performance Adjustment reflecting the committee’s upward discretionary adjustment to AICP payouts:


Name	Target Payout ($)	Calculated AICP Incentive Pool Funding (%)	Calculated AICP Funding ($)(a)	Individual Performance Adjustment ($)(b)	Final Payout ($)	Final Payout as Percentage of Target (%)
Hudson La Force	906,353	16	145,016	398,795	543,811	60
William C. Dockman	319,430	16	51,109	140,549	191,658	60
Elizabeth C. Brown	294,000	16	47,040	157,584	204,624	70
Keith N. Cole	264,262	16	42,282	116,276	158,558	60
Mark A. Shelnitz	321,312	16	51,410	108,603	160,013	50

(a)Disclosed in the Summary Compensation Table as Non-Equity Incentive Program compensation

(b)Disclosed in the Summary Compensation Table as Bonus compensation

Long-Term Incentive Compensation

Our Long-Term Incentive Plans, or LTIPs, are designed to motivate and reward LTIP participants, including our NEOs, for their contributions to our performance over a multi-year period, align their financial interests with those of our shareholders, and guide their behavior accordingly by making a significant portion of their total compensation variable and dependent upon our sustained financial performance. The goals of the LTIP are long-term operational excellence, increased quality of earnings, and shareholder value creation.

The target value of the LTIP award for each LTIP participant, with the exception of the CEO, was determined by the committee based on the recommendation of the CEO. The target value of the CEO’s LTIP award was determined by the committee without recommendation from the CEO. These target award values were determined by reviewing current market compensation data (as discussed above), historical long-term incentive target values, the level of dilution represented by outstanding equity awards, and internal pay equity considerations. These grant award values were determined in February 2020, before the breadth and depth of the effects of the pandemic were generally understood by the marketplace.

Set forth below is a discussion of our 2020 LTIP grants, followed by information on our 2018-2020 PBU performance period.

2020 LTIP Grants

During 2020, our LTIP grants consisted of three components: PBUs, RSUs, and stock options. The PBUs consist of a target award of shares that can be increased, decreased, or forfeited based on Grace’s results over a three-year performance period as compared to baseline performance during the year prior to the performance period. The number of PBU shares to be paid out is based upon EPS growth targets, subject to adjustment, up or down, by a factor of 25% if relative TSR for the three-year performance period is above the 75th percentile or below the 25th percentile of the Russell 1000 Index, respectively, subject to a maximum funding percentage. The PBUs “cliff vest” after the completion of the three-year performance period. The RSUs vest in three equal annual installments and will be settled within 60 days of each applicable vesting date. The stock options vest in three equal annual installments beginning on the first anniversary of the grant and have a ten-year term from the grant date.

LTIP grants for 2020 consisted of three components:

•PBUs (approximately 50% of 2020 LTIP Value);

•RSUs (approximately 25% of 2020 LTIP Value); and

•Stock Options (approximately 25% of 2020 LTIP Value).

Grants for the 2020 LTIP were made on February 27, 2020, before the breadth and depth of the effects of the pandemic were understood.

2020-2022 PBUs

The PBUs are share-denominated and the actual number of shares earned by an NEO can vary based on the achievement of specified business performance objectives. The value of the PBUs also varies based on the value of our stock and the amount of dividends paid on that stock. Accordingly, PBUs align leadership focus with our expectations for the ongoing success of our business and for increasing long-term shareholder value. Specifically, the amount of an individual payout under a 2020 PBU award is based upon:

•the individual’s PBU target share amount;

•the growth in our LTIP Adjusted EPS over the three-year performance period;

•the TSR for the three-year performance period as compared to the Russell 1000 Index; and

•the value of Grace common stock on the payout date.

Payouts to executives who are subject to the share ownership guidelines, including the NEOs, are payable in shares of common stock.

2020 LTIP Performance Target — LTIP Adjusted EPS

The committee selected Adjusted EPS as the primary performance measure for the PBUs, reflecting our focus on long-term operational excellence and quality of earnings. The committee believes that employing Adjusted EPS in the LTIP aligns internal leadership focus with the Board’s expectations for the ongoing success of our business and driving long-term shareholder value.

In determining cumulative LTIP Adjusted EPS growth, Adjusted EPS for the performance period may be adjusted in the discretion of the committee to eliminate the effect of changes in accounting, like our adoption of mark-to-market pension accounting, or significant changes in our business. In order to earn 100% of the target share amount, our LTIP Adjusted EPS for 2022 must reach $5.51, as reflected in the following table (Adjusted EPS at the end of fiscal year 2019 was $4.38):


Percentage of PBU Award Funded per Adjusted EPS Performance (%)*	Grace Performance as a Percentage of Adjusted EPS Target (%)	Grace Adjusted EPS Target ($)
200	120	6.61
150	110	6.06
100	100	5.51
83	95	5.23
67	90	4.96
50	85	4.68
0	Below 85	Below 4.68

* Actual amount funded per LTIP Adjusted EPS Performance is prorated on a straight-line basis for performance that falls between the performance targets set forth in the table. Figures in the table may be rounded.

2020 LTIP Performance Targets — Total Shareholder Return

The committee has selected TSR as the second performance measure for PBU awards, which provides enhanced alignment with actual shareholder value creation. We calculate TSR as the growth in stock price based upon 20-business-day average closing prices at the beginning and end of the performance period, plus dividends reinvested, compared to the same figure for the Russell 1000 Index. The number of PBU shares to be paid out based upon EPS targets as shown in the above table, is subject to adjustment, up or down, by a factor of 25% if relative TSR for the three-year period 2020-2022 is above the 75th percentile or below the 25th percentile of the Russell 1000 Index, respectively, subject to a maximum funding percentage of 200%. The committee chose the Russell 1000 Index in 2016 as it is a broad representation of similarly-sized companies including a majority of the Company’s peers.


Grace TSR relative to Russell 1000 TSR						Adjustment to PBU Award as calculated based upon EPS Target
Above 75th Percentile						Increase of 25% of PBU Award
Between 25th and 75th Percentile						No Adjustment to PBU Award
Below 25th Percentile						Decrease of 25% of PBU Award

RSUs

RSUs represent approximately 25% of the value of our 2020 LTIP awards. The value of an RSU is directly related to the value of Grace common stock, so RSUs provide direct alignment between the interests of our executive officers and shareholders. RSUs granted in 2020 vest in three equal installments beginning on the anniversary of the grant date, generally subject to continued employment of the holder of the RSUs. Payments in respect of RSUs are made in shares of common stock.

Stock Options

Stock options represent approximately 25% of the value of our 2020 LTIP awards. The value of stock options is directly related to the increase in the value of our stock, so stock options provide direct alignment between the interests of our executive officers and shareholders. In determining the value of stock option awards, the committee uses an analysis of stock option value based on an adjusted Black-Scholes option pricing model and reviews this analysis with WTW. The committee approved the stock option grants included in the 2020 LTIP on February 27, 2020. The exercise price of the stock options was $55.405 which was the average of the high and low trading prices of Grace common stock on the NYSE on February 27, 2020. The term of the stock options is ten years and they vest over three years in equal annual installments, generally subject to the continued employment of the holder of the stock options.

Effect of Dividends on LTIP Awards

Following common market practice, the committee approved “dividend equivalent” accruals for holders of unvested RSUs and PBUs (which would be paid to holders only following vesting of the underlying award). Dividend equivalents accrue quarterly (based on target levels, in the case of PBUs) throughout the vesting period on all unvested PBUs and RSUs. In the case of PBUs we then adjust these dividend equivalents for actual Company performance (financial results) at the end of the performance period to correspond with the number of PBUs earned. In the event an employee leaves the Company before dividend equivalents are paid, for retirement, disability, or voluntary/involuntary termination, proration rules would apply to the dividend equivalents and any resulting unvested dividends would be forfeited. We do not provide dividend equivalents for stock option awards.

2018-2020 Long-Term Incentive Compensation Plan (or “2018 LTIP”) — PBUs

PBUs represented approximately 50% of the value of our 2018 LTIP awards. The PBUs are share-denominated and the actual number of shares earned by the NEOs in respect of the 2018 PBUs was determined based on the achievement of specified business performance objectives through December 31, 2020. Specifically, the realized value of an individual payout under a 2018 PBU award was based upon:

•the individual’s PBU target share amount;

•the growth in our LTIP Adjusted EPS over the three-year performance period;

•the TSR for the three-year performance period as compared to the Russell 1000; and

•the value of Grace common stock on the payout date.

Payouts to the NEOs in respect of PBUs are made in shares of Grace common stock. The three-year EPS targets are set taking into account anticipated repurchases by the Company of its common stock; the committee has discretion to adjust for share repurchases above or below such anticipated levels.

2018 LTIP Performance Target — LTIP Adjusted EPS

The committee selected Adjusted EPS as the primary performance measure for the 2018 PBUs, reflecting our focus on long-term operational excellence and quality of earnings. The Adjusted EPS targets were reflective of a baseline Adjusted EPS of $3.36. In order to earn 100% of the target share amount, our cumulative annual LTIP Adjusted EPS growth from the 2017 baseline performance to 2020 actual performance had to reach $4.75 (approximately 141% of the $3.36 baseline amount), as reflected in the following table:


Percentage of PBU Award Funded per Adjusted EPS Performance (%)*	Grace Performance as a Percentage of Adjusted EPS Target (%)	Grace Adjusted EPS Target ($)
200	120	5.70
150	110	5.23
100	100	4.75
83	95	4.51
67	90	4.28
50	85	4.04
0	Below 85	4.04

* Actual amount funded per Adjusted EPS Performance is prorated on a straight-line basis for performance that falls between the performance targets set forth in the table. Figures in the table may be rounded.

2018 LTIP Performance Target — TSR

The committee selected TSR as the second performance measure for 2018 PBU awards, which provided enhanced alignment with actual shareholder value creation. We calculate Total Shareholder Return as the growth in stock price between the first and last business day of the performance period plus dividends reinvested compared to the same figure for the Russell 1000 Index. The number of PBU shares to be paid out based upon EPS targets as shown in the above table was subject to adjustment, up or down, by a factor of 25% if relative TSR for the three-year period 2018-2020 is above the 75th percentile or below the 25th percentile of the Russell 1000 Index, respectively, subject to a maximum funding percentage of 200. The committee chose the Russell 1000 Index as it is a broad representation of similarly-sized companies, including a majority of the Company’s peers.

2018-2020 LTIP Adjusted EPS and Total Shareholder Return Results and 2018-2020 PBU Payouts

Based on the final EPS results, the formulaic payout of the 2018-2020 PBUs was 0% based on the direct impact of COVID-19 on our 2020 performance. The committee believed that this result did not accurately reflect the achievements of the executive team over the performance period, and with the advice of its independent compensation consultant, explored ways to more effectively balance pay and performance alignment.

The committee determined that it was important to recognize the financial accomplishments that the executive team had achieved through the first two years of the performance period prior to the pandemic, while holding the executive team accountable for the Company’s financial performance in the final year of the period. The committee also determined that it was important to hold the executive team accountable for relative shareholder value creation

across the full performance period. The committee concluded that it was appropriate to bifurcate the three-year performance period to reflect the unanticipated impact of COVID-19.

Through bifurcating the performance period, the committee believed the adjusted award enabled appropriate recognition of the above target performance delivered in the first two years of the performance period. The first period included 2018 and 2019, and the second period related to 2020. The target opportunity was pro-rated for the two periods, with the 2018-2019 period having two-thirds of the original opportunity and 2020 having one-third. The relative TSR modifier, measured over the original three-year performance period, continued to have effect for the full award. The Adjusted EPS goal was not modified; rather, payout in respect of the 2018-2019 period was based on progress towards the pro-rated original 2020 goal.

Achievement related to the adjusted award segment pertaining to 2018 and 2019 was assessed based on progress towards achieving the 2020 target goal, pro-rated for the length of the segment performance period.

The target goal of $4.75 for 2020 represented a $1.39 improvement in Adjusted EPS compared to 2017 Adjusted EPS of $3.36 (Adjusted EPS for 2017 of $3.40 was further adjusted downward by $0.04 for stock-based compensation changes driven by Accounting Standards Update 2016-09). In 2019, the Company achieved Adjusted EPS of $4.38, a $1.02 improvement over the 2017 Adjusted EPS baseline. This represented the Company achieving 73% progress towards the 2020 target by the end of 2019 ($1.02 two-year improvement divided by the $1.39 three-year improvement goal).

Awards are also subject to a relative TSR modifier which adjusts the payout depending on the Company’s stock price performance when compared to the Russell 1000 index. Given this measure is, by design, self-calibrating (given the fact the Company’s TSR peers were also affected by COVID-19 and other environmental impacts in 2020) the committee did not believe it was necessary to adjust for the impact of COVID-19. Our TSR performance for the three-year period relative to the constituents in the Russell 1000 over the same period was in the lowest quartile, resulting in an additional 25% reduction in the number of PBUs earned in accordance with our program design (in other words, the number of earned PBUs was multiplied by 75%).

Threshold

Target

Maximum

Actual

Performance

< 25th Percentile

25th – 75th Percentile

> 75th Percentile

24th Percentile

Modifier

75%

100%

125%

75%

As a result of the bifurcated performance period, Adjusted EPS performance and the relative TSR modifier, all plan participants (including NEOs) each received shares representing approximately 55% of their target PBU award.

2018 and 2019 Segment

2020 Segment

Weighting

2/3

1/3

Achievement (% of Target)

109% (a)

0% (b)

Weighted Achievement

73% of target

Relative TSR Modifier

75% (25% reduction in earned payout)

With TSR Modifier

55% of target

(a)The committee divided: (i) the 73% progress made towards the 2020 goal within the 2018-2019 period by (ii) the proportion of performance period represented by the 2018-2019 period, which is approximately 67% of the cycle, to arrive at a payout for this two-year segment of 109% (that is, 73%/67%).

(b)The Company’s Adjusted EPS performance of $2.64 in 2020 fell below threshold performance and resulted in a 0% payout for the 2020 award segment.

Earned shares, and their value as of the payment date, for each executive related to the 2018-2020 PBUs are shown in the table below.


Name	Target PBU Payout (Units)	Adjusted EPS Funding for 2018-2020(a)	Relative TSR Modifier Factor for 2018-2020	Final PBU Payout as Percentage of Target	Final PBU Payout (Shares)	Actual Value of 2018-2020 PBU Payout(b) ($)
Hudson. La Force	9,653	73%	75%	55%	5,310	314,671
William C. Dockman	1,768	73%	75%	55%	973	57,660
Elizabeth C. Brown	3,713	73%	75%	55%	2,043	121,068
Keith N. Cole	3,342	73%	75%	55%	1,839	108,979
Mark A. Shelnitz	4,084	73%	75%	55%	2,247	133,157

(a)Based on weighted average of performance across each segment of the bifurcated performance period.

(b)The actual values of the PBU payouts were determined based on the closing price of Grace common stock on the February 26, 2021, payment date of $59.26.

Other Components and Features of our Executive Compensation Program

Pension Plan/Supplemental Executive Retirement Plan

As described below under the caption “—Compensation Tables—Pension Benefits,” payments under our tax-qualified pension plan are calculated using annual compensation, including base salary and AICP awards, and years of credited Grace service. The committee has also implemented a Supplemental Executive Retirement Plan, generally referred to as a SERP, which applies to approximately 50 executive employees, including the NEOs whose annual compensation exceeds the amount that can be taken into account for purposes of calculating benefits under tax-qualified pension plans. Under this plan, each such employee will receive the full pension to which that employee would be entitled in the absence of the limitations described above and other limitations imposed under federal income tax law. The SERP is unfunded and is not qualified for tax purposes. The defined benefit pension plan and SERP have been closed to new entrants since January 1, 2017. Furthermore, in January 2021, Grace announced both plans will be frozen as of December 31, 2024 and as of January 1, 2025, all participants will be moved to a defined contribution retirement plan already in place for new hires as of January 1, 2017.

Savings and Investment Plan/Replacement Payment Plan

We generally offer a tax-qualified 401(k) Savings and Investment Plan, or S&I Plan, to employees under which they may save a portion of their annual compensation in investment accounts on a pre- or post-tax basis. During 2020, we matched 100% of employee savings under the S&I Plan up to 6% of the employee’s base salary and annual incentive compensation. The committee believes that a 401(k) plan with a meaningful Company match is an effective recruiting and retention tool for our employees, including our NEOs. The committee has also implemented an S&I Plan Replacement Payment Plan that currently applies to approximately 45 executive employees, including

the NEOs, whose annual compensation exceeds the amount that can be taken into account for purposes of calculating benefits under tax-qualified savings plans, including the S&I Plan. Under the Replacement Plan, each such employee will receive the full matching payments to which that employee would be entitled in the absence of the limitations described above and other limitations imposed under federal income tax law.

Executive Personal Benefits

The committee believes that executive personal benefits should be limited. Executive officers, including the NEOs, are eligible to participate in an executive physical examination program that offers executives an annual comprehensive physical examination. Our CEO has access to corporate aircraft for reasonable personal travel and would be responsible for paying income taxes on the value of such travel as determined by the Internal Revenue Service.

Change in Control Severance Agreements

As described below under the caption “—Compensation Tables—Termination and Change in Control Arrangements,” we have entered into change in control severance agreements with each of the NEOs. We base the provisions in these agreements on competitive practice and design them to ensure that the NEOs’ interests remain aligned with the interests of our shareholders if a change in control occurs. Payments under these agreements are triggered by the involuntary termination of the executive officer’s employment without cause (including constructive termination caused by a material reduction in his or her authority or responsibility or by certain other circumstances) following a change in control, commonly referred to as a “double-trigger” arrangement. A change in control situation often undermines an executive officer’s job security, and it is to our benefit and our shareholders’ benefit to encourage our executive officers (including the NEOs) to seek out beneficial transactions and to remain employed through the closing of any transaction, even though their future employment at Grace may be uncertain. The change in control severance agreements are designed to reinforce and encourage the continued attention and dedication of the NEOs to their assigned duties without distraction in the face of potentially adverse circumstances arising from the possibility of a change in control of Grace. Certain terms of these agreements are described below under the caption “—Compensation Tables—Potential Payments Upon Termination or Change in Control.”

Severance Arrangements

Grace maintains the Severance Plan for Leadership Team Officers of W. R. Grace & Co. (the “Executive Severance Plan”), which provides that, if the employment of an executive officer (including our NEOs) is terminated without cause without a change in control, he or she will be entitled to cash severance equal to the sum of his or her base salary and target bonus (two times the sum, in the case of the CEO). The Executive Severance Plan also provides that, upon a termination without cause not due to a change in control, an executive officer will be entitled to a prorated annual bonus for the year of termination if he or she has completed at least three months of employment in the applicable year. Payments under the Executive Severance Plan are contingent upon the executive officer’s execution and non-revocation of a release of claims and non-compete and non-solicitation of employees covenants, in favor of Grace. We designed our severance arrangements to encourage and reinforce the continued attention and dedication of our executive officers to their assigned duties, without undue concern regarding their job security. See below under “—Compensation Tables—Potential Payments Upon Termination or Change in Control” and under “—Termination and Change in Control Arrangements” in that section.

Executive Salary Protection Plan

As described below under the caption “—Compensation Tables—Potential Payments Upon Termination or Change in Control,” our Executive Salary Protection Plan (“ESPP”) provides payments to our NEOs, or their respective beneficiaries, in the event of their disability or death prior to age 70 while employed by Grace. We designed the plan to encourage the continued attention and dedication of our executive officers (including our NEOs) to their assigned duties without undue concern regarding their ability to earn a living and support their families in the event of death or disability.

Vesting under the 2018 Stock Incentive Plan

Under the 2018 Stock Incentive Plan, subject to change in control provisions thereof, stock incentives shall vest no earlier than the first anniversary of the date the stock incentive is granted; provided, however, that, stock incentives that result in the issuance of an aggregate of up to 5% of the shares of Common Stock available under the Plan may be granted to any one or more NEOs without respect to such minimum vesting provisions and nothing therein shall preclude the committee from accelerating or maintaining the vesting of any stock incentives in connection with a named executive officer’s death, disability, retirement or other termination of Service.

Executive Compensation Program Philosophy, Objectives, and Processes

Alignment between Pay and Performance

The committee believes that the Company’s executive compensation program provides a strong linkage between pay and performance and is well-aligned with shareholder interests. Our measures of performance under our AICP and LTIP — Adjusted Net Sales, Adjusted EBIT, Adjusted Free Cash Flow, EPS and TSR, are accepted measures of financial success by the investment community, and similar measures are also used by our peer companies in various forms of incentives. The committee sets targets for these measures based on the macroeconomic environment, competitive dynamics, and factors unique to the Company. The committee designs these targets which, if attained, represent excellent performance by the Company. If the Company achieves or exceeds these targets, the committee believes executives generally should be rewarded with higher payouts of awards, and if targets are not met, executives generally should receive lower or no awards.

Key Objectives

The key objectives of the Grace executive compensation program for executive officers are to incentivize and motivate our executive officers to improve our performance, deliver our growth plan, and increase shareholder value; and to enable us to compete effectively with other firms in attracting, motivating and retaining executives. We designed the incentive compensation portion of the program to closely align the financial interests of our executive officers with those of our shareholders. Because executive officers have a substantial ability to influence business success, we believe that the portion of compensation that is at-risk based on organization-wide performance should increase as the level of responsibility increases.

We also expect the executive compensation program to be applied consistently with our culture of ethical conduct, personal integrity, and compliance with both our policies and applicable law. We expect our executive officers to lead by example, modeling our Grace Core Values in their daily business conduct. The Grace Core Values consist of a commitment to teamwork, performance, integrity, speed and innovation, which, with our overall commitment to safety, are the foundation of our corporate culture.

Share Ownership Guidelines

Our Board has designed and implemented share ownership guidelines to align the long-term financial interests of our directors and executive officers with the long-term interests of our shareholders. The guidelines are set forth in Item 10 of this Amendment No. 1 under “Share Ownership Guidelines” and are incorporated herein by reference.

How We Set Compensation — Elements and Target Mix

Our Board has delegated to the committee, the authority for approving and administering the compensation program for executive officers (including the NEOs in the Summary Compensation Table set forth under “—Compensation Tables”). Our Board has appointed all of the independent members of our Board to serve as members of the committee.

Elements of Compensation

The following table outlines the major elements of compensation in 2020 for the NEOs:

Compensation Element

Definition

Rationale

Base Salary

Fixed cash compensation paid monthly

Payment for completion of day-to-day responsibilities

Annual Incentive Compensation Plan

Variable cash compensation earned by annual individual performance and achievement of pre-established annual corporate financial performance goals

Builds accountability for achieving annual financial and business results and individual performance goals

Long-Term Incentive Compensation Plan (Stock Options)

Equity compensation with staggered vesting that increases in value with increases in stock price; value is equivalent to approximately 25% of executive officer’s long-term incentive grant value for the year

Builds accountability for sustained financial results; Aligns long-term interests of executive officers and shareholders; Encourages executive retention

Long-Term Incentive Compensation Plan (PBUs)

Equity compensation subject to performance-based vesting criteria over a three-year period; value is equivalent to approximately 50% of executive officer’s long-term incentive grant value for the year

Builds accountability for sustained financial results; Aligns long-term interests of executive officers and shareholders; Encourages executive retention

Long-Term Incentive Compensation Plan (RSUs)

Builds accountability for sustained financial results; Aligns long-term interests of executive officers and shareholders; Encourages executive retention

U.S. Defined Contribution Retirement Plans

Savings and Investment Plan (401(k))-Standard tax-qualified defined contribution retirement benefit subject to limitations on compensation and benefits under the U.S. Tax Code

Provides U.S. employees with the opportunity to save for retirement on a tax-advantaged basis with matched contributions from Grace

Savings and Investment Plan Replacement Payment Plan (nonqualified) provides benefits in excess of those permitted under the Savings and Investment Plan

Provides certain highly-paid U.S. employees with the opportunity for the same level of Grace match as other participants in the Savings and Investment Plan, notwithstanding U.S. Tax Code limitations

U.S. Defined Benefit Retirement Plans

Retirement Plan for Salaried Employees (“Pension Plan”) - Standard tax-qualified pension plan subject to limitations on compensation and benefits under the U.S. Tax Code

Provides U.S. employees with retirement income

Supplemental Executive Retirement Plan (nonqualified)

Provides certain highly-paid U.S. employees with the same benefit formula as other participants in the Pension Plan, notwithstanding U.S. Tax Code limitations

Target Compensation Mix

As determined by the committee, and informed by market practices, our compensation mix at target (shown above for both our CEO and, collectively, for the other NEOs) is largely incentive-based. The charts further below include 2020 base salary, target AICP, and grant date fair values for the 2020 LTIP grants. The charts illustrate how the mix of target total direct compensation for our NEOs emphasizes incentive compensation, with a significant focus on long-term incentives tied to our long-term performance. Further, the charts indicate the high percentage of executive compensation that is “at-risk,” demonstrating the linkage of shareholder interests and executive officer performance goals.

Compensation Benchmarking

In order to gauge market compensation levels and practices, the committee has retained the services of WTW, a leading independent global advisory, broking and solutions company. Periodically, the committee consults with WTW for an assessment of our executive officer compensation program relative to the competitive market.

The committee, with the assistance of WTW, has selected the companies below as our compensation peer group based upon their industry (those being chemicals, materials and specialty chemicals), size and global scope, revenues, profitability, market capitalization, market for talent, and the availability of public information regarding their compensation practices. The committee relies upon the compensation data gathered from the peer group as well as published broad industry survey data, reflecting the chemicals and general industries, to represent the competitive market for executive talent for our executive officers, and does not focus on any specific data or benchmark for guidance when making pay decisions. The committee reviews the composition of our compensation peer group annually to ensure that it remains suitable and appropriate and removes companies that are no longer public entities.

Peer Group


Albemarle Corp.						Hexcel Corp.
Ashland Global Holdings Inc.						International Flavors & Fragrances Inc.
Cabot Corp.						Minerals Technologies Inc.
Celanese Corporation						NewMarket Corporation
Element Solutions Inc.						PQ Corporation
Ferro Corporation						RPM International Inc.
FMC Corp.						Sensient Technologies Corporation
HB Fuller Co.						Stepan Company

When reviewing the appropriateness of including companies in our peer group based on revenues, we consider the total net sales of Advanced Refining Technologies LLC (or “ART”), our joint venture with Chevron Products Company, a division of Chevron U.S.A. Inc., given our significant managerial responsibilities in connection therewith. Net sales of ART, an unconsolidated affiliate in which we have a 50% interest, were $481.9 million during 2020. We also consider total ART net sales in survey benchmarking.

Contributions of the Committee, CEO and Consultant in our Executive Compensation Process

Role of the Compensation Committee

Pursuant to a delegation from our Board, the committee is responsible for reviewing and approving the compensation of all executive officers, including:

•base salary

•annual incentive compensation

•long-term incentive compensation

•employment agreements

•severance arrangements

•change in control agreements

•any special or supplemental benefits not generally available to salaried employees

The committee oversees executive development and succession planning for the CEO and the other executive officers; reviews management’s goal setting process; identifies important year-over-year and multi-year targets; and commits the executive compensation program to a rigorous review annually. The committee reviews and approves all corporate goals and objectives used in determining the incentive compensation of each executive officer

including our NEOs. Our human resources department and legal services group provide advice and legal and administrative assistance to aid the committee in meeting its responsibilities.

The committee reviews the distribution of peer group pay practices and broad industry data and determines the appropriate positioning of each executive officer’s compensation based on several factors, including:

•the executive officer’s role and level of responsibility

•the executive officer’s individual performance in that role

•the need to attract, retain and motivate the talent required for world-class leadership

•the economic and business environment in which Grace operates

•the importance of the executive officer to Grace’s objectives and strategy

•internal comparisons of pay and roles within the executive officer group;

•legal and governance requirements and standards related to executive compensation, including internal pay equity with other salaried employees

•with respect to executive officers other than the CEO, the CEO’s recommendation of appropriate compensation levels

The committee’s compensation philosophy is to attract, retain and motivate employees to deliver results and increase shareholder value, performing in the best interests of the Company and its shareholders. The committee reviews compensation policies and plans to ensure that this philosophy is supported and that such policies and plans allow the Company to compete effectively with other firms in attracting, motivating and retaining the talent required.

Each year, the committee evaluates the leadership ability, business experience, technical skill, and potential to contribute to Grace’s overall performance, of each executive officer (including our NEOs). In addition, since the number of executive officers is small, the committee is able to spend considerable time with each executive officer outside committee meetings, so the committee members are able to develop strong holistic views of each executive officer’s performance and potential. The committee also reviews each executive officer’s existing compensation. This information, presented in the form of a “tally sheet,” reflects all compensation payable or potentially payable to each executive officer under our compensation program. For each executive officer, the committee reviews the tally sheet, the peer group information, and broad industry data to provide context to the compensation decisions. The committee then reviews the recommendation of the CEO, as discussed below, solely with respect to the other executive officers, and makes the compensation determination based on its individual evaluation of each executive officer.

The committee’s process for determining the compensation of the CEO is similar to the process it applies to other executive officers. The committee reviews and approves corporate goals and objectives used in determining the compensation of the CEO. The committee evaluates the CEO’s performance considering those goals and objectives as well as market data and has sole authority to determine the CEO’s compensation based on this evaluation. The CEO plays no part in the committee’s deliberations concerning, or approval of, the CEO’s own compensation. The committee believes the CEO’s compensation should be higher than the compensation of other executive officers because the CEO is uniquely positioned to influence all aspects of our operations and performance and the resulting return to our shareholders. In addition, the committee believes that a competitive compensation package that aligns the interests of the CEO with Grace’s shareholders is the most effective way to incentivize the CEO and maximize Company performance. The committee’s view is consistent with the practices of the compensation peer group companies and the broad industry data that the committee has reviewed, as described in greater detail in the section below titled “Role of the Compensation Consultant.”

Role of the Chief Executive Officer

The CEO proposes compensation levels for the other executive officers. The CEO bases his recommendations for the other executive officers and NEOs on his personal review of the factors considered by the committee, as described above. The committee affords the CEO’s recommendations significant weight but retains full discretion

when determining executive officer compensation. Although not a member of the committee, the CEO attends committee meetings and participates in committee deliberations regarding compensation levels for the other executive officers. The CEO is excused from deliberations regarding his own compensation and from the “executive session” portion of each meeting when the committee meets alone or alone with its outside advisors.

Role of the Compensation Consultant

In order to add rigor in the process of setting executive officer compensation and to inform the committee of market trends, the committee has engaged the services of WTW to analyze our executive compensation structure and plan designs, and to assess whether our compensation program is competitive and supports the committee’s goal to align the interests of our executive team with the interests of our shareholders.

Specific services provided by WTW in 2020 included:

•participation in committee meetings

•review of our pay-for-performance alignment

•review of risk factors associated with the design and administration of our executive compensation program

•review of companies included in our compensation peer group

•preparation of market compensation data for executives and outside directors

•pandemic-specific studies and advice, including comparative information

•review of the CEO’s compensation as well as compensation recommendations for the other NEOs

•presentation of recommendations for the CEO’s compensation to the committee

•assessment of the share usage under our long-term incentive plan versus our peer group

•advice on incentive compensation plan design

•advice on current market trends and practices

•review of compensation disclosure

We expect WTW and our executive officers, including our CEO and our CHRO, to meet, exchange information, and otherwise cooperate in the performance of their respective duties outside committee meetings.

During 2020, the Company paid fees to WTW for services rendered in respect of executive officer and director compensation in the amount of $266,000. In addition, management engaged WTW to provide additional services to the Company in an amount equal to $134,400 during 2020. These services included human capital and broking, and data, surveys and technology.

The committee has the sole authority to approve the independent compensation consultant’s fees and terms of engagement. The committee annually reviews its relationship with WTW to ensure independence. The process includes a review of the services WTW provides, the quality of those services, and fees associated with the services during 2020 as well as consideration of the factors impacting independence that the NYSE rules require. In its review, the committee noted no conflicts of interest related to the work of WTW and has determined the consultant to be independent.

Compensation Policies and Practices Relating to Risk Management

We do not believe that risks arising from our compensation policies and practices for our employees are reasonably likely to have a material adverse effect on Grace through excessive risk-taking incentives or otherwise. Our compensation program, though tailored to our specific needs, is generally similar to compensation programs used by other companies in our industry. We have many years of experience with the various components of our compensation program, including our incentive plans under which payments may vary based on the performance of the business. We believe these plans, backed by our corporate ethics program and the Grace Core Values, have

been successful in aligning the interests of our executives and senior employees with the interests of our shareholders and in encouraging the responsible pursuit of corporate objectives by our employees.

In order to ensure that our executive officer compensation program does not encourage excessive risk-taking, the committee conducts a periodic risk assessment of our compensation plans, including their design, structure and administration. In 2020, the committee reviewed risk factors associated with the design and administration of the Company’s executive compensation program with WTW. The committee believes that several elements of our compensation programs mitigate risk, including the use of performance measures based on reasonable targets, the balance of the compensation elements, between time-based and performance-based compensation, the implementation of share ownership guidelines, and hedging/pledging prohibitions, the use of severance and change in control agreements to maintain our executives’ focus in times of uncertainty, and the committee’s oversight and discretion regarding incentive compensation.

In addition, as discussed above, to reinforce the alignment of management’s interests with those of our shareholders, and support good governance practices, the Board has adopted an Executive Compensation Recovery Policy (“Clawback”) that applies to all of our NEOs. For additional information, see “Clawback Policy” above.

Deductibility of Executive Compensation

Section 162(m) of the Internal Revenue Code of 1986, as amended, limits the tax deduction for compensation expense each year in excess of $1 million paid to certain executive officers. As in effect prior to the 2018 tax year, there was an exception from Section 162(m) for “performance-based” compensation that satisfies certain other conditions. Effective with the 2018 tax year, the Tax Cuts and Jobs Act of 2017 eliminated the exception under Section 162(m) for performance-based compensation, unless there was a binding written arrangement with respect to such compensation in place on November 2, 2017. According to the IRS, whether a written arrangement is binding for such purpose will be determined under applicable state law. While the design of the AICP and LTIP was structured to provide flexibility in determining whether compensation payable thereunder may be tax deductible, deductibility was only one criterion we considered when establishing such plans. We believe that it is important to preserve the ability to structure compensation plans to meet a variety of corporate objectives even if the compensation is not deductible.

Compensation Committee Report

We, the undersigned members of the Compensation Committee of the Board of Grace, have reviewed Grace’s Compensation Discussion and Analysis for 2020 and have discussed it with Grace management. Based on our review and this discussion, we recommend to the Board that the Compensation Discussion and Analysis be included in this Form 10-K/A.

COMPENSATION COMMITTEE

Diane H. Gulyas, Chair

Robert F. Cummings, Jr.

Julie Fasone Holder

Henry R. Slack

Christopher J. Steffen

Mark E. Tomkins

Shlomo Yanai

Compensation Committee Interlocks and Insider Participation

During 2020, the Compensation Committee of the Board was composed of Mses. Fasone Holder, Gulyas and Reiland, and Messrs. Cummings, Quinn, Slack, Tomkins, Steffen, and Yanai. Ms. Gulyas chaired the Compensation Committee during 2020. None of these persons is a current or former Grace officer or employee, nor did we have any reportable related party transactions with any of these persons; except that Ms. Reiland and Mr. Slack were included on the slate of director nominees recommended by our Board in the Proxy Statement for our 2019 Annual Meeting of Shareholders pursuant to a letter agreement with 40 North. See “Agreements with Certain of our Shareholders,” in Item 13 of this Amendment No. 1. Ms. Reiland resigned from our Board effective October 13, 2020. None of our executive officers serves or in the past has served as a member of the board of directors or compensation committee of any entity that has one or more of its executive officers serving, or in the past having served, on our Board or our Compensation Committee.

Compensation Tables

Summary Compensation Table

The following table sets forth the compensation we paid to NEOs as of December 31, 2020.


Name and Principal Position	Year	Salary ($)	Bonus ($)(a)	Stock Awards(b) ($)	Option Awards(b) ($)	Non-Equity Incentive Plan Compensation ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings(d) ($)	All Other Compensation(e) ($)	Total ($)
						AICP(c)

H. La Force President & Chief Executive Officer	2020	906,250	398,795	2,399,979	807,321	145,016	1,134,000	179,879	5,971,240
	2019	850,000	—	2,099,966	693,209	697,000	1,021,000	168,849	5,530,024
	2018	667,243	—	975,011	325,189	692,700	124,000	83,584	2,867,727

W. C. Dockman Senior Vice President & Chief Financial Officer	2020	456,250	140,549	600,036	201,833	51,109	676,000	50,497	2,176,274
	2019	377,650	—	574,938	123,789	203,580	625,000	42,730	1,947,687


E. C. Brown Senior Vice President, Human Resources and Information Technology, and Chief Human Resources Officer	2020	420,000	157,584	412,490	138,758	47,040	309,000	60,785	1,545,657
	2019	397,083	—	562,506	185,675	227,949	236,000	62,916	1,672,129
	2018	390,000	—	374,989	125,073	320,800	76,000	57,941	1,344,803

K. N. Cole Senior Vice President, Public Affairs & Environment, Health, Safety & Chief Sustainability Officer	2020	377,500	116,276	337,528	113,530	42,282	246,000	54,719	1,287,835
	2019	370,000	—	525,011	173,298	212,380	293,000	53,875	1,627,564
	2018	365,000	—	337,551	112,565	300,500	90,000	42,824	1,248,440

M. A. Shelnitz Former Senior Vice President, General Counsel & Secretary	2020	459,000	108,603	412,490	138,758	51,410	755,000	916,110	2,841,371
	2019	450,000	—	412,447	136,166	258,300	1,488,000	70,083	2,814,996
	2018	443,750	—	412,494	137,580	365,400	—	53,615	1,412,839

(a)Amounts contained in this column represent amounts paid in the Compensation Committee’s exercise of discretion that were in excess of the amounts earned by meeting the performance measures under the 2020 AICP. See "Compensation Discussion and Analysis – Annual Incentive Compensation" above for additional information regarding our NEOs’ 2020 bonus awards.

(b)In the “Stock Awards” column, the amounts reflect the aggregate grant date fair value of: (i) RSU awards; and (ii) PBU awards, to each executive officer, computed in accordance with FASB ASC Topic 718, “Compensation-Stock Compensation.” In the “Option Awards” column, the amounts reflect the aggregate grant date fair value of option awards to each NEO computed in accordance with FASB ASC Topic 718.

In the case of RSU awards, the amounts shown in the Stock Awards column are based on an estimate of aggregate compensation cost to be recognized over the service period determined as of the grant date under FASB ASC Topic 718, excluding the effect of estimated forfeitures.

In the case of PBU awards, the amounts shown in the Stock Awards column are based on an estimate of aggregate compensation cost to be recognized over the service period determined as of the grant date under FASB ASC Topic 718 assuming the target level of performance conditions is achieved and excluding the effect of estimated forfeitures. The values of the PBU awards at the grant date if the highest level of performance conditions is achieved would be as follows: Mr. La Force — $3,199,971; Mr. Dockman — $800,048; Ms. Brown — $549,950; Mr. Cole — $450,000; and Mr. Shelnitz — $549,950.

In the case of stock options, Grace values the options using a Black-Scholes option-pricing model, as discussed under “2020 Executive Compensation—Elements, Targets, and Results—Long-Term Incentive Compensation—Stock Options” in the Compensation Discussion and Analysis above.

The assumptions used to calculate the compensation expense for 2020 are described in the Original Filing.

(c)The amount consists of earned payments pursuant to the AICP. Amounts contained in this column in respect of 2020 exclude amounts paid in the Committee’s exercise of discretion that were in excess of the amounts earned by meeting the performance measures under the 2020 AICP.

(d)The 2020 amount consists of the aggregate change in the actuarial present value of the individual’s accumulated benefit under the Grace Pension Plan and SERP from December 31, 2019 to December 31, 2020, assuming retirement at age 62 with benefits payable on a straight-life annuity basis, based on assumptions used for financial reporting purposes under generally accepted accounting principles, including a 2.41% discount rate determined as set forth in the Original Filing. Although these amounts appear as a lump sum, they are generally paid as an annuity. The amount reported is an accounting value and was not realized by the individual in cash during 2020. The amounts include benefits that the individual may not currently be entitled to receive because the executive is not vested in such benefits. No NEO received preferential or above market earnings on nonqualified deferred compensation in 2020.


Name	Change in Pension Plan Value ($)	Change in SERP Value ($)	Total Change in Pension Value ($)
H. La Force	156,000	978,000	1,134,000
W. C. Dockman	218,000	458,000	676,000
E. C. Brown	105,000	204,000	309,000
K. N. Cole	103,000	143,000	246,000
M. A. Shelnitz	248,000	507,000	755,000

(e)The 2020 amount of All Other Compensation consists of the following:


Name	Personal Benefits* ($)	S&I Plan Matching Payments ($)	S&I Plan Replacement Payments ($)	Dividend Equivalents** ($)	Liability Insurance ($)	Severance Related Payments*** ($)	Total ($)
H. La Force	36,019	17,100	79,095	45,389	2,276	—	179,879
W. C. Dockman	—	16,365	22,490	9,366	2,276	—	50,497
E. C. Brown	—	17,100	21,777	19,632	2,276	—	60,785
K. N. Cole	—	16,443	18,293	17,707	2,276	—	54,719
M. A. Shelnitz	—	17,100	25,938	23,685	2,276	847,111	916,110

_______________________________________________________________________________

* Consists of our aggregate incremental cost of providing perquisites and other personal benefits or property if the aggregate amount of perquisites and other personal benefits provided to the individual equaled or exceeded $10,000. For Mr. La Force, the amount relates to the incremental cost associated with his personal use of a Grace-provided aircraft and consists of $36,019 computed by aggregating the direct operating costs for the use of the aircraft by Mr. La Force, including the costs for maintenance, engine costs, pilot fees, catering, de-icing, landing fees, flight time on an hourly basis (including taxi time), fuel, and surtax.

** Consists of dividend equivalents on vested awards in 2020.

*** In connection with Mr. Shelnitz’s mutually agreed departure from Grace on December 31, 2020, he received a $785,400 severance payment, a $26,173 lump sum payment for health benefits coverage, and a $35,538 lump sum payment for unused vacation.

Grants of Plan-Based Awards in 2020

The following table provides information regarding grants under our AICP and LTIP to the executive officers named in the Summary Compensation Table above during 2020.


Name	Plan	Grant Date	Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(a)			Estimated Future Payouts Under Equity Incentive Plan Awards(b)			All Other Stock Awards: Number of Shares of Stock (#)(c)	All Other Option Awards: Number of Securities Underlying Options (#)(d)	Exercise or Base Price of Option Awards ($/Sh)(e)	Closing Price on Grant Date ($/Sh)	Grant Date Fair Value of Stock and Option Awards ($)(f)
			Threshold ($)	Target ($)	Maximum ($)	Threshold (#)	Target (#)	Maximum (#)
H. La Force	2020 AICP	n/a	453,177	906,353	1,812,706	—	—	—	—	—	—	—	—
	2020 LTIP (Option)	2/27/2020	—	—	—	—	—	—	—	83,747	55.41	54.24	807,321
	2020 LTIP (RSU)	2/27/2020	—	—	—	—	—	—	14,439	—	—	—	799,993
	2020 LTIP (PBU)	2/27/2020	—	—	—	14,439	28,878	57,756	—	—	—	—	1,599,986
W. C. Dockman	2020 AICP	n/a	159,715	319,430	638,860	—	—	—	—	—	—	—	—
	2020 LTIP (Option)	2/27/2020	—	—	—	—	—	—		20,937	55.41	54.24	201,833
	2020 LTIP (RSU)	2/27/2020	—	—	—	—	—	—	3,610	—	—	—	200,012
	2020 LTIP (PBU)	2/27/2020	—	—	—	3,610	7,220	14,440	—	—	—	—	400,024
E. C. Brown	2020 AICP	n/a	147,000	294,000	588,000	—	—	—	—	—	—	—	—
	2020 LTIP (Option)	2/27/2020	—	—	—	—	—	—	—	14,394	55.41	54.24	138,758
	2020 LTIP (RSU)	2/27/2020	—	—	—	—	—	—	2,482	—	—	—	137,515
	2020 LTIP (PBU)	2/27/2020	—	—	—	2,482	4,963	9,926	—	—	—	—	274,975
K. N. Cole	2020 AICP	n/a	132,131	264,262	528,524	—	—	—	—	—	—	—	—
	2020 LTIP (Option)	2/27/2020	—	—	—	—	—	—	—	11,777	55.41	54.24	113,530
	2020 LTIP (RSU)	2/27/2020	—	—	—	—	—	—	2,031	—	—	—	112,528
	2020 LTIP (PBU)	2/27/2020	—	—	—	2,031	4,061	8,122	—	—	—	—	225,000
M. A. Shelnitz	2020 AICP	n/a	160,656	321,312	642,624	—	—	—	—	—	—	—	—
	2020 LTIP (Option)	2/27/2020	—	—	—	—	—	—	—	14,394	55.41	54.24	138,758
	2020 LTIP (RSU)	2/27/2020	—	—	—	—	—	—	2,482	—	—	—	137,515
	2020 LTIP (PBU)	2/27/2020	—	—	—	2,482	4,963	9,926	—	—	—	—	274,975

_______________________________________________________________________________

(a)The amounts earned by our NEOs in 2020 based on actual achievement of the 2020 performance objectives under the AICP are shown in the "Non-Equity Incentive Plan Compensation" column of the 2020 Summary Compensation Table above, and amounts paid to our NEOs in 2020 in excess of the amounts earned by meeting the 2020 performance objectives as a result of the Committee's exercise of discretion were reportable as "Bonus" in the Summary Compensation Table. See "Compensation Discussion and Analysis – Annual Incentive Compensation" above for additional information regarding the 2020 AICP.

(b)Pursuant to the terms of the grants, the number of PBUs that are earned, if any, would be determined after the close of the performance period based on performance for fiscal years 2020 to 2022, inclusive, and would be payable in early 2023, generally subject to continued employment.

(c)These 2020 LTIP RSUs vest in one-third increments on February 27, 2021, February 27, 2022, and February 27, 2023, generally subject to continued employment.

(d)Options awarded under the 2020 LTIP are exercisable in one-third increments on February 27, 2021, February 27, 2022, and February 27, 2023, generally subject to continued employment.

(e)The exercise price was determined based on the average of the high and low trading prices of Grace common stock on the NYSE on the grant date.

(f)The grant date fair value is generally the amount that Grace would expense in its financial statements over the award’s service period but does not include a reduction for forfeitures.

Outstanding Equity Awards at Fiscal Year End 2020

The following table provides information regarding outstanding stock options, RSUs, and PBUs held by the NEOs as of December 31, 2020.


	Option Awards					Stock Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable		Option Exercise Price ($)	Option Expiration Date	Number of Units of Stock That Have Not Vested (#)	Market Value of Units of Stock That Have Not Vested ($)		Equity Incentive Plan Awards: Number of Unearned Units That Have Not Vested (#)	Equity Incentive Plan Awards: Payout Value of Unearned Units That Have Not Vested ($)
H. La Force	—	—		—	—	1,609	88,205	(a)	—	—
	—	—		—	—	5,974	327,495	(b)	—	—
	—	—		—	—	14,439	791,546	(c)	—	—
	—	—		—	—	—	—		17,922	982,484	(f)
	—	—		—	—	—	—		28,878	1,583,092	(g)
	—	83,747	(h)	55.405	2/27/2030	—	—		—	—
	12,845	25,688	(i)	78.115	2/23/2029	—	—		—	—
	17,698	8,848	(j)	67.335	2/22/2023	—	—		—	—
	21,181	—		71.410	2/23/2022	—	—		—	—
	22,893	—		68.470	2/25/2021	—	—		—	—
W. C. Dockman	—	—		—	—	294	16,117	(d)	—	—
	—	—		—	—	1,066	58,438	(b)	—	—
	—	—		—	—	3,610	197,900	(c)	—	—
	—	—		—	—	2,664	146,040	(e)	—	—
	—	—		—	—	—	—		3,200	175,424	(f)
	—	—		—	—	—	—		7,220	395,800	(g)
	—	20,937	(h)	55.405	2/27/2030	—	—		—	—
	2,294	4,587	(i)	78.115	2/23/2029	—	—		—	—
	3,123	1,561	(k)	70.715	5/8/2023	—	—		—	—
	4,814	—		71.410	2/23/2022	—	—		—	—
	4,683	—		68.470	2/25/2021	—	—		—	—
E. C. Brown	—	—		—	—	618	33,879	(a)	—	—
	—	—		—	—	1,600	87,712	(b)	—	—
	—	—		—	—	2,482	136,063	(c)	—	—
									4,801	263,191	(f)
	—	—		—	—	—	—		4,963	272,072	(g)
	—	14,394	(h)	55.405	2/27/2030	—	—		—	—
	3,441	6,880	(i)	78.115	2/23/2029	—	—		—	—
	6,807	3,403	(j)	67.335	2/22/2023	—	—		—	—
	9,628	—		71.410	2/23/2022	—	—		—	—
	14,568	—		68.470	2/25/2021	—	—		—	—
K. N. Cole	—	—		—	—	557	30,535	(a)	—	—
	—	—		—	—	1,493	81,846	(b)	—	—
	—	—		—	—	2,031	111,339	(c)	—	—
	—	—		—	—	—	—		4,481	245,648	(f)
	—	—		—	—	—	—		4,061	222,624	(g)
	—	11,777	(h)	55.405	2/27/2030	—	—		—	—
	3,211	6,422	(i)	78.115	2/23/2029	—	—		—	—
	6,126	3,063	(j)	67.335	2/22/2023	—	—		—	—
	8,665	—		71.410	2/23/2022	—	—		—	—
	9,365	—		68.470	2/25/2021	—	—		—	—
M. A. Shelnitz (l)	—	—		—	—	—	—		2,359	129,320
	—	—		—	—	—	—		1,688	92,536
	—	3,998		55.405	12/31/2023	—	—		—	—
	2,523	5,046		78.115	12/31/2023	—	—		—	—
	7,488	3,743		67.335	2/22/2023	—	—		—	—
	10,590	—		71.410	2/23/2022	—	—		—	—
	15,609	—		68.470	2/25/2021	—	—		—	—

(a)Market value of RSUs that have not been earned is based on the December 31, 2020, closing market price of Grace common stock of $54.82 per share. Such RSUs vested in full based on continued employment with Grace on February 22, 2021.

(b)Market value of RSUs that have not been earned is based on the December 31, 2020, closing market price of Grace common stock of $54.82 per share. One-half of these RSUs vested on February 25, 2021, and the remaining RSUs will generally be earned or forfeited based on continued employment with Grace through February 25, 2022.

(c)Market value of RSUs that have not been earned is based on the December 31, 2020, closing market price of Grace common stock of $54.82 per share. One-third of these RSUs vested on February 27, 2021, and the remaining RSUs will generally be earned or forfeited in equal increments based on continued employment with Grace through February 27, 2022 and February 27, 2023.

(d)Market value of RSUs that have not been earned is based on the December 31, 2020, closing market price of Grace common stock of $54.82 per share. The remaining RSUs will generally be earned or forfeited based on continued employment with Grace through May 7, 2021.

(e)Market value of RSUs that have not been earned is based on the December 31, 2020, closing market price of Grace common stock of $54.82 per share. The remaining RSUs will generally be earned or forfeited based on continued employment with Grace through May 8, 2021.

(f)Market value of PBUs granted in February 2019 that have not been earned is based on the December 31, 2020, closing market price of Grace common stock of $54.82 per share. Pursuant to the terms of the grants, the PBUs would be earned or forfeited based on Grace performance from fiscal year 2019 through fiscal year 2021.

(g)Market value of PBUs granted in February 2020 that have not been earned is based on the December 31, 2020, closing market price of Grace common stock of $54.82 per share. Pursuant to the terms of the grants, the PBUs would be earned or forfeited based on Grace performance from fiscal year 2020 through fiscal year 2022.

(h)One-third of these options vested on February 27, 2021. The remaining options will become exercisable in equal increments on February 27, 2022, and February 27, 2023.

(i)One-half vested on February 25, 2021 and the remaining options will become exercisable on February 25, 2022.

(j)These remaining options became fully exercisable on February 21, 2021.

(k)Remaining options will become exercisable May 7, 2021.

(l)Given that Mr. Shelnitz terminated employment with Grace effective as of the close of business on December 31, 2020, and was retirement eligible at such time, his awards outstanding as of December 31, 2020 are shown here, prorated where applicable. For additional information regarding the compensation and benefits payable to Mr. Shelnitz in connection with his mutually agreed departure from Grace, including treatment of his awards, see the sections entitled “Option Exercises and Stock Vested in 2020” and “Potential Payments Upon Termination or Change in Control” below.

Option Exercises and Stock Vested in 2020

The following table provides information regarding the exercise of options and the vesting of stock awards (PBUs and RSUs) held by the NEOs during 2020.


	Option Awards		Stock Awards
Name	Number of Shares Acquired on Exercise (#)	Value Realized on Exercise ($)	Number of Shares Acquired on Vesting (#)	Value Realized on Vesting ($)(a)
H. La Force	—	—	11,189	672,057
W. C. Dockman	—	—	1,798	122,653
E. C. Brown	—	—	4,045	243,770
K. N. Cole	—	—	3,668	221,004
M. A. Shelnitz	—	—	5,902	346,693

(a)The values in this column include all stock award vesting events, including the 2018-2020 PBUs valued at a closing stock price for Grace common stock of $59.26 on February 26, 2021. The values of the PBU payout amounts as of the February 26, 2021, payment date, based on the closing price of Grace common stock on that date of $59.26 were: for Mr. La Force — $314,671; for Mr. Dockman — $57,660; for Ms. Brown — $121,068; for Mr. Cole — $108,979; and for Mr. Shelnitz — $133,157. For Mr. Shelnitz, the value includes prorated RSUs that vested on December 31, 2020 as well.

Pension Benefits

The following table provides information regarding benefits under our Pension Plan and our SERP for the NEOs.


Name	Plan Name	Number of Years Credited Service (years)	Present Value of Accumulated Benefit ($)(a)	Payments During Last Fiscal Year ($)
H. La Force	Pension Plan	12.75	730,000	—
	SERP	12.75	2,943,000	—
W. C. Dockman	Pension Plan	21.17	1,379,000	—
	SERP	21.17	1,521,000	—
E. C. Brown	Pension Plan	5.92	359,000	—
	SERP	5.92	544,000	—
K. N. Cole	Pension Plan	6.83	445,000	—
	SERP	6.83	591,000	—
M. A. Shelnitz	Pension Plan	37.17	2,391,000	—
	SERP	37.17	4,445,000	—

_______________________________________________________________________________

(a)Amounts comprise the actuarial present value of the individual's accumulated benefit under the Pension Plan and SERP as of December 31, 2020, assuming retirement at age 62 with benefits payable on a straight-life annuity basis, based on assumptions used for financial reporting purposes under generally accepted accounting principles, including a 2.41% discount rate determined as set forth in the Original Filing. The Pension Plan and SERP provide for a reduction in pension benefits to individuals who elect early retirement ranging from a 17% reduction for retirement at age 55 to no reduction for retirement at age 62. Although these amounts appear as a lump sum, they are generally paid as an annuity. The amounts reported are accounting values and were not realized by the individuals in cash during 2020.

Retirement Plan for Salaried Employees

Certain full-time salaried employees who are 21 or older and who have one or more years of service (including each of the NEOs) are eligible to participate in our Retirement Plan for Salaried Employees, also called the Pension Plan. Under this qualified retirement plan, pension benefits are based upon (a) the employee’s average annual compensation for the 60 consecutive months in which his or her compensation is highest during the last 180 months of continuous participation, and (b) the number of years of the employee’s credited Grace service. At age 62, a participant is entitled to full benefits under the Pension Plan, but a participant may elect reduced payments upon early retirement beginning at age 55. For purposes of the Pension Plan, compensation generally includes base salary and AICP awards; however, for 2020, federal income tax law limits to $285,000 the annual compensation on which benefits under the Pension Plan may be based. As of December 31, 2020, Messrs. La Force and Dockman, and Ms. Brown were eligible for early retirement under the Pension Plan, and Messrs. Cole and Shelnitz were eligible for regular retirement under the Pension Plan. The Pension Plan is further described in Item 8 (Financial Statements and Supplementary Data) under Note 8 (Pension Plans and Other Retirement Plans) to the Consolidated Financial Statements and in Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations under the captions “Financial Condition, Liquidity, and Capital Resources” and “Employee Benefit Plans—Defined Benefit Pension Plans”) of the Original Filing. This benefit plan was closed to new entrants effective January 1, 2017. In January 2021, Grace announced the Pension Plan will be frozen as of December 31, 2024 and effective January 1, 2025 all participants will be moved to a defined contribution plan already in place for new hires as of January 1, 2017.

Supplemental Executive Retirement Plan

We also have an unfunded, nonqualified SERP, under which an employee will receive the full pension to which he or she would be entitled in the absence of the limitations described above and other limitations imposed under federal income tax law. With respect to payments, the SERP generally operates in the same manner as the Pension Plan. As of December 31, 2020, Messrs. La Force and Dockman, and Ms. Brown were eligible for early retirement under the SERP, and Messrs. Cole and Shelnitz were eligible for regular retirement under the SERP. The SERP is further described in Item 8 (Financial Statements and Supplementary Data) under Note 8 (Pension Plans and Other Retirement Plans) to the Consolidated Financial Statements and in Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations under the captions “Financial Condition, Liquidity, and Capital

Resources” and “Employee Benefit Plans—Defined Benefit Pension Plans”) of the Original Filing. Like the Pension Plan, the SERP was closed to new entrants since January 1, 2017. In January 2021, Grace announced the SERP will be frozen as of December 31, 2024 and effective January 1, 2025 all eligible participants will be moved to a defined contribution plan already in place for eligible new hires as of January 1, 2017.

Non-Qualified Deferred Compensation Plan

The following table summarizes the compensation deferred by the NEO pursuant to the provisions of Grace’s incentive compensation plan as in effect in 1998, under which certain employees were permitted to voluntarily defer receipt of shares of Grace common stock. Deferred shares under the plan are fully vested and may be distributed to the plan beneficiary upon retirement or termination of service with us. Since 1998, executives may no longer defer receipt of shares under the plan, although existing balances remain in place. In 2020, Mr. Shelnitz was the only NEO who participated in this deferred compensation plan.

Fiscal Year 2020 Non-Qualified Deferred Compensation


Name	Executive Contributions in Fiscal Year 2020 ($)	Registrant Contributions in Fiscal Year 2020 ($)	Aggregate Earnings in Fiscal Year 2020 ($)(a)	Aggregate Withdrawals/ Distributions in Fiscal Year 2020 ($)	Aggregate Balance at Fiscal Year 2020 End ($)(b)
M. A. Shelnitz	—	—	(165,692)	—	692,054

_______________________________________________________________________________

(a)Amount represents the change in value of shares of Grace common stock held in the plan (from December 31, 2019 to December 31, 2020). The total number of shares of Grace common stock held in the plan by Mr. Shelnitz as of December 31, 2020, was 12,624.1197 (which includes additional shares purchased with dividends paid on those shares during 2020).

(b)Amount represents the value of 12,624.1197 shares of Grace common stock deferred under the plan based on the closing price of Grace common stock on December 31, 2020, of $54.82.

Potential Payments Upon Termination or Change in Control

The following table sets forth potential payments to the NEOs in the event of certain occurrences, calculated under the assumption that employment terminated on the last day of 2020. The following table does not include payments pursuant to contracts, agreements, plans and arrangements that do not discriminate in scope, terms or operation, in favor of the NEOs and that are available generally to all salaried employees. The value of payments to be made following termination of employment pursuant to the Pension Plan and SERP are described above under the caption “—Pension Benefits.” The value of payments to be made following termination of employment pursuant to Mr. Shelnitz’s deferred shares arrangement are described above under the caption “—Non-Qualified Deferred Compensation Plan.”


Name	Involuntary Termination Without Cause ($)(a)	Change in Control ($)(b)	Involuntary Termination Without Cause or for Good Reason within Two Years Following Change in Control ($)(c)(e)	Death ($)(d)(f)	Disability ($)(d)(g)
H. La Force	5,603,433	4,063,870	10,538,870	2,365,933	2,232,183
W. C. Dockman	1,263,080	1,043,027	3,769,050	699,075	605,074
E. C. Brown	1,194,645	904,867	3,340,867	690,645	606,645
K. N. Cole	1,063,826	792,758	2,996,781	607,822	531,821
M. A. Shelnitz (h)	1,226,054	440,654	3,120,254	671,654	579,254

_______________________________________________________________________________

(a)Consists of minimum severance payments pursuant to the Executive Severance Plan. Amount excludes AICP payments that executive officers may receive in the discretion of the Compensation Committee as described below under “—Termination and Change in Control Arrangements” (includes prorated equity amounts for executive officers, all of whom are retirement-eligible). See “— Effect of Employee Termination—LTIP—2014 Stock Incentive Plan and 2018 Stock Incentive Plan—PBU and RSU Awards,” below.

(b)For stock options and stock awards granted under the 2014 Stock Incentive Plan, upon a change in control, stock options immediately become fully vested and exercisable and stock awards become fully vested. For stock options and stock awards granted under the 2018

Stock Incentive Plan, upon a change in control followed by a termination event other than for cause or resignation for good reason that occurs within two years following the change in control, stock options become fully vested and exercisable and stock awards become fully vested. Stock awards are valued at the December 31, 2020, Grace common stock price of $54.82. PBUs granted in 2018 are valued at 55% of target levels, the payout determined in February 2021, and PBUs granted in 2019 and 2020 are valued at target. The foregoing assumes all conditions are fulfilled.

(c)Includes the amounts in footnote “b” above plus the amounts in footnote “e” below.

(d)Includes prorated equity amounts. See “— Effect of Employee Termination—LTIP—2014 Stock Incentive Plan and 2018 Stock Incentive Plan—PBU and RSU Awards,” below.

(e)Includes contractual payments pursuant to each executive’s respective Change in Control Severance Agreement calculated under the assumption that no excise tax will apply and excludes AICP payments that executive officers may receive under certain circumstances in the discretion of the Compensation Committee as described below under “—Termination and Change in Control Arrangements—Annual Incentive Compensation Plan” as follows:


Name						Change in Control Severance Payments ($)
H. La Force						6,475,000
W. C. Dockman						2,726,023
E. C. Brown						2,436,000
K. N. Cole						2,204,023
M. A. Shelnitz						2,679,600

(f)Includes the sum of payments under the Grace Executive Salary Protection Plan (“ESPP”), described below, during the first year following death. Amount excludes AICP payments that executive officers may receive under certain circumstances in the discretion of the Compensation Committee as described below under “—Termination and Change in Control Arrangements.” During subsequent years after death until the specified termination year (reflecting the executive officer’s age as of December 31, 2020), the sum of payments each year would be as follows:


Name	ESPP Payments Each Year Following Year of Death ($)	Year of Termination of Payments*
H. La Force	462,500	2028
W. C. Dockman	235,002	2024
E. C. Brown	210,000	2027
K. N. Cole	190,002	2024
M. A. Shelnitz	231,000	2024

* Payments terminate ten years following death; however, if the executive officer is over age 55 at the time of death, the duration payments is reduced.

(g)Includes sum of payments under the ESPP during the first 12-month period following disability, assuming the executive officer remains disabled for at least 12 consecutive months as reflected in the following table. Amounts reflect the offset of expected payments under Grace’s long-term and short-term disability plans that are based, in part, on the duration of the executive officer’s employment. Amount excludes AICP payments executive officers may receive under certain circumstances in the discretion of the Compensation Committee as described below under “—Termination and Change in Control Arrangements—Annual Incentive Compensation Plan.” During subsequent 12-month periods after disability until the specified termination year or earlier death or end of disability, the sum of payments each year would be


Name	ESPP Payments During 12-Month Period Following Disability ($)	ESPP Payments During Subsequent 12-Month Periods ($)	Year of Termination of Payments
H. La Force	328,750	195,000	2029
W. C. Dockman	141,001	47,000	2024
E. C. Brown	126,000	42,000	2028
K. N. Cole	114,001	38,000	2023
M. A. Shelnitz	138,600	46,200	2023

(h)The amounts set forth in the table above for Mr. Shelnitz (which are calculated based on certain assumptions) are greater than the actual amounts that the Company paid to him upon his termination at December 31, 2020. The actual amounts that we paid to Mr. Shelnitz can be found in the “Summary Compensation Table” and the “Option Exercises and Stock Vested in 2020” table. Mr. Shelnitz remains eligible to also receive pro-rated 2019 and 2020 PBU awards at the approved payout level, if any, determined by the Committee after the end of the respective performance cycle.

Termination and Change in Control

Change in Control Severance Agreements

We have entered into change in control severance agreements with all of our executive officers (including the NEOs), which renew automatically unless the Grace Board elects not to renew them. These agreements generally provide that in the event of the involuntary termination of the individual’s employment without cause (including constructive termination caused by a material reduction in his or her authority or responsibility or by certain other circumstances) following a “change in control,” he or she will generally receive a severance payment equal to three times the sum of his or her annual base salary plus target annual incentive compensation. In addition, the executive officer would also receive a prorated target annual incentive bonus for the year in which the change in control occurs and continued Company-provided health insurance.For purposes of the severance agreements, “change in control” means the acquisition of 20% or more of the outstanding Grace common stock (but not if such acquisition is the result of the sale of common stock by Grace that has been approved by Grace’s Board), the failure of Board-nominated directors to constitute a majority of any class of Grace’s Board, the occurrence of a transaction in which the shareholders of Grace immediately preceding such transaction do not own more than 50% of the combined voting power of the entity resulting from such transaction, or the liquidation or dissolution of Grace. The severance amount would be paid in a single lump-sum after termination. Our change in control severance agreements do not provide for any “gross up” or other payments in respect of taxes owed by our executive officers following a termination of employment. The description of the severance agreements in this Form 10-K/A does not purport to be complete and is qualified in its entirety by reference to the form of such agreement, which has been filed with the SEC. Further, the change in control severance agreements may be amended in connection with the Merger Agreement.

Severance Arrangements (Without a Change in Control)

Grace maintains the Executive Severance Plan, which provides that, if the employment of an executive officer is terminated that is not because of a change in control, he or she will be entitled to cash severance equal to one times (two times, in the case of the CEO) the sum of his or her base salary and target bonus. The Executive Severance Plan also provides that, upon a termination without cause not due to a change in control, an executive officer will be entitled to a prorated target annual bonus for the year of termination if he or she has completed at least three months of employment in the applicable year. Payments under the Executive Severance Plan are contingent upon the executive officer’s execution and non-revocation of a release of claims and non-compete and non-solicitation of employees covenants with a duration of 24 months, in favor of Grace. Our severance arrangements are designed to encourage and reinforce the continued attention and dedication of our executive officers to their assigned duties without undue concern regarding their job security. The Executive Severance Plan meets these goals and, in addition, equalizes the non-change in control severance arrangements for all of the NEOs, with the exceptions noted for the CEO. The description of the severance arrangements in this Form 10-K/A does not purport to be complete and is qualified in its entirety by reference to the complete text of the Executive Severance Plan, which the Company filed with the SEC.

Executive Salary Protection Plan

All executive officers (including the NEOs) participate in the Executive Salary Protection Plan which provides that, in the event of a participant’s disability or death prior to age 70, we will continue to pay all or a portion of base salary to the participant or a beneficiary for a period based on the participant’s age at the time of disability or death. Payments under the plan may not exceed 100% of base salary for the first year and 60% thereafter in the case of disability (50% in the case of death). Any payment under the plan as a result of disability would be reduced by the amount of disability income received under Grace’s long-term and short-term disability plans that are generally applicable to U.S. salaried employees. The payments would be paid in installments in the form of salary continuation. The description of the plan in this Form 10-K/A does not purport to be complete and is qualified in its entirety by reference to the complete text of the Executive Salary Protection Plan, which the Company filed with the SEC.

Annual Incentive Compensation Plan

An employee who voluntarily terminates his or her employment prior to an AICP payout date will generally not receive an AICP payment. Under the Executive Severance Plan, an executive officer who completes at least three months of employment in the calendar year in which he or she qualifies for severance under the Executive Severance Plan, would receive a pro rata amount of any bonus the executive officer is eligible to receive for that year under the AICP. This pro rata amount would reflect the executive officer’s completed months of service in that year. The amount of any such bonus would depend on the extent that the applicable business performance goals are met (and will be subject to any applicable committee approvals); and also on the executive officer’s individual performance while still employed by Grace, provided that the individual performance criteria won’t be used to reduce, or increase, the amount of the executive’s bonus entitlement by more than 25%, based on the determination of the executive’s former management at Grace. Any pro rata bonus to which he or she becomes entitled would be paid at the same time as bonuses are paid to actively employed eligible employees (normally in March after the calendar year to which the bonus relates).

Effect of Employee Termination—2014 Stock Incentive Plan and 2018 Stock Incentive Plan

Our 2018 Stock Incentive Plan was approved by our Shareholders at our 2018 Annual Meeting of Shareholders. One key difference between our 2014 and 2018 plans is that under the 2018 Stock Incentive Plan, payments are triggered by the involuntary termination of the executive officer’s employment without cause (including constructive termination caused by a material reduction in his or her authority or responsibility or by certain other circumstances) within two years following a change in control, commonly referred to as a “double-trigger” arrangement.

PBU and RSU Awards

An employee whose employment terminates prior to the payout date will forfeit any unpaid PBU or RSU award payment if employment terminates for any of the following reasons:

•voluntary termination without the consent of the Compensation Committee;

•retirement under a Grace retirement plan prior to age 62 without the consent of the Compensation Committee (except that for awards made after January 1, 2016, for those who leave Grace due to early retirement, with early retirement being defined as retirement with a minimum age of 55 and combined age and years of service of at least 60, PBU and RSU awards will vest on a pro-rata basis, based on the number of completed months of service through the retirement date); or

•termination for cause.

An employee whose employment terminates prior to the payout date will receive a PBU or RSU award payment if employment terminates for any of the following reasons:

•retirement under a Grace retirement plan either at or after age 62 (prorated in accordance with the relevant plan);

•death or disability (prorated in accordance with the relevant plan); or

•in certain cases, in connection with a change in control of Grace —

◦Under the 2014 Stock Incentive Plan, “change in control” means that a person beneficially owns 20% or more of the outstanding Grace common stock (but not if such ownership is the result of the sale of Grace common stock by Grace that has been approved by Grace’s Board or pursuant to a plan of reorganization that is confirmed and effective), the failure of Board-nominated directors to constitute a majority of any class of the Grace Board, the occurrence of a corporate transaction in which the shareholders of Grace immediately preceding such transaction do not own more than 50% of the combined voting power of the entity resulting from such transaction, or the liquidation or dissolution of Grace. In accordance with the terms of the 2014 Plan, all restrictions and deferral limitations applicable to PBUs and RSUs lapse, and the

PBUs and RSUs become free of all restrictions and become fully vested and transferable to the full extent of the original grant.

◦Under the 2018 Stock Incentive Plan: (a) “change in control” has a similar meaning compared to the 2014 Stock Incentive Plan definition, except that: (i) “a majority of the” Grace Board replaces “a majority of any class of the” Grace Board; and (ii) the definition of Board-nominated directors is expanded to include certain new members; and (b) the Compensation Committee has full and final authority to determine whether a change in control event has occurred.

◦The 2018 Stock Incentive Plan differs from the 2014 Stock Incentive Plan with respect to treatment of awards upon a change in control.

In accordance with the terms of the 2014 Plan, upon a change in control, stock options immediately become fully vested and exercisable and stock awards become fully vested.

In accordance with the terms of the 2018 Plan —

(a)Stock Incentives Not Assumed. If a change in control occurs and an employee’s PBUs or RSUs are not continued, converted, assumed, or replaced with a substantially similar award by (i) the Company, or (ii) a successor entity (an “Assumption”), and provided that the employee has not had a termination of service, then immediately prior to the change in control such stock incentives shall become fully vested, exercisable and/or payable, as applicable, and all forfeiture, repurchase and other restrictions on such stock incentives shall lapse, in which case, such stock incentives shall be canceled upon the consummation of the change in control in exchange for the right to receive the change in control consideration payable to other holders of Common Stock (subject to certain additional provisions if Section 409A of the Code is applicable).

(b)Stock Incentives Assumed. If a change in control occurs and an employee’s PBUs or RSUs are subject to Assumption, and, within twenty-four (24) months following such change in control (i) such employee’s employment or service with the Company or a successor is terminated other than for cause or (ii) such employee voluntarily terminates his or her employment or service with the Company or a successor entity with good reason, then such employee’s remaining unvested PBUs and RSUs (including any substituted stock incentives) shall become fully vested, exercisable and/or payable, as applicable, and all forfeiture, repurchase and other restrictions on such stock incentives (including any substituted stock incentives) shall lapse, on the date of termination.

•In the discretion of the Compensation Committee, an employee whose employment terminates for a reason that is not described above (i.e. involuntary termination not for cause or transfer to the buyer of a Grace business unit) prior to the payout date may receive a PBU or RSU award payment. For an employee whose employment terminates prior to payout date, the amount of the PBU or RSU award payment will generally be prorated.

Stock Option Awards

Any stock option held by an employee whose employment terminates prior to exercise will terminate as follows (unless such options would sooner terminate in accordance with the applicable term):

•when employment terminates, if the employee voluntarily terminated employment without the consent of the Compensation Committee, or was terminated for cause, except that:

◦for stock options granted after January 1, 2016, for terminations due to retirement (defined as retirement with a minimum age of 55 and combined age and years of service of at least 60), stock options will vest on a pro-rata basis, based on the number of completed months of service from the grant date through the retirement date (provided that employees age 62 and older will fully vest in outstanding stock options upon retirement if the first tranche is vested); and

◦a participant who voluntarily terminates employment may exercise vested stock option awards any time within 45 days following the last day of employment.

•three years after employment terminates, if employment terminates due to death or incapacity;

•for awards made prior to January 1, 2016, three years after employment terminates, if employment terminates due to retirement with a minimum age of 55 and at least one year of service under a Grace retirement plan; or

•three months (subject to extension by the Compensation Committee for up to three years) after employment terminates, if employment terminates for another reason; however, if the holder dies or becomes incapacitated during the three-month period (or such longer period as the Compensation Committee approves) the option shall terminate three years after employment termination.

In the event of a Change in Control (as described above), any Grace stock options outstanding under the 2014 Stock Incentive Plans that are not exercisable and vested, shall become fully exercisable and vested to the full extent of the original grant. In the event of a Change in Control (as described above), any Grace stock options outstanding under the 2018 Stock Incentive Plans that are not exercisable and vested, shall be treated in the same manner as stated above for the PBUs and RSUs (i.e., shall vest immediately if not assumed, or if assumed, “double-trigger” upon a qualifying termination of employment within two years following a Change in Control).

The descriptions of the 2014 Stock Incentive Plan, the 2018 Stock Incentive Plan, and the respective PBU Awards, RSU Awards, and Stock Option Awards contained in this Form 10-K/A do not purport to be complete and are qualified in their entirety by reference to the full texts of the 2014 Stock Incentive Plan, the 2018 Stock Incentive Plan, and the Forms of Performance-Based Unit Grant Agreements, Restricted Stock Unit Grant Agreements, and Stock Option Grant Agreements, which are filed with the SEC.

Pay ratio disclosure

The median of the annual total compensation of all employees of the Company for 2020, except for our CEO, was $110,216. The annual total compensation of our CEO for 2020 was $5,971,240 (determined as described in the last sentence, below). The ratio of our CEO pay to our median worker pay for 2020 was 54:1. We chose the date of October 1, 2020, for identifying our median employee. The Company used annual base salary as its Consistently Applied Compensation Measure to determine our median employee. We then determined that person’s Summary Compensation Table pay, computed in accordance with Item 402 of Regulation S-K.

Important Information Concerning GAAP and Non-GAAP Financial Measures; Certain Definitions

In this Amendment No. 1, we present financial information in accordance with U.S. GAAP, as well as non-GAAP financial information. Shareholders are directed to Part II, Item 8 on pages 58 through 115, inclusive, of the Original Filing for financial information presented in accordance with U.S. GAAP. For information on non-GAAP financial measures, shareholders should refer to the “Results of Operations” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Original Filing on pages 31 through 47, inclusive.

We believe that the non-GAAP financial information provides useful supplemental information about the performance of our businesses, improves period-to-period comparability, and provides clarity on the information our management uses to evaluate performance and determine compensation. In the Original Filing, and below, we have provided reconciliations of these non-GAAP financial measures to the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP. The non-GAAP financial measures should not be considered as a substitute for financial measures calculated in accordance with U.S. GAAP, and the financial results calculated in accordance with U.S. GAAP and reconciliations from those results should be evaluated carefully.

How we define, calculate and use certain non-GAAP financial measures

We define Adjusted EBIT (a non-GAAP financial measure) to be net income attributable to W. R. Grace & Co. shareholders adjusted for interest income and expense; income taxes; costs related to legacy matters; restructuring and repositioning expenses and asset impairments; pension costs other than service and interest costs, expected returns on plan assets, and amortization of prior service costs/credits; gains and losses on sales and exits of businesses, product lines, and certain other investments; third-party acquisition-related costs and the amortization of acquired inventory fair value adjustment; gains and losses on modification or extinguishment of debt; the effects of these items on equity in earnings of unconsolidated affiliate; and certain other items that are not representative of underlying trends.

We define Adjusted Free Cash Flow (a non-GAAP financial measure) to be net cash provided by or used for operating activities minus capital expenditures plus cash flows related to legacy matters; cash paid for restructuring and repositioning; capital expenditures related to repositioning; cash paid for third-party acquisition-related costs; cash flows related to debt modification; accelerated payments under defined benefit pension arrangements; and certain other items that are not representative of underlying trends.

We define Adjusted Net Sales (a non-GAAP financial measure) as net sales adjusted for the difference between actual foreign currency exchange rates and our annual operating plan exchange rates.

We define Adjusted Gross Margin (a non-GAAP financial measure) to be gross margin adjusted for pension-related costs included in cost of goods sold, the amortization of acquired inventory fair value adjustment, and write-offs of inventory related to exits of businesses and product lines and significant manufacturing process changes.

We define Adjusted Earnings Per Share (EPS) (a non-GAAP financial measure) to be diluted EPS adjusted for costs related to legacy matters; restructuring and repositioning expenses and asset impairments; pension costs other than service and interest costs, expected returns on plan assets, and amortization of prior service costs/credits; gains and losses on sales and exits of businesses, product lines and certain other investments; third-party acquisition-related costs and the amortization of acquired inventory fair value adjustment; gains and losses on modification or extinguishment of debt; certain other items that are not representative of underlying trends; certain discrete tax items; and income tax expense related to historical tax attributes.

“Legacy matters” include legacy (i) product, (ii) environmental, and (iii) other liabilities, relating to past activities of Grace.

In the 2020 first quarter, the definition of Adjusted EBIT was modified to adjust for the effects of interest and taxes on equity in earnings of unconsolidated affiliate. The definition of Adjusted EBITDA was modified to adjust for the effects of depreciation and amortization on equity in earnings of unconsolidated affiliate. We made these changes to provide clarity about the impacts of these items on our equity in earnings of unconsolidated affiliate and to improve consistency in our application of non-GAAP financial measures. Previously reported amounts were revised to conform to the current presentation.

We use Adjusted EBIT, Adjusted Free Cash Flow, Adjusted Net Sales, and Adjusted EPS as performance measures in determining certain incentive compensation. We use Adjusted Gross Margin as a performance measures and may use this measure in determining certain incentive compensation.

Adjusted EBIT, Adjusted Free Cash Flow, Adjusted Net Sales, Adjusted EPS, and Adjusted Gross Margin are non-GAAP financial measures; do not purport to represent income measures as defined under U.S. GAAP; and should not be used as alternatives to such measures as an indicator of our performance. We provide these measures to investors and others to improve the period-to-period comparability and peer-to-peer comparability of our financial results, and to ensure that investors and others understand the information we use to evaluate the performance of our businesses. They distinguish the operating results of our current business base from the costs of our legacy matters; restructuring and repositioning activities; and certain other items. These measures may have material limitations due to the exclusion or inclusion of amounts that are included or excluded, respectively, in the most directly comparable measures calculated and presented in accordance with U.S. GAAP, and thus investors and others should review carefully our financial results calculated in accordance with U.S. GAAP.

Adjusted EBIT has material limitations as an operating performance measure because it excludes costs related to legacy matters, and may exclude income and expenses from restructuring, repositioning, and other activities, which historically have been material components of our net income. Adjusted EBIT should be evaluated together with net income and net income attributable to Grace shareholders, measured under U.S. GAAP, for a complete understanding of our results of operations.

See below for financial measure reconciliations. Numbers are subject to rounding. Notably, how we define, calculate and use non-GAAP financial measures can naturally change over time based upon changes in facts and circumstances as businesses and practices evolve.

Reconciliations

Adjusted Net Sales

For 2020 and 2019, our Adjusted Net Sales were as follows. We adjust net sales to take into account foreign currency fluctuations during the year because when we prepare our internal annual operating plan in advance, we budget at certain forecasted exchange rates, which naturally change during the course of the year.


	Year Ended December 31,
(In millions)	2020	2019
Net sales	$1,729.8	$1,958.1
Currency adjustment	4.7	23.0
AICP Adjusted Net Sales	$1,734.5	$1,981.1

Adjusted Free Cash Flow

As set forth in the following table, for 2020 and 2019, our Adjusted Free Cash Flow was as follows.


	Year Ended December 31,
(In millions)	2020	2019
Net cash provided by (used for) operating activities	$349.6	$392.1
Capital expenditures	(155.5)	(194.1)
Free Cash Flow	194.1	198.0
Cash paid for legacy matters	21.0	19.3
Cash paid for repositioning	10.7	16.8
Cash paid for third-party acquisition-related costs	5.1	2.9
Cash paid for restructuring	3.1	10.2
Cash paid related to modification of debt	2.6	—
Other items	0.3	—
Adjusted Free Cash Flow	$236.9	$247.2

Adjusted EPS; Adjusted EBIT; and Adjusted Gross Margin

For reconciliations of Adjusted EPS; Adjusted EBIT; and Adjusted Gross Margin, see the “Results of Operations” section in Management’s Discussion and Analysis of Financial Condition and Results of Operations on pages 31 through 47, inclusive, of the Original Filing.

Rounding

Numbers used in this Amendment No. 1 are subject to rounding.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Stock Ownership of Certain Beneficial Owners and Management

The following table sets forth the amount of Grace common stock beneficially owned, directly or indirectly:

•as of the date of the most recent Schedule 13D or Schedule 13G (or amendments thereto), filed by such person with the SEC on or before February 28, 2021, by each person that is the beneficial owner of more than 5% of the outstanding shares of Grace common stock as reflected in such Schedule (or amendment thereto); and

•as of February 28, 2021, by:

◦each current director and nominee;

◦each of the executive officers named in the Summary Compensation Table set forth in “Executive Compensation—Compensation Tables”; and

◦all current directors, nominees, and executive officers as a group.


Name and Address of Beneficial Owner (1)	Shares of Common Stock Beneficially Owned		Percent (2)
40 North Management LLC (3)	9,865,008		14.9
9 West 57th Street, 30th Floor New York, NY 10019
The Vanguard Group, Inc. (4)	5,669,493		8.6
100 Vanguard Blvd. Malvern, PA 19355
Robert F. Cummings	17,140
	2,000	(5)
	19,140		*
Julie Fasone Holder	6,791		*
Diane H. Gulyas	13,140		*
Hudson La Force	123,107
	101,332	(6)
	224,439		*
Henry R. Slack	3,812		*
Christopher J. Steffen	24,070		*
Mark E. Tomkins	23,140		*
Shlomo Yanai	5,290		*
William C. Dockman	12,764
	19,504	(6)
	32,268		*
Elizabeth C. Brown	22,537
	31,517	(6)
	54,054		*
Keith N. Cole	16,946
	28,202	(6)
	45,148		*
Mark A. Shelnitz	69,104
	12,624	(5)
	30,865	(6)
	112,593		*
Current directors, nominees, and executive officers as a group (12 persons) (7)	268,737
	2,000	(5)
	180,555	(6)
	451,292		0.7

_______________________________________________________________________________

*Indicates less than 1.0%.

(1)The address of each of our directors and executive officers is c/o Corporate Secretary, W. R. Grace & Co., 7500 Grace Drive, Columbia, Maryland 21044. Except as otherwise indicated, to our knowledge, each individual, along with his or her spouse, as applicable, has sole voting and investment power over the shares.

(2)Based on 66,275,355 shares of Grace common stock outstanding on February 28, 2021, plus shares deemed outstanding pursuant to Rule 13d-3(d)(1) under the Exchange Act to the extent applicable.

(3)40 North Management LLC (“40 North Management”), 40 North Latitude Fund LP (“40 North Latitude Feeder”), 40 North GP III LLC (“40 North GP III”), 40 North Latitude Master Fund Ltd. (“40 North Latitude Master”), David S. Winter and David J. Millstone, beneficially owns 9,865,008 shares of Grace common stock (the “40 North Shares”). Each of 40 North Management, 40 North Latitude Feeder, 40 North GP III, 40 North Latitude Master, Mr. Winter and Mr. Millstone may be deemed the beneficial owner of all of the 40 North Shares. 40 North Management may be deemed to have sole power to vote and sole power to dispose of all of the 40 North Shares, whereas the other reporting persons having beneficial ownership may be deemed to have shared power to vote and shared power to dispose of such 40 North

Shares. 40 North Management serves as principal investment manager to 40 North Latitude Feeder and 40 North Latitude Master. As such, 40 North Management has been granted investment discretion over portfolio investments, including the 40 North Shares. Mr. Winter and Mr. Millstone serve as the sole members and principals of each of 40 North Management and 40 North GP III, and as the sole directors of 40 North Latitude Master. The ownership information set forth is based on materials contained in Schedules 13D/A filed with the SEC by 40 North Management LLC on January 11, 2021 and February 1, 2021.

(4)The Vanguard Group, Inc. (“VGI”) beneficially owns in the aggregate 5,669,493 shares of Grace common stock by means of: shared voting power over 40,700 shares; sole investment power over 5,581,527 shares; and shared investment power over 87,966 shares. The ownership information set forth is based in its entirety on material contained in a Schedule 13G/A filed with the SEC by VGI on February 10, 2021.

(5)Shares owned by trusts and other entities as to which the person has the power to direct voting and/or investment.

(6)Shares of Grace common stock to be issued upon the exercise of stock options that are exercisable and shares of Grace common stock with respect to which investment or voting power will vest within 60 days after February 28, 2021. Pursuant to SEC rules, such shares are deemed to be beneficially owned as of such date.

(7)Excludes Mr. Shelnitz, who resigned effective December 31, 2020, and includes Cherée H. Johnson, who was elected Senior Vice President, General Counsel and Secretary in 2021.

Arrangements that may result in Change of Control

For Arrangements that may result in Change of Control, see Item 13, “Certain Relationships and Related Transactions, and Director Independence” under the captions “Related Party Transactions—Agreements with Certain of our Shareholders,” which information is incorporated herein by reference.

Equity Compensation Plan Information

The following table sets forth information as of December 31, 2020, with respect to our compensation plans under which shares of Grace common stock are authorized for issuance upon the exercise of options, warrants or other rights. The only such compensation plans in effect are stock incentive plans providing for the issuance of stock options, restricted stock and other equity awards.

Plan Category

Number of securities
to be issued upon
exercise of
outstanding options, warrants and rights
(#)(b)

Weighted-average
exercise price of
outstanding options, warrants and rights
($)(b)(c)

Number of securities remaining available for future issuance under equity compensation plans (excluding securities to be issued upon exercise of outstanding options, warrants and rights)
(#)(d)

Equity compensation plans approved by security holders(a)

1,981,159

66.86

6,304,064

Equity compensation plans not approved by security holders

N/A

Total

1,981,159

66.86

6,304,064

_______________________________________________________________________________

(a) The 2014 Stock Incentive Plan (the “2014 Plan”) was approved on behalf of Grace shareholders by the Official Committee of Equity Security Holders in the Grace Chapter 11 case and by the U.S. Bankruptcy Court and U.S. District Court for the District of Delaware as part of our Joint Plan of Reorganization, which became effective on February 3, 2014. The 2018 Stock Incentive Plan (the “2018 Plan”) was approved by Grace shareholders on May 9, 2018.

(b) Under the 2014 Plan, as of December 31, 2020 there were 898,066 shares of Grace common stock to be issued upon the exercise of outstanding options (the weighted-average exercise price of outstanding options is $68.86), 38,658 shares to be issued upon completion of the performance period for stock-settled performance-based units, or “PBUs” (assuming 55% of target payout for the 2018-2020 PBUs) and 23,359 shares to be issued upon completion of the vesting period for stock-settled restricted stock units, or “RSUs,” awards. Under the 2018 Plan, as of December 31, 2020 there were 519,268 shares of Grace common stock to be issued upon the exercise of outstanding options (the weighted-average exercise price of outstanding options is $63.39), 392,565 shares to be issued upon completion of the performance period for stock-settled PBUs (assuming 55% of target payout for the 2018-2020 PBUs and the maximum number of shares are earned in respect of all other outstanding PBUs) and 109,243 shares to be issued upon completion of the vesting period for stock-settled restricted stock unit (“RSU”) awards.

(d) Amount represents the number of shares of Grace common stock available for issuance pursuant to stock options, restricted stock, PBUs and other awards that could be granted in the future under the 2018 Plan. Future awards may not be granted under the 2014 Plan.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Director Independence

The information set forth under “Number and Independence of Directors” in Item 10 of this Amendment No. 1 is incorporated herein by reference.

Related Party Transactions

Our Board recognizes that transactions involving related persons in which Grace is a participant can present conflicts of interest, or the appearance thereof, so our Board has adopted a written policy as part of the Grace Corporate Governance Principles (which are available on our website at www.grace.com/en-us/corporate-leadership/Pages/Governance.aspx) with respect to related person transactions. The policy applies to transactions involving related persons that are required to be disclosed pursuant to SEC regulations, which are generally transactions in which:

•Grace is a participant;

•the amount involved exceeds $120,000; and

•any related person, such as a Grace executive officer, director, director nominee, 5% shareholder or any of their respective family members, has a direct or indirect material interest.

Each such related person transaction shall be reviewed, determined to be in, or not inconsistent with, the best interests of Grace and its shareholders and approved or ratified by:

•the disinterested members of the Audit Committee, if the disinterested members of the Audit Committee constitute a majority of the members of the Audit Committee; or

•the disinterested members of our Board.

In the event a related person transaction is entered into without prior approval and, after review by the Audit Committee or our Board, as the case may be, the transaction is not ratified, we will make all reasonable efforts to cancel the transaction.

Agreements with Certain of our Shareholders

On April 26, 2021, the Company issued a press release announcing the entry into a definitive agreement providing for the acquisition of the Company by an affiliate of Standard Industries Holdings Inc. (“Standard Industries Holdings”), subject to the terms and conditions contained therein. The Company also announced that Standard Industries Holdings’ related investment platform 40 North Latitude Master Fund Ltd. (“40 North”), which owns approximately 14.9% of the Company’s outstanding common stock, had entered into a voting agreement pursuant to which 40 North has agreed to vote its shares of Grace common stock in favor of the transaction.

Merger Agreement

On April 26, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Gibraltar Acquisition Holdings LLC, a Delaware limited liability company (“Parent”) and a wholly owned subsidiary of Standard Industries Holdings, and Gibraltar Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of Parent (“Merger Sub”), pursuant to which Merger Sub will merge with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Parent. Our Board has unanimously approved the Merger Agreement.

As a result of the Merger, each share of Grace common stock outstanding immediately prior to the effective time of the Merger (the “Effective Time”) (subject to certain exceptions, including for shares of Grace common stock owned by shareholders of the Company who have not voted in favor of the adoption of the Merger Agreement and have

properly exercised appraisal rights in accordance with Section 262 of the General Corporation Law of the State of Delaware (the “DGCL”)) will, at the Effective Time, automatically be converted into the right to receive $70.00 in cash, without interest, subject to applicable withholding taxes (the “Merger Consideration”).

Pursuant to the Merger Agreement, as of the Effective Time, (1) each option to purchase shares of Grace common stock and each stock appreciation right with respect to shares of Grace common stock that is outstanding immediately prior to the Effective Time will vest at closing and be converted into the right to receive an amount in cash equal to the product of Merger Consideration (less the applicable exercise price) and the number of shares of Grace common stock covered by such option (without interest and less applicable withholding taxes) and (2) each restricted stock unit award and each performance-based unit award relating to shares of Grace common stock that is outstanding immediately prior to the Effective Time will be assumed and converted into the right to receive an amount in cash (without interest) equal to the product obtained by multiplying the Merger Consideration by the number of shares of Grace common stock covered by such award immediately prior to the Effective Time, which converted cash award will be subject to continued service vesting and other terms as set forth in the Merger Agreement.

Pursuant to the terms of the Merger Agreement, the Company will suspend payment of its quarterly dividend during the pendency of the transaction.

If the Merger is consummated, the Grace common stock will be delisted from the New York Stock Exchange and deregistered under the Exchange Act.

Closing Conditions

Completion of the Merger is subject to certain mutual closing conditions, including (1) the adoption of the Merger Agreement by holders of a majority of the outstanding shares of Grace common stock, (2) the expiration or early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), and the approval of the Merger under certain other applicable antitrust laws, and (3) the absence of any order, injunction or law prohibiting the Merger. In the case of the Company, completion of the Merger is subject to certain additional closing conditions, including (A) the accuracy of Parent and Merger Sub’s representations and warranties, subject to certain materiality standards set forth in the Merger Agreement, and (B) the performance by Parent and Merger Sub in all material respects of their covenants and agreements under the Merger Agreement. In the case of Parent and Merger Sub, completion of the Merger is subject to certain additional closing conditions, including (X) the accuracy of the Company’s representations and warranties, subject to certain materiality standards set forth in the Merger Agreement, (Y) the performance by the Company in all material respects of its covenants and agreements under the Merger Agreement, and (Z) no Company Material Adverse Effect (as defined in the Merger Agreement) having occurred since the date of the Merger Agreement. The closing of the Merger is not subject to a financing condition. The parties expect the transaction to close in the fourth quarter of 2021.

No Solicitation

The Merger Agreement provides that the Company must comply with customary non-solicitation restrictions, including certain restrictions on its ability to solicit alternative acquisition proposals from third parties, to provide non-public information to third parties and to engage in negotiations with third parties regarding alternative acquisition proposals. Subject to certain customary “fiduciary out” exceptions, our Board is required to recommend that the Company’s stockholders adopt the Merger Agreement and to call a meeting of the Company’s stockholders to vote on a proposal to adopt the Merger Agreement.

Termination and Fees

Either the Company or Parent may terminate the Merger Agreement in certain circumstances, including if (1) the Merger is not completed by January 26, 2022 (subject to extension to April 26, 2022 under certain circumstances described in the Merger Agreement, including for purposes of obtaining required regulatory approvals), (2) a governmental authority of competent jurisdiction has issued a final non-appealable governmental order or law permanently prohibiting the Merger, (3) the Company’s stockholders fail to adopt the Merger Agreement, and (4) the

other party materially breaches its representations, warranties or covenants in the Merger Agreement, subject in certain cases, to the right of the breaching party to cure the breach. Parent and the Company may also terminate the Merger Agreement by mutual written consent.

The Company is also entitled to terminate the Merger Agreement, and receive a termination fee of $281 million from Parent, if (1) Parent fails to consummate the Merger following the satisfaction or waiver of certain closing conditions or (2) if Parent otherwise breaches its obligations under the Merger Agreement such that the applicable condition to the consummation of the Merger is not satisfied.

If the Merger Agreement is terminated in certain other circumstances, including by the Company in order to accept a Superior Company Proposal (as defined in the Merger Agreement), or by Parent because our Board withdraws its recommendation in favor of the Merger, the Company would be required to pay to Parent a termination fee of $141 million.

Financing

Parent has obtained equity financing and debt financing commitments for the purpose of financing the transactions contemplated by the Merger Agreement. Standard Industries Holdings has committed to capitalize Parent at the closing of the Merger with an aggregate equity contribution equal to $3,516 million on the terms and subject to the conditions set forth in its equity commitment letter. Standard Industries Holdings has announced that its equity commitment will be supported by the available cash of its subsidiary, Standard Industries Inc., and up to $2,500 million in proceeds from a secured term loan.

J.P. Morgan, BNP Paribas, Citi and Deutsche Bank (the “Lenders”) have agreed to provide Parent with debt financing in an aggregate principal amount of up to $3,455 million on the terms and subject to the conditions set forth in a debt commitment letter. The obligations of the Lenders to provide debt financing under the debt commitment letter are subject to a number of customary conditions.

In addition, Standard Industries Holdings has guaranteed payment of the termination fee payable by Parent under certain circumstances, as well as certain reimbursement obligations that may be owed by Parent pursuant to the Merger Agreement, subject to the terms and conditions set forth in the Merger Agreement and a limited guarantee provided by Standard Industries Holdings to the Company.

Other Terms of the Merger Agreement

The Company has made customary representations, warranties and covenants in the Merger Agreement, including, among others, covenants to use reasonable best efforts to conduct its business in all material respects in the ordinary course during the period between the date of the Merger Agreement and the completion of the Merger. The parties have agreed to take all actions necessary to consummate the merger, including cooperating to obtain the regulatory approvals necessary to complete the Merger.

The foregoing description of the Merger Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Merger Agreement, a copy of which is filed as Exhibit 2.6 hereto and is incorporated by reference herein.

The Merger Agreement has been included to provide investors with information regarding its terms. It is not intended to provide any other factual information about the Company, Parent, Merger Sub or their respective affiliates. The representations, warranties and covenants contained in the Merger Agreement were made only for purposes of the Merger Agreement as of the specific dates therein, were solely for the benefit of the parties to the Merger Agreement, may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk among the parties to the Merger Agreement instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Investors should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the parties thereto or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of representations and warranties may change after the date of the Merger

Agreement, which subsequent information may or may not be reflected in the Company’s public disclosures. The Merger Agreement should not be read alone, but should instead be read in conjunction with the other information regarding the Company, Parent and Merger Sub and the transactions contemplated by the Merger Agreement that will be contained in or attached as an annex to the proxy statement on Schedule 14A that the Company will file in connection with the transactions contemplated by the Merger Agreement (the “Proxy Statement”), as well as in the other filings that the Company will make with the SEC.

Voting Agreement

40 North has entered into a voting agreement (the “Voting Agreement”) with the Company pursuant to which it has agreed, among other things, to vote its shares of Grace common stock in favor of adoption of the Merger Agreement, so long as, among other things, the Merger Agreement remains in effect. 40 North and its affiliates collectively own 9,865,008 shares of Grace common stock as of the date hereof, representing approximately 14.9% of the total outstanding Grace common stock.

The foregoing description of the Voting Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Voting Agreement, a copy of which is filed as Exhibit 10.24 hereto and is incorporated by reference herein.

Letter Agreements

On February 1, 2021, we entered into a letter agreement (the “2021 Letter Agreement”) with 40 North Management LLC, 40 North GP III LLC, 40 North Latitude Master Fund Ltd. and 40 North Latitude Fund LP (collectively, the“40 North Parties”). Pursuant to the 2021 Letter Agreement and subject to the terms and conditions set forth therein, the 40 North Parties agreed to, among other things, comply with certain confidentiality obligations and standstill restrictions pursuant to which the 40 North Parties would refrain from taking certain actions with respect to the Company and the common stock of the Company until 11:59 p.m. Eastern Time on March 31, 2021 (such restrictions, the “Standstill Provisions”), subject to the earlier termination of the Standstill Provisions in certain circumstances.

In connection with the 40 North Parties’ agreement to the Standstill Provisions, the Company agreed in the 2021 Letter Agreement that, among other things, notwithstanding the latest date that a shareholder may provide timely notice of a nomination of candidates for election to the Company’s Board pursuant to the Company’s Amended and Restated By-Laws (the “By-Laws”), our Board would consider timely any nomination by the 40 North Parties of director candidates for the upcoming 2021 Annual Meeting that was delivered to the Company on or before the fifteenth day following the expiration or termination of the Standstill Provisions and otherwise complied with the applicable requirements of the By-Laws. In addition, the Company agreed in the 2021 Letter Agreement that, if the 40 North Parties delivered a notice of nomination of director candidates for the 2021 Annual Meeting on or before the fifteenth day following the expiration or termination of the Standstill Provisions, which notice of nomination otherwise complied with the requirements of the By-Laws, the Company would hold its 2021 Annual Meeting no earlier than 60 days from the date of such notice of nomination.

On April 14, 2021, the Company entered into an amendment (the “Extension Amendment”) to the 2021 Letter Agreement. Pursuant to the Extension Amendment, Grace and the 40 North Parties agreed to extend the nomination deadline for the 40 North Parties to submit candidates for election to the Company’s Board of Directors at the Company’s 2021 Annual Meeting of Shareholders to April 26, 2021. Grace and the 40 North Parties also agreed not to make any further public statements regarding the other party or the ongoing discussions between the parties prior to April 26, 2021.

The 40 North Parties did not submit a nomination of director candidates for the 2021 Annual Meeting during the applicable time period set forth in the 2021 Letter Agreement, as extended.

On February 20, 2019, we entered into an agreement with the 40 North Parties pursuant to which, among other things, we included Mr. Slack and Ms. Reiland on the slate of director nominees recommended by our Board in the Proxy Statement for our 2019 Annual Meeting of Shareholders. Mr. Slack and Ms. Reiland were elected as directors at that meeting. Prior to our 2020 Annual Meeting of Shareholders, our Board appointed Ms. Reiland as a Class I

director with a term expiring at our 2021 Annual Meeting of Shareholders. Effective October 13, 2020, Ms. Reiland resigned from the Company’s Board and all of its committees based on her disagreement with the Board regarding the Company’s strategic direction. Ms. Reiland had served on the Board’s Audit, Compensation, Nominating and Governance, and Corporate Responsibility Committees.

For the amount of Grace common stock beneficially owned, directly or indirectly, by 40 North and its affiliates, see “Other Information—Stock Ownership of Certain Beneficial Owners and Management,” above.

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Principal Accountant Fees and Services

The Audit Committee of our Board selected PwC to act as our principal independent accountants for 2020. The following table sets forth the fees and expenses that we incurred for the services of PwC for the year ended December 31, 2019, and our estimate of the fees and expenses that we incurred for the year ended December 31, 2020:


Fee Description	2020		2019
Audit Fees	$	2,635,000	$	2,564,000
Audit-Related Fees	178,000		55,000
Tax Fees	6,000		203,000
All Other Fees	5,000		5,000
Total Fees	$	2,824,000	$	2,827,000

Audit Services relate to the audit of our consolidated financial statements and our internal controls over financial reporting (as required under Section 404 of the Sarbanes-Oxley Act of ~~2002 1~~ ~~Exhibit no. ---- 32 Certification~~2002); the reviews of ~~Periodic Report~~our consolidated quarterly financial statements; services that are normally provided by ~~Chief Executive Officer~~the independent registered public accounting firm in connection with statutory and ~~Chief Financial Officer under Section 906~~regulatory filings or engagements; services in connection with the implementation of new accounting or financial standards; and consents and assistance with respect to our SEC filings.

Audit-Related Services consisted of assurance and related services that are reasonably related to the performance of the ~~Sarbanes-Oxley Act~~audit or review of ~~2002 2~~ our consolidated financial statements and are not included under “Audit Services” above, including relating to our offering of senior notes.

Tax Services consisted of tax advice and compliance for non-U.S. subsidiaries, including preparation of tax returns, and advice and assistance with transfer pricing compliance.

All Other Fees consisted of license fees for access to accounting, tax, and financial reporting literature and non-financial agreed-upon procedures.

Audit Committee Pre-Approval Policies and Procedures

The Audit Committee has adopted a pre-approval policy that requires the Audit Committee to specifically pre-approve the annual engagement of the independent accountants for the audit of our consolidated financial statements and internal controls. The policy also provides for general pre-approval of certain audit-related, tax and other services provided by the independent accountants. Any other services must be specifically pre-approved by the Audit Committee. However, the Chair of the Audit Committee has the authority to pre-approve services requiring immediate engagement between scheduled meetings of the Audit Committee. The Chair must report any such pre-approval decisions to the full Audit Committee at its next scheduled meeting. During 2020 and 2019, no audit-related, tax, or other services were performed by PwC without specific or general approval as described above. We have been advised by PwC that a substantial majority of the hours expended on their engagement for the 2020 audit of our consolidated financial statements and internal controls were attributed to work performed by PwC’s full-time, permanent employees.

PART IV

Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

Financial Statements and Schedules. The required information is set forth in Item 8, which is incorporated herein by reference.

Exhibits. The exhibits to this Report are listed below. Other than exhibits that are filed herewith, all exhibits listed below are incorporated by reference.

In reviewing the agreements included as exhibits to this and other Reports filed by Grace with the Securities and Exchange Commission, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about Grace or other parties to the agreements. The agreements generally contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement. These representations and warranties:

•are not statements of fact, but rather are used to allocate risk to one of the parties if the statements prove to be inaccurate;

•may have been qualified by disclosures that were made to the other parties in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;

•may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and

•were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and do not reflect more recent developments.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about Grace may be found elsewhere in this report and Grace’s other public filings, which are available without charge through the Securities and Exchange Commission’s website at http://www.sec.gov.

Exhibit No.

Exhibit

Location

2.1

Joint Plan of Reorganization of W. R. Grace & Co. and its Debtor Subsidiaries.

Exhibit 2.01 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953

2.2

Order Confirming Joint Plan of Reorganization.

Exhibit 2.02 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953

2.3

Separation and Distribution Agreement, dated as of January 27, 2016, by and among W. R. Grace & Co., W. R. Grace & Co.–Conn. and GCP Applied Technologies Inc.

Exhibit 2.1 to Form 8-K (filed 1/28/16) SEC File No.: 001-13953

2.4

Amended and Restated Sale and Purchase Agreement, dated as of February 21, 2018, by and between Albemarle Corporation and W. R. Grace & Co.–Conn.

Exhibit 2.4 to Form 10-K (filed 2/22/18) SEC File No.: 001-13953

2.5

Sale, Purchase and Contribution Agreement, dated as of February 25, 2021, by and among Albemarle Corporation, W. R. Grace & Co.–Conn., and Fine Chemical Manufacturing Services LLC.

Exhibit 2.5 to Form 10-K (filed 2/26/21) SEC File No.: 001-13953

2.6

Agreement and Plan of Merger, dated as of April 26, 2021, by and among W. R. Grace & Co., Gibraltar Acquisition Holdings LLC and Gibraltar Merger Sub Inc.**

Exhibit 2.1 to Form 8-K (filed 4/26/21) SEC File No.: 001-13953

3.1

Amended and Restated Certificate of Incorporation.

Exhibit 3.01 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953

3.2

Amended and Restated By-laws.

Exhibit 3.01 to Form 8-K (filed 1/23/15) SEC File No.: 001-13953

4.1

Credit Agreement, dated as of February 3, 2014, by and among W. R. Grace & Co., W. R. Grace & Co.–Conn., Grace GmbH & Co. KG, a Federal Republic of Germany limited partnership, each lender from time to time party thereto, and Goldman Sachs Bank USA, as Administrative Agent.

Exhibit 4.01 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953

Exhibit No.

Exhibit

Location

4.2

First Amendment and Consent to Credit Agreement and First Amendment to Security Agreement, dated as of November 25, 2015, by and among W. R. Grace & Co., W. R. Grace & Co.–Conn., Grace GmbH & Co. KG, Alltech Associates, Inc., each lender from time to time party thereto, and Goldman Sachs Bank USA, as Administrative Agent and lender.

Exhibit 10.1 to Form 8-K (filed 11/25/15) SEC File No.: 001-13953

4.3

Deferred Payment Agreement (PD), dated as of February 3, 2014, by and between W. R. Grace & Co.–Conn. and the WRG Asbestos PD Trust.

Exhibit 4.04 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953

4.4

Guarantee Agreement (PD), dated as of February 3, 2014, by and between W. R. Grace & Co. and the WRG Asbestos PD Trust.

Exhibit 4.05 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953

4.5

Deferred Payment Agreement (PD-ZAI), dated as of February 3, 2014, by and between W. R. Grace & Co.–Conn. and the WRG Asbestos PD Trust.

Exhibit 4.06 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953

4.6

Guarantee Agreement (PD-ZAI), dated as of February 3, 2014, by and between W. R. Grace & Co. and the WRG Asbestos PD Trust.

Exhibit 4.07 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953

4.7

Share Issuance Agreement, dated as of February 3, 2014, by and among W. R. Grace & Co., the WRG Asbestos PD Trust and the WRG Asbestos PI Trust.

Exhibit 4.08 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953

4.8

Indenture, dated as of September 16, 2014, by and among W. R. Grace & Co.–Conn., the guarantors party there to and Wilmington Trust, National Association, as trustee.

Exhibit 4.1 to Form 8-K (filed 9/19/14) SEC File No.: 001-13953

4.9

First Supplemental Indenture, dated as of September 16, 2014, by and among W. R. Grace & Co.–Conn., the guarantors party thereto and Wilmington Trust, National Association, as trustee.

Exhibit 4.2 to Form 8-K (filed 9/19/14) SEC File No.: 001-13953

4.10

Form of 5.125% Note due 2021 (included as Exhibit A-1 to Exhibit 4.9).

Exhibit 4.3 (included as Exhibit A-1 to Exhibit 4.2) to Form 8-K (filed 9/19/14) SEC File No.: 001-13953

4.11

Form of 5.625% Note due 2024 (included as Exhibit A-2 to Exhibit 4.9).

Exhibit 4.4 (included as Exhibit A-2 to Exhibit 4.2) to Form 8-K (filed 9/19/14) SEC File No.: 001-13953

4.12

Credit Agreement, dated as of April 3, 2018, by and among W. R. Grace & Co., W. R. Grace & Co.–Conn., certain subsidiaries thereof, Goldman Sachs Bank USA, as Administrative Agent and Collateral Agent, and the other lenders from time to time party thereto.

Exhibit 4.1 to Form 8-K (filed 4/03/18) SEC File No.: 001-13953

4.13

Second Supplemental Indenture, dated as of April 3, 2018, by and among W. R. Grace & Co.–Conn., the guarantors party thereto and Wilmington Trust, National Association, as trustee.

Exhibit 4.2 to Form 10-Q (filed 5/09/18) SEC File No.: 001-13953

4.14

Description of W. R. Grace & Co. Securities.

Exhibit 4.14 to Form 10-K (filed 2/27/20) SEC File No.: 001-13953

4.15

Third Supplemental Indenture, dated as of June 26, 2020, by and among W. R. Grace & Co.–Conn., the guarantors party thereto and Wilmington Trust, National Association, as trustee.

Exhibit 4.2 to Form 8-K (filed 6/26/20) SEC File No.: 001-13953

4.16

Form of 4.875% Note due 2027 (included as Exhibit A to Exhibit 4.15).

Exhibit 4.3 (included as Exhibit A to Exhibit 4.2) to Form 8-K (filed 6/26/20) SEC File No.: 001-13953

10.1

WRG Asbestos Property Damage Settlement Trust Agreement, dated as of February 3, 2014, by and between W. R. Grace & Co., the Asbestos PD Future Claimants’ Representative, the Official Committee of Asbestos Property Damage Claimants, the Asbestos PD Trustees, Wilmington Trust Company, and the members of the Zonolite Attic Insulation Trust Advisory Committee.

Exhibit 10.02 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953

10.2

W. R. Grace & Co. 2014 Stock Incentive Plan.

Exhibit 10.03 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953*

10.3

Form of Performance-based Unit Agreement (2016).

Exhibit 10.2 to Form 8-K (filed 2/09/16) SEC File No.: 001-13953*

10.4

Form of Stock Option Award Agreement (2016).

Exhibit 10.1 to Form 8-K (filed 2/09/16) SEC File No.: 001-13953*

10.5

Form of Restricted Stock Award Agreement (2016).

Exhibit 10.3 to Form 8-K (filed 2/09/16) SEC File No.: 001-13953*

Exhibit No.

Exhibit

Location

10.6

W. R. Grace & Co. Supplemental Executive Retirement Plan, as amended.

Exhibit 10.7 to Form 10-K (filed 3/28/02) SEC File No.: 001-13953*

10.7

W. R. Grace & Co. Executive Salary Protection Plan, as amended.

Exhibit 10.8 to Form 10-K (filed 3/28/02) SEC File No.: 001-13953*

10.8

Form of Executive Change in Control Severance Agreement between Grace and certain officers.

Exhibit 10.17 to Form 10-K (filed 3/13/03) SEC File No.: 001-13953*

10.9

Severance Plan for Leadership Team Officers of W. R. Grace & Co.

Exhibit 10.2 to Form 8-K (filed 2/04/16) SEC File No.: 001-13953*

10.10

2015 Executive Annual Incentive Compensation Plan.

Exhibit 10.1 to Form 8-K (filed 5/12/15) SEC File No.: 001-13953*

10.11

Tax Sharing Agreement, dated as of January 27, 2016, by and among W. R. Grace & Co., W. R. Grace & Co.–Conn. and GCP Applied Technologies Inc.

Exhibit 10.1 to Form 8-K (filed 1/28/16) SEC File No.: 001-13953

10.12

Letter Agreement dated February 28, 2008, between Fred Festa, on behalf of Grace, and Hudson La Force III (includes indemnification provision).

Exhibit 10.1 to Form 8-K (filed 3/07/08) SEC File No.: 001-13953*

10.13

Letter Agreement dated November 13, 2013, between Fred Festa, on behalf of Grace, and Keith N. Cole (includes indemnification provision).

Exhibit 10.20 to Form 10-K (filed 2/25/15) SEC File No.: 001-13953*

10.14

Letter Agreement dated December 3, 2014, between Fred Festa, on behalf of Grace, and Elizabeth C. Brown (includes indemnification provision).

Exhibit 10.1 to Form 10-Q (filed 5/07/15) SEC File No.: 001-13953*

10.15

Restricted Stock Unit Award Agreement, dated February 22, 2018, between W. R. Grace & Co. and Fred Festa, in connection with transition to Non-executive Chairman.

Exhibit 10.1 to Form 10-Q (filed 5/09/18) SEC File No.: 001-13953*

10.16

Stock Option Award Agreement, dated February 22, 2018, between W. R. Grace & Co. and Fred Festa, in connection with transition to Non-Executive Chairman.

Exhibit 10.2 to Form 10-Q (filed 5/09/18) SEC File No.: 001-13953*

10.17

W. R. Grace & Co. 2018 Stock Incentive Plan.

Exhibit 10.1 to Form 8-K (filed 5/14/18) SEC File No.: 001-13953*

10.18

Form of W. R. Grace & Co. Performance-Based Units (“PBUs”) Grant Agreement (2018).

Exhibit 10.2 to Form 10-Q (filed 8/08/18) SEC File No.: 001-13953*

10.19

Form of W. R. Grace & Co. Restricted Share Units (“RSUs”) Grant Agreement (2018).

Exhibit 10.3 to Form 10-Q (filed 8/08/18) SEC File No.: 001-13953*

10.20

Form of W. R. Grace & Co. Nonstatutory Stock Option (“NSOs”) Grant Agreement (2018).

Exhibit 10.4 to Form 10-Q (filed 8/08/18) SEC File No.: 001-13953*

10.21

Separation Agreement and General Release, dated as of May 31, 2018, by and between W. R. Grace & Co.–Conn., et al., and Thomas E. Blaser.

Exhibit 10.5 to Form 10-Q (filed 8/08/18) SEC File No.: 001-13953*

10.22

Letter Agreement, dated as of February 20, 2019, by and among W. R. Grace & Co., 40 North Management LLC, 40 North GP III LLC, 40 North Latitude Master Fund Ltd. and 40 North Latitude Fund LP.

Exhibit 99.1 to Form 8-K (filed 2/20/19) SEC File No.: 001-13953*

10.23

Letter Agreement dated November 13, 2020, between Elizabeth C. Brown, on behalf of Grace, and Cherée H. Johnson (includes indemnification provision).

Exhibit 10.23 to Form 10-K (filed 2/26/21) SEC File No.: 001-13953*

10.24

Voting Agreement, dated as of April 26, 2021, by and between W. R. Grace & Co. and the stockholder party thereto.

Exhibit 10.1 to Form 8-K (filed 4/26/21) SEC File No.: 001-13953

List of Subsidiaries of W. R. Grace & Co.

Exhibit 21 to Form 10-K (filed 2/26/21) SEC File No.: 001-13953

Consent of Independent Registered Public Accounting Firm.

Exhibit 23 to Form 10-K (filed 2/26/21) SEC File No.: 001-13953

Powers of Attorney.

Exhibit 24 to Form 10-K (filed 2/26/21) SEC File No.: 001-13953

31(i).1

Certification of Periodic Report by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31(i).1 to Form 10-K (filed 2/26/21) SEC File No.: 001-13953

31(i).2

Certification of Periodic Report by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31(i).2 to Form 10-K (filed 2/26/21) SEC File No.: 001-13953

31(i).3

Certification of Periodic Report by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

Filed herewith

31(i).4

Certification of Periodic Report by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

Filed herewith

Exhibit No.

Exhibit

Location

Certification of Periodic Report by Chief Executive Officer and Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 32 to Form 10-K (filed 2/26/21) SEC File No.: 001-13953

Mine Safety Disclosure Exhibit.

Exhibit 95 to Form 10-K (filed 2/26/21) SEC File No.: 001-13953

101.INS

Inline XBRL Instance Document

The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema

Filed herewith

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase

Filed herewith

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase

Filed herewith

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase

Filed herewith

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase

Filed herewith

104

Cover Page Interactive Data File (formatted as Inline XBRL and included in Exhibit 101)

Filed herewith

* Management contracts and compensatory plans, contracts or arrangements required to be filed as exhibits to this Report.

** The Company has omitted schedules and other similar attachments to such agreement pursuant to Item 601(b) of Regulation S-K. The Company will furnish a copy of such omitted document to the SEC upon request.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this ~~amended~~ Report to be signed on its behalf by the undersigned, ~~thereto~~thereunto duly authorized. W. R. GRACE & CO. By: /s/ Paul J. Norris ------------------------ Paul J. Norris (Chairman and Chief Executive Officer) By: /s/ Robert M. Tarola ------------------------ Robert M. Tarola (Senior Vice

W. R. GRACE & CO.

By:

/s/ HUDSON LA FORCE

Hudson La Force

President and Chief Financial Officer) Dated: August 9, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on August 9, 2004.

Signature Title --------- ----- J. F. Akers* } H. F. Baldwin* } R. C. Cambre* } M. A. Fox* } Directors J. J. Murphy* } T. A. Vanderslice* } /s/ Paul J. Norris Chief Executive Officer ~~and Director - ---------------------------- (Principal~~
(Principal Executive Officer) ~~(Paul J. Norris) /s/ Robert M. Tarola~~
			By:			/s/ WILLIAM C. DOCKMAN
						William C. Dockman Senior Vice President and Chief Financial Officer ~~- ---------------------------- (Principal~~ (Principal Financial Officer and Principal ~~(Robert M. Tarola)~~ Accounting Officer)

- --------------------------- * By signing his name hereto, Mark A. Shelnitz is signing this document on behalf of each of the persons indicated above pursuant to powers of attorney duly executed by such persons and filed with the Securities and Exchange Commission. By: /s/ Mark A. Shelnitz ----------------------- Mark A. Shelnitz (Attorney-in-Fact) 3 FINANCIAL SUPPLEMENT W. R. GRACE & CO. ANNUAL REPORT ON FORM 10-K/A FOR THE YEAR ENDED DECEMBER 31, 2003 F-1 FINANCIAL SUPPLEMENT TO ANNUAL REPORT ON FORM 10-K/A FOR THE YEAR ENDED DECEMBER 31, 2003 W. R. GRACE & CO. AND SUBSIDIARIES Index to Consolidated Financial Statements and Financial Statement Schedule

The financial data listed above appearing in this Financial Supplement are incorporated by reference herein. The Financial Statement Schedule should be read in conjunction with the Consolidated Financial Statements and Notes thereto. Financial statements of less than majority-owned persons and other persons accounted for by the equity method have been omitted as provided in Rule 3-09 of Securities and Exchange Commission Regulation S-X. Financial Statement Schedules not included have been omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or Notes thereto. F-2 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING Management is responsible for the preparation, integrity and objectivity of the Consolidated Financial Statements and the other financial information included in this report. Such financial information has been prepared in conformity with accounting principles generally accepted in the United States of America and accordingly includes certain amounts that represent management's best estimates and judgments. Actual amounts could differ from those estimates. Management maintains internal controls to assist it in fulfilling its responsibility for financial reporting. These internal controls consist of the control environment, risk assessment, control activities, information and communication, and monitoring. A chartered Disclosure Committee oversees Grace's public financial reporting process and key managers are required to confirm their compliance with Grace's policies and internal controls. While no system of internal controls can ensure elimination of all errors and irregularities, Grace's internal controls, which are reviewed and modified in response to changing conditions, have been designed to provide reasonable assurance that assets are safeguarded, policies and procedures are followed, transactions are properly executed and reported, and appropriate disclosures are made. The concept of reasonable assurance is based on the recognition that there are limitations in all systems of internal control and that the costs of such systems should not exceed their benefits. The Audit Committee of the Board of Directors, which is comprised solely of independent directors, meets regularly with Grace's senior financial management, internal auditors and independent auditors to review audit plans and results, as well as the actions taken by management in discharging its responsibilities for accounting, financial reporting and internal controls. The Audit Committee is responsible for the selection and compensation of the independent auditors. Grace's financial management, internal auditors and independent auditors have direct and confidential access to the Audit Committee at all times. The independent auditors are engaged to conduct the audits of and report on the Consolidated Financial Statements in accordance with auditing standards generally accepted in the United States of America. These standards require an assessment of the systems of internal controls and tests of transactions to the extent considered necessary by the independent auditors for purposes of supporting their opinion as set forth in their report. /s/ Paul J. Norris /s/ Robert M. Tarola Paul J. Norris Robert M. Tarola Chairman and Senior Vice President and Chief Executive Officer Chief Financial Officer August 9, 2004 F-3 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF W. R. GRACE & CO. In our opinion, the accompanying consolidated balance sheets and related consolidated statements of operations, of cash flows, of shareholders' equity (deficit) and of comprehensive income (loss) present fairly, in all material respects, the financial position of W.R. Grace & Co. and its subsidiaries at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, on

Dated: April 2, 2001, the Company and substantially all of its domestic subsidiaries voluntarily filed for protection under Chapter 11 of the United States Bankruptcy Code, which raises substantial doubt about the Company's ability to continue as a going concern in its present form. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. As discussed in Note 1A, the accompanying 2003 consolidated financial statements have been restated to correct the U.S. dollar translation of a third party's interest in a consolidated joint venture. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Baltimore, Maryland January 27, 2004, except for Note 1A, as to which the date is August 9, 2004 F-4 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIAL STATEMENT SCHEDULE TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF W. R. GRACE & CO. Our audits of the consolidated financial statements referred to in our report dated January 27, 2004 (except for Note 1A, as to which the date is August 6, 2004), which was modified as to a matter raising substantial doubt about the Company's ability to continue as a going concern, appearing on page F-4 of this 2003 Annual Report on Form 10-K/A of W. R. Grace & Co. also included an audit of the Financial Statement Schedule listed on page F-2 in the Index to Consolidated Financial Statements and Financial Statement Schedule and Exhibit of this Form 10-K/A. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Baltimore, Maryland January 27, 2004, except for Note 1A, as to which the date is August 6, 2004 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statements on Forms S-8 (Nos.333-37024, 333-49083, 333-49507, 333-49509, 333-49511, 333-49513, 333-49515, 333-49517, 333-49703 and 333-49705) of W.R. Grace & Co. of our report dated January 27, 2004 (except for Note 1A, as to which the date is August 6, 2004) appearing on page F-4 of this 2003 Annual Report on Form 10-K/A of W.R. Grace & Co. We also consent to the incorporation by reference of our report dated January 27, 2004 (except for Note 1A, as to which the date is August 6, 2004) relating to the Financial Statement Schedule, which appears above in this Form 10-K/A. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Baltimore, Maryland August 6, 2004 F-5 ~~CONSOLIDATED FINANCIAL STATEMENTS~~

~~The Notes to Consolidated Financial Statements are an integral part of these statements. F-6~~

~~The Notes to Consolidated Financial Statements are an integral part of these statements. F-7~~

~~The Notes to Consolidated Financial Statements are an integral part of these statements. F-8~~

~~The Notes to Consolidated Financial Statements are an integral part of these statements. F-9~~ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING AND FINANCIAL REPORTING POLICIES - -------------------------------------------------------------------------------- W. R. Grace & Co., through its subsidiaries, is engaged in specialty chemicals and specialty materials businesses on a worldwide basis. These businesses consist of catalyst and silica products ("Davison Chemicals") and construction chemicals, building materials, and sealants and coatings ("Performance Chemicals"). W. R. Grace & Co. conducts substantially all of its business through a direct, wholly owned subsidiary, W. R. Grace & Co.-Conn. ("Grace-Conn."). Grace-Conn. owns substantially all of the assets, properties and rights of W. R. Grace & Co. on a consolidated basis, either directly or through subsidiaries. As used in these notes, the term "Company" refers to W. R. Grace & Co. The term "Grace" refers to the Company and/or one or more of its subsidiaries and, in certain cases, their respective predecessors. VOLUNTARY BANKRUPTCY FILING: In response to a sharply increasing number of asbestos-related bodily injury claims, on April 2, 2001 (the "Filing Date"), W. R. Grace & Co. and 61 of its United States subsidiaries and affiliates, including Grace-Conn. (collectively, the "Debtors"), filed voluntary petitions for reorganization (the "Filing") under Chapter 11 of the United States Bankruptcy Code ("Chapter 11" or the "Bankruptcy Code") in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). The cases were consolidated and are being jointly administered under case number 01-01139 (the "Chapter 11 Cases"). Grace's non-U.S. subsidiaries and certain of its U.S. subsidiaries were not included in the Filing. During 2000 and the first quarter of 2001, Grace experienced several adverse developments in its asbestos-related litigation, including: a significant increase in bodily injury claims, higher than expected costs to resolve bodily injury and certain property damage claims, and class action lawsuits alleging damages from a former attic insulation product. (These claims are discussed in more detail in Note 3 to the Consolidated Financial Statements.) After a thorough review of these developments, the Board of Directors of Grace concluded on April 2, 2001 that a federal court-supervised Chapter 11 process provided the best forum available to achieve predictability and fairness in the claims settlement process. By filing under Chapter 11, Grace expects to be able to both obtain a comprehensive resolution of the claims against it and preserve the inherent value of its businesses. Under Chapter 11, the Debtors expect to continue to operate their businesses as debtors-in-possession under court protection from their creditors and claimants, while using the Chapter 11 process to develop and implement a plan for addressing the asbestos-related claims against them. Consequence of Filing - As a consequence of the Filing, pending litigation against the Debtors for pre-petition matters is generally stayed (subject to certain exceptions in the case of governmental authorities), and no party may take action to realize its pre-petition claims except pursuant to an order of the Bankruptcy Court. The Debtors intend to address all of their pending and future asbestos-related claims and all other pre-petition claims in a plan of reorganization. Such a plan of reorganization may include the establishment of a trust through which all pending and future asbestos-related claims would be channeled for resolution. However, it is currently impossible to predict with any degree of certainty the amount that would be required to be contributed to the trust, how the trust would be funded, how other pre-petition claims would be treated or what impact any reorganization plan may have on the shares of common stock of the Company. The interests of the Company's shareholders could be substantially diluted or cancelled under a plan of reorganization. The value of Grace common stock following a plan of reorganization, and the extent of any recovery by non-asbestos-related creditors, will depend principally on the ultimate value assigned to Grace's asbestos-related claims, which will be addressed through the Bankruptcy Court proceedings. The formulation and implementation of the plan of reorganization is expected to take a significant period of time. Status of Chapter 11 Proceedings - Since the Filing, all motions necessary to conduct normal business activities have been approved by the Bankruptcy Court. In addition, the Debtors have received approval from the Bankruptcy Court to pay or otherwise honor certain of its pre-petition obligations in the ordinary course of business, including employee wages and benefits, customer programs, shipping charges, and a limited amount of claims of essential trade creditors. As provided by the Bankruptcy Code, the Debtors had the exclusive right to propose a plan of reorganization for a 120-day period following the Filing Date. The Debtors have received extensions of their exclusivity period during which to file a plan of reorganization F-10 through February 1, 2004, and extensions of the Debtors' exclusive right to solicit acceptances of a reorganization plan through April 1, 2004. The Debtors have filed a motion with the Bankruptcy Court to further extend the exclusivity periods for an additional six months. Three creditors' committees, two representing asbestos claimants and the third representing other unsecured creditors, and a committee representing shareholders have been appointed in the Chapter 11 Cases. These committees will have the right to be heard on all matters that come before the Bankruptcy Court and, together with a legal representative of future asbestos claimants (whom Grace expects to be appointed by the Bankruptcy Court in the future), are likely to play important roles in the Chapter 11 Cases. The Debtors are required to bear certain costs and expenses of the committees and of the future asbestos claimants representative, including those of their counsel and financial advisors. The Debtors' Chapter 11 cases have been assigned to Judge Alfred M. Wolin, a senior federal judge who sits in Newark, New Jersey. Judge Wolin is presiding over asbestos bodily injury matters and the fraudulent conveyance litigation described below. He has assigned the Debtors' other bankruptcy matters to Judge Judith Fitzgerald, a U.S. bankruptcy judge from the Western District of Pennsylvania, sitting in Wilmington, Delaware. Claims Filings - The Bankruptcy Court established a bar date of March 31, 2003 for claims of general unsecured creditors, asbestos-related property damage claims and medical monitoring claims related to asbestos. The bar date did not apply to asbestos-related bodily injury claims or claims related to Zonolite(R) attic insulation ("ZAI"), which will be dealt with separately. Approximately 15,000 proofs of claim were filed by the bar date. Of these claims, approximately 10,000 were non-asbestos related, approximately 4,000 were for asbestos-related property damage, and approximately 1,000 were for medical monitoring. In addition, approximately 400 proofs of claim were filed after the bar date. The discussion below refers to claims filed before the bar date. Approximately 7,000 of the 10,000 non-asbestos related claims involve claims by employees or former employees for future retirement benefits such as pension and retiree medical coverage. Grace views certain of these claims as contingent and does not plan to address them until a later date in the Chapter 11 proceeding. The other non-asbestos related claims include claims for payment for goods and services; taxes; product warranties; principal plus interest under pre-petition credit facilities; amounts due under leases; leases and other executory contracts rejected in the Bankruptcy Court; environmental remediation; indemnification or contribution from actual or potential co-defendants in asbestos-related and other litigation; pending non-asbestos-related litigation; and non-asbestos related personal injury. The Debtors' preliminary analysis indicated that many claims are duplicates, represent the same claim filed against more than one of the Debtors, lack any supporting documentation, or provide insufficient supporting documentation. As of December 31, 2003, the Debtors had filed with the Bankruptcy Court approximately 1,100 objections with respect to such claims, most of which were non-substantive (duplicates, no supporting documentation, late filed claims, etc.). The Debtors expect to file a substantial number of additional objections, most of which will be substantive, as analysis and evaluation of the claims progresses. However, based on its initial claims analysis and other available information, Grace increased its aggregate estimated liability for environmental remediation and asbestos-related litigation as discussed in Notes 3 and 14. No other changes to Filing Date liabilities was deemed warranted at this time. The medical monitoring claims were made by individuals who allege exposure to asbestos through Grace's products or operations. These claims, if sustained, would require Grace to fund ongoing health monitoring costs for qualified claimants. However, based on the number and expected cost of such claims, Grace does not believe such claims will have a material effect on its Consolidated Financial Statements. No specific liability has been established for these claims. Grace believes that its recorded liabilities represent a reasonable estimate of the ultimate allowable amount for claims that are not in dispute or have been submitted with sufficient information to both evaluate their merit and estimate the cost of the claim. However, because of the uncertainties of the Chapter 11 and litigation process, the in-progress state of Grace's investigation of submitted claims, and the lack of documentation in support of many claims, such recorded liabilities may prove to be insufficient to satisfy all of such claims. As claims are resolved, or where better information becomes available and is evaluated, Grace will make adjustments to the liabilities recorded on its financial statements as appropriate. Any such adjustments could be material to its consolidated financial position and results of operations. F-11 Litigation Proceedings in Bankruptcy Court - In July 2002, the Bankruptcy Court approved special counsel to represent the ZAI claimants, at the Debtors' expense, in a proceeding to determine certain threshold scientific issues regarding ZAI. The Debtors' expect the Bankruptcy Court to establish a schedule for determining pending motions following a status conference in May 2004. (See Note 3 for background information.) In September 2000, Grace was named in a purported class action lawsuit filed in California Superior Court for the County of San Francisco, alleging that the 1996 reorganization involving a predecessor of Grace and Fresenius Medical Care Holdings, Inc. ("Fresenius") and the 1998 reorganization involving a predecessor of Grace and Sealed Air Corporation ("Sealed Air") were fraudulent transfers. The Bankruptcy Court authorized the Official Committee of Asbestos Personal Injury Claimants and the Official Committee of Asbestos Property Damage Claimants to proceed with claims against Fresenius and Sealed Air on behalf of the Debtors' estates. On November 29, 2002, Sealed Air and Fresenius each announced that they had reached agreements in principle with such Committees to settle asbestos and fraudulent conveyance claims related to such transactions. Under the terms of the Fresenius settlement, as subsequently revised and subject to certain conditions, Fresenius would contribute $115.0 million to the Debtors' estate as directed by the Bankruptcy Court upon confirmation of the Debtors' plan of reorganization. In July 2003, the Fresenius settlement was approved by the Bankruptcy Court. Under the terms of the proposed Sealed Air settlement, Sealed Air would make a payment of $512.5 million (plus interest at 5.5% per annum, commencing on December 21, 2002) and nine million shares of Sealed Air common stock (valued at $487.3 million as of December 31, 2003), as directed by the Bankruptcy Court upon confirmation of Debtors' plan of reorganization. The Sealed Air settlement has not been agreed to by the Debtors and remains subject to the approval of the Bankruptcy Court and the fulfillment of specified conditions. The Debtors are unable to predict how these settlements may ultimately affect their plan of reorganization. Impact on Debt Capital - All of the Debtors' pre-petition debt is in default due to the Filing. The accompanying Consolidated Balance Sheet as of December 31, 2003 reflects the classification of the Debtors' pre-petition debt within "liabilities subject to compromise." The Debtors have entered into a debtor-in-possession post-petition loan and security agreement with Bank of America, N.A. (the "DIP facility") in the aggregate amount of $250 million. The term of the DIP facility expires on April 1, 2006. Accounting Impact - The accompanying Consolidated Financial Statements have been prepared in accordance with Statement of Position 90-7 ("SOP 90-7"), "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code," promulgated by the American Institute of Certified Public Accountants. SOP 90-7 requires that financial statements of debtors-in-possession be prepared on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the ordinary course of business. However, as a result of the Filing, the realization of certain Debtors' assets and the liquidation of certain Debtors' liabilities are subject to significant uncertainty. While operating as debtors-in-possession, the Debtors may sell or otherwise dispose of assets and liquidate or settle liabilities for amounts other than those reflected in the Consolidated Financial Statements. Further, a plan of reorganization could materially change the amounts and classifications reported in the Consolidated Financial Statements, which do not currently give effect to any adjustments to the carrying value or classification of assets or liabilities that might be necessary as a consequence of a plan of reorganization. Pursuant to SOP 90-7, Grace's pre-petition liabilities that are subject to compromise are required to be reported separately on the balance sheet at an estimate of the amount that will ultimately be allowed by the Bankruptcy Court. As of December 31, 2003, such pre-petition liabilities include fixed obligations (such as debt and contractual commitments), as well as estimates of costs related to contingent liabilities (such as asbestos-related litigation, environmental remediation, and other claims). The recorded amounts of such liabilities generally reflect accounting measurements as of the Filing Date, adjusted as warranted for changes in facts and circumstances, new information obtained in the claims review process, and/or rulings under Grace's Chapter 11 proceedings subsequent to the Filing. (See Note 2 to the Consolidated Financial Statements for detail of the liabilities subject to compromise.) Obligations of Grace subsidiaries not covered by the Filing continue to be classified on the Consolidated Balance Sheets based upon maturity dates or the expected dates of payment. SOP 90-7 also requires separate reporting of certain expenses, realized gains F-12 and losses, and provisions for losses related to the Filing as reorganization items. PRINCIPLES OF CONSOLIDATION: The Consolidated Financial Statements include the accounts of Grace and entities as to which Grace exercises control over operating and financial policies. Intercompany transactions and balances are eliminated in consolidation. Investments in affiliated companies in which Grace can significantly influence operating and financial policies are accounted for under the equity method, unless Grace's investment is deemed to be temporary, in which case the investment is accounted for under the cost method. RECLASSIFICATIONS: Certain amounts in prior years' Consolidated Financial Statements have been reclassified to conform to the 2003 presentation. EFFECT OF NEW ACCOUNTING STANDARDS: In December 2003, the Financial Accounting Standards Board ("FASB") revised Statement of Financial Accounting Standards ("SFAS") No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," to require additional disclosure about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit plans and other postretirement plans. Grace adopted the provisions of SFAS No. 132 in December 2003. (See Note 18.) In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). Grace adopted the provisions of FIN 46 in 2002. The adoption of FIN 46 required Grace to consolidate Advanced Refining Technologies LLC, a joint venture between Grace and Chevron Products Company. The impact of this consolidation did not result in a material change to Grace's Consolidated Financial Statements. In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements of Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). Grace adopted FIN 45 in the first quarter of 2003. FIN 45 did not have a material effect on the Consolidated Financial Statements. (See Note 14.) In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 addresses issues related to the recognition, measurement, and reporting of costs associated with exit and disposal activities, including restructuring activities. Grace adopted SFAS No. 146 in 2003. SFAS No. 146 did not have a material effect on the Consolidated Financial Statements. STOCK INCENTIVE PLANS: SFAS No. 123 permits the Company to follow the measurement provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and not recognize compensation expense for its stock-based incentive plans. Had compensation cost for the Company's stock-based incentive compensation plans been determined based on the fair value at the grant dates of awards under those plans, consistent with the fair value methodology prescribed by SFAS No. 123, the Company's net (loss) income and related (loss) earnings per share for the years ended December 31, 2003, 2002 and 2001 would have been reduced to the pro forma amounts indicated below: =============================================================================== PRO FORMA EARNINGS UNDER SFAS NO. 123 YEAR ENDED DECEMBER 31, (In millions, except per ------------------------------------------- share amounts) 2003 2002 2001 - ------------------------------------------------------------------------------- Net (loss) income, as reported.............. $ (55.2) $ 22.1 $ 78.6 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects... (1.4) (4.2) (7.4) ------------------------------------------- Pro forma net (loss) income (1.)........... $ (56.6) $ 17.9 $ 71.2 =========================================== Basic (loss) earnings per share: As reported.............. $ (0.84) $ 0.34 $ 1.20 Pro forma net (loss) income (1)............ (0.86) 0.27 1.09 Diluted (loss) earnings per share: As reported.............. $ (0.84) $ 0.34 $ 1.20 Pro forma net (loss) income (1)............ (0.86) 0.27 1.09 =============================================================================== (1) These pro forma amounts may not be indicative of future (loss) income and (loss) earnings per share due to Grace's Chapter 11 Filing. To determine compensation cost under SFAS No. 123, the fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model, with the following historical weighted average assumptions applied to grants in 2001: =============================================================================== OPTION VALUE ASSUMPTIONS 2001 - ------------------------------------------------------------------------------- Dividend yield....................................... -- % Expected volatility.................................. 61% Risk-free interest rate.............................. 5% Expected life (in years)............................. 4 =============================================================================== Based upon the above assumptions, the weighted average fair value of each option granted was $1.28 per share for 2001. There were no option grants in 2003 and 2002. F-13 USE OF ESTIMATES: The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires that management make estimates and assumptions affecting the assets and liabilities reported at the date of the Consolidated Financial Statements, and the revenues and expenses reported for the periods presented. Actual amounts could differ from those estimates. Changes in estimates are recorded in the period identified. Grace's accounting measurements that are most affected by management's estimates of future events are: o Contingent liabilities such as asbestos-related matters (see Note 3), environmental remediation (see Note 14), income taxes (see Note 14), and retained obligations of divested businesses. o Pension and postretirement liabilities that depend on assumptions regarding discount rates and/or total returns on invested funds. (See Note 18.) o Depreciation and amortization periods for long-lived assets, including property and equipment, intangible, and other assets. o Realization values of various assets such as net deferred tax assets (see Note 4), trade receivables, inventories, insurance receivables, income taxes, and goodwill. The accuracy of these and other estimates may also be materially affected by the uncertainties arising under the Chapter 11 Cases. CASH EQUIVALENTS: Cash equivalents consist of liquid instruments with maturities of three months or less when purchased. The recorded amounts approximate fair value. SALE OF ACCOUNTS RECEIVABLE: Prior to the Filing, Grace entered into a program to sell certain of its trade accounts receivable and retained a subordinated interest and servicing rights. Net losses on the sale of receivables were based on the carrying value of the assets sold, allocated in proportion to their fair value. Retained interests were carried at fair value and were included in "other current assets" in the Consolidated Balance Sheets. Grace generally estimated fair value based on the present value of expected future cash flows less management's best estimate of uncollectible accounts receivable. Grace maintained an allowance for doubtful accounts receivable based upon the expected collectibility of all trade receivables, including receivables sold. The allowance was reviewed regularly and adjusted for accounts deemed uncollectible by management. Expenses and losses associated with the program were recognized as a component of interest expense and related financing costs. As a result of the Filing, which constituted an event of default under the program, outstanding balances were satisfied through the use of pre-petition trade receivables collected during the period from the Filing Date to early May 2001. The program was terminated effective May 14, 2001. INVENTORIES: Inventories are stated at the lower of cost or market. The methods used to determine cost include first-in/first-out and, for substantially all U.S. inventories, last-in/first-out. Market values for raw materials are based on current cost and, for other inventory classifications, net realizable value. PROPERTIES AND EQUIPMENT: Properties and equipment are stated at cost. Depreciation of properties and equipment is generally computed using the straight-line method over the estimated useful life of the asset. Estimated useful lives range from 20 to 40 years for buildings, 3 to 7 years for information technology equipment, 3 to 10 years for machinery and equipment and 5 to 10 years for furniture and fixtures. Interest is capitalized in connection with major project expenditures. Fully depreciated assets are retained in properties and equipment and related accumulated depreciation accounts until they are removed from service. In the case of disposals, assets and related accumulated depreciation are removed from the accounts and the net amount, less any proceeds from disposal, is charged or credited to operations. Grace reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. GOODWILL: Goodwill arises from certain purchase business combinations. With respect to business combinations completed prior to June 30, 2001, goodwill was amortized through December 31, 2001 using the straight-line method over appropriate periods not exceeding 40 years. Grace reviews its goodwill for impairment on an annual basis and whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. The provisions of SFAS No. 141 "Business Combinations" were applied to goodwill and intangible assets acquired after June 30, 2001. REVENUE RECOGNITION: Grace recognizes revenue when all of the following criteria are satisfied: risk of loss and title transfer to the customer; the price is fixed and determinable; and collectibility is reasonably assured. Certain customer arrangements include conditions for volume rebates. Grace accrues a rebate allowance and reduces recorded sales for anticipated selling price adjustments at the time of sale. Grace regularly reviews rebate accruals based on actual and anticipated sales patterns. F-14 RESEARCH AND DEVELOPMENT COSTS: Research and development costs are charged to expense as incurred. INCOME TAXES: Grace recognizes deferred tax assets and liabilities with respect to the expected future tax consequences of events that have been recorded in the Consolidated Financial Statements and tax returns. If it is more likely than not that all or a portion of deferred tax assets will not be realized, a valuation allowance is provided against such deferred tax assets. FOREIGN CURRENCY TRANSLATION: Assets and liabilities of foreign subsidiaries (other than those located in countries with highly inflationary economies) are translated into U.S. dollars at current exchange rates, while their revenues, costs and expenses are translated at average exchange rates during each reporting period. The resulting translation adjustments are included in the "accumulated other comprehensive loss" section of the Consolidated Balance Sheets. The financial statements of subsidiaries located in countries with highly inflationary economies, if any, are remeasured as if the functional currency were the U.S. dollar; the remeasurement creates translation adjustments that are reflected in "net income (loss)" in the Consolidated Statements of Operations. FINANCIAL INSTRUMENTS: From time to time, Grace enters into interest rate swap agreements and foreign exchange forward and option contracts to manage exposure to fluctuations in interest and foreign currency exchange rates. Grace does not hold or issue derivative financial instruments for trading purposes. At December 31, 2003, Grace did not hold and had not issued any derivative financial instruments. - -------------------------------------------------------------------------------- 1A. Restatement - -------------------------------------------------------------------------------- The Company's financial statements as of December 31, 2003, have been restated to reflect a $19.8 million adjustment to correct the U.S. dollar translation of a third party's interest in a small consolidated joint venture. Due to a currency conversion error, the third party interest was mistakenly calculated at $20.0 million instead of $200,000, a condition that was discovered as part of Grace's second quarter 2004 financial review. The effect of this non-cash correction to Grace's December 31, 2003 balance sheet was to increase shareholders' equity by $19.8 million and to decrease liabilities by the same amount. The effect of the restatement on the accompanying financial statements is as follows: =============================================================================== W. R. GRACE & CO. AND DECEMBER 31, 2003 SUBSIDIARIES -------------------------------------------- CONSOLIDATED BALANCE SHEET As Previously AS (In millions) Reported RESTATED - ------------------------------------------------------------------------------- Other current liabilities..... $ 145.6 $ 129.2 (1) Accumulated other comprehensive loss....................... (309.7) (289.9) =============================================================================== (1) This balance includes an unrelated reclassification entry of $3.4 million to conform to the 2004 financial statement presentation. =============================================================================== W. R. GRACE & CO. AND SUBSIDIARIES DECEMBER 31, 2003 CONSOLIDATED STATEMENT OF -------------------------------------------- CASH FLOWS As Previously AS (In millions) Reported RESTATED - ------------------------------------------------------------------------------- Working capital items......... $(22.5) $(42.3) Changes in other accruals and non-cash items............. 32.2 52.0 =============================================================================== =============================================================================== W. R. GRACE & CO. AND SUBSIDIARIES DECEMBER 31, 2003 CONSOLIDATED STATEMENT OF -------------------------------------------- SHAREHOLDERS' EQUITY (DEFICIT) As Previously AS (In millions) Reported RESTATED - ------------------------------------------------------------------------------- Other comprehensive income.... $ 93.6 $ 113.4 Accumulated other comprehensive loss......... (309.7) (289.9) Balance, December 31, 2003.... (183.6) (163.8) =============================================================================== =============================================================================== W. R. GRACE & CO. AND SUBSIDIARIES DECEMBER 31, 2003 CONSOLIDATED STATEMENT OF -------------------------------------------- COMPREHENSIVE INCOME (LOSS) As Previously AS (In millions) Reported RESTATED - ------------------------------------------------------------------------------- Foreign currency translation adjustments................ $75.3 $95.1 Total other comprehensive income (loss).............. 93.6 113.4 Comprehensive income (loss)..................... 38.4 58.2 =============================================================================== The restatement has no effect on the Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and 2001, the Consolidated Balance F-15 Sheet at December 31, 2002, or the Consolidated Statements of Cash Flows, of Shareholders' Equity (Deficit) and of Comprehensive Income (Loss) for the years ended December 31, 2002 and 2001. The restatement does not affect the financial position or results of operations of Grace's operating segments as previously reported. - -------------------------------------------------------------------------------- 2. CHAPTER 11 RELATED FINANCIAL INFORMATION - -------------------------------------------------------------------------------- As a result of the Filing, Grace's Consolidated Balance Sheets separately identify the liabilities that are "subject to compromise" as a result of the Chapter 11 proceedings. In Grace's case, "liabilities subject to compromise" represent pre-petition liabilities as determined under U.S. generally accepted accounting principles. Changes to the recorded amount of such liabilities will be based on developments in the Chapter 11 Cases and management's assessment of the claim amounts that will ultimately be allowed by the Bankruptcy Court. Changes to pre-petition liabilities subsequent to the Filing Date reflect: 1) cash payments under approved court orders; 2) the accrual of interest on pre-petition debt at the pre-petition contractual rate; 3) accruals for employee-related programs; and 4) changes in estimates related to pre-petition contingent liabilities. Condensed financial information and components of liabilities subject to compromise of the Debtors are presented below: =============================================================================== W. R. GRACE & CO. - JANUARY 1, January 1, April 2, CHAPTER 11 FILING ENTITIES 2003 2002 2001 DEBTOR-IN-POSSESSION TO to to STATEMENTS OF OPERATION DECEMBER 31, December 31, December 31, (In millions) (Unaudited) 2003 2002 2001 =============================================================================== Net sales, including intercompany............ $1,031.9 $ 979.4 $ 763.0 Other income............... 66.3 61.2 45.5 ----------------------------------------------- 1,098.2 1,040.6 808.5 Cost of goods sold, including intercompany, exclusive of depreciation and amortization shown separately below........ 714.8 626.6 474.5 Selling, general and administrative expenses, exclusive of net pension expense (income) shown separately below........ 217.8 214.0 154.1 Research and development expenses................ 38.0 41.4 30.6 Depreciation and amortization ........... 61.1 60.6 43.4 Net pension expense (income)................ 47.6 22.6 (3.3) Interest expense and related financing costs......... 15.3 19.5 26.9 Provision for environmental remediation............. 142.5 70.7 5.8 Provision for asbestos-related litigation.............. 30.0 -- -- ----------------------------------------------- 1,267.1 1,055.4 732.0 (Loss) income before Chapter 11 expenses, income taxes, and equity in net income of non-filing entities..... (168.9) (14.8) 76.5 Chapter 11 expenses, net .. (14.8) (30.1) (15.7) Benefit from (provision for) income taxes............ 45.4 (3.3) (34.3) ----------------------------------------------- (Loss) income before equity in net income of non-filing entities................ (138.3) (48.2) 26.5 Equity in net income of non-filing entities .... 83.1 70.3 37.4 ----------------------------------------------- NET (LOSS) INCOME ......... $ (55.2) $ 22.1 $ 63.9 =============================================================================== =============================================================================== DECEMBER 31, December 31, Filing Date (In millions) 2003 2002 (Unaudited) =============================================================================== Debt, pre-petition plus accrued interest........ $ 552.7 $ 538.8 $ 511.5 Asbestos-related liability. 992.3 973.2 1,002.8 Income taxes .............. 217.9 227.8 210.1 Environmental remediation.. 332.4 201.1 164.8 Postretirement benefits other than pension............ 134.3 147.2 185.4 Special pension arrangements 69.5 74.9 70.8 Retained obligations of divested businesses..... 57.0 55.3 75.5 Accounts payable........... 31.9 32.4 43.0 Other accrued liabilities.. 64.3 84.0 102.1 ----------------------------------------------- TOTAL LIABILITIES SUBJECT TO COMPROMISE.............. $2,452.3 $2,334.7 $2,366.0 =============================================================================== F-16 =============================================================================== W. R. GRACE & CO. - CHAPTER 11 FILING ENTITIES JANUARY 1, January 1, April 2, DEBTOR-IN-POSSESSION 2003 2002 2001 CONDENSED STATEMENTS OF TO to to CASH FLOWS DECEMBER 31, December 31, December 31, (In millions) (Unaudited) 2003 2002 2001 =============================================================================== OPERATING ACTIVITIES (Loss) income before Chapter 11 expenses, income taxes, and equity in net income of non-filing entities............ $(168.9) $ (14.8) $ 76.5 Reconciliation to net cash provided by (used for) operating activities: Non-cash items, net............ 237.9 140.5 67.0 Contributions to defined benefit pension plans ........ (52.9) (4.3) (6.8) Increase in accounts receivable due to termination of securitization program ...... -- -- (98.4) Decrease in subordinated interest of accounts receivable sold.............. -- -- 33.1 Changes in other assets and liabilities, excluding the effect of businesses acquired/divested............ (14.1) (36.1) (15.3) ------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES..................... 2.0 85.3 56.1 NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES........... 68.7 (60.1) (21.5) NET CASH USED FOR FINANCING ACTIVITIES..................... (7.0) (6.4) (5.2) ------------------------------------------- NET INCREASE IN CASH AND CASH EQUIVALENTS............... 63.7 18.8 29.4 Cash and cash equivalents, beginning of period............ 56.8 38.0 8.6 ------------------------------------------- Cash and cash equivalents, end of period.................. $ 120.5 $ 56.8 $ 38.0 =============================================================================== Set forth below is a reconciliation of the changes in pre-filing date liability balances for the period from the Filing Date through December 31, 2003. =============================================================================== Cumulative Since (In millions) (Unaudited) Filing - ------------------------------------------------------------------------------- Balance, Filing Date............................. $2,366.0 Cash disbursements and/or reclassifications under Bankruptcy Court orders: Freight and distribution order................ (5.7) Trade accounts payable order.................. (9.1) Other court orders including employee wages and benefits, sales and use tax, and customer programs................................. (186.2) Expense/(income) items: Interest on pre-petition debt................. 46.7 Current period employee-related accruals...... 10.4 Change in estimate of asbestos-related property damage contingencies........................ 30.0 Change in estimate of environmental contingencies........................... 219.0 Change in estimate of income tax contingencies 6.9 Balance sheet reclassifications............... (25.7) ------------------------- Balance, end of period........................... $2,452.3 =============================================================================== =============================================================================== W. R. GRACE & CO. - CHAPTER 11 FILING ENTITIES DECEMBER 31, DEBTOR-IN-POSSESSION -------------------------------- BALANCE SHEETS (RESTATED) (In millions) (Unaudited) 2003 2002 =============================================================================== ASSETS CURRENT ASSETS Cash and cash equivalents................. $ 120.5 $ 56.8 Accounts and other receivables, net....... 105.6 114.7 Receivables from non-filing entities, net. 46.2 43.4 Inventories............................... 81.2 70.5 Other current assets...................... 47.9 45.6 -------------------------------- TOTAL CURRENT ASSETS...................... 401.4 331.0 Properties and equipment, net............. 383.9 389.7 Cash value of life insurance policies, net of policy loans........................ 90.8 82.4 Deferred income taxes..................... 587.9 574.4 Asbestos-related insurance expected to be realized after one year................ 269.4 282.6 Loans receivable from non-filing entities, net.......................... 448.0 444.4 Investment in non-filing entities......... 303.6 244.7 Other assets.............................. 92.7 92.2 -------------------------------- TOTAL ASSETS.............................. $2,577.7 $2,441.4 ================================ LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) LIABILITIES NOT SUBJECT TO COMPROMISE Current liabilities....................... $ 98.0 $ 99.3 Other liabilities......................... 191.2 229.6 -------------------------------- TOTAL LIABILITIES NOT SUBJECT TO COMPROMISE ............................ 289.2 328.9 LIABILITIES SUBJECT TO COMPROMISE......... 2,452.3 2,334.7 -------------------------------- TOTAL LIABILITIES......................... 2,741.5 2,663.6 SHAREHOLDERS' EQUITY (DEFICIT) ........... (163.8) (222.2) -------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) ...................... $2,577.7 $2,441.4 =============================================================================== Additional liabilities subject to compromise may arise due to the rejection of executory contracts or unexpired leases, or as a result of the Bankruptcy Court's allowance of contingent or disputed claims. The Debtors' Chapter 11 expenses for 2003, 2002, and 2001 consist of: =============================================================================== (In millions) 2003 2002 2001 - ------------------------------------------------------------------------------- Legal and financial advisory fees ........................ $ 15.4 $ 30.6 $ 16.6 Interest income................ (0.6) (0.5) (0.9) ------------------------------------------- Chapter 11 expenses, net....... $ 14.8 $ 30.1 $ 15.7 =============================================================================== Pursuant to SOP 90-7, interest income earned on the Debtors' cash balances must be offset against Chapter 11 expenses. In addition to Grace's financial reporting obligations as prescribed by the U.S. Securities and Exchange Commission ("SEC"), the Debtors are also required, under the rules and regulations of the Bankruptcy Code, to periodically file certain statements and schedules and a monthly operating report with the Bankruptcy Court. This information is available to the public through the F-17 Bankruptcy Court. This information is prepared in a format that may not be comparable to information in Grace's quarterly and annual financial statements as filed with the SEC. The monthly operating reports are not audited, do not purport to represent the financial position or results of operations of Grace on a consolidated basis, and should not be relied on for such purposes. - -------------------------------------------------------------------------------- 3. ASBESTOS-RELATED LITIGATION - -------------------------------------------------------------------------------- Grace is a defendant in property damage and bodily injury lawsuits relating to previously sold asbestos-containing products. As of the Filing Date, Grace was a defendant in 65,656 asbestos-related lawsuits, 17 involving claims for property damage (one of which has since been dismissed), and the remainder involving 129,191 claims for bodily injury. Due to the Filing, holders of asbestos-related claims are stayed from continuing to prosecute pending litigation and from commencing new lawsuits against the Debtors. Additional asbestos-related claims will be subject to the Chapter 11 process established by the Bankruptcy Court. Separate creditors' committees representing the interests of property damage and bodily injury claimants have been appointed in the Chapter 11 Cases. Grace's obligations with respect to present and future claims will be determined through proceedings in the Bankruptcy Court and negotiations with each of the official committees appointed in the Chapter 11 Cases and a legal representative of future asbestos claimants, which negotiations are expected to provide the basis for a plan of reorganization. PROPERTY DAMAGE LITIGATION The plaintiffs in asbestos property damage lawsuits generally seek to have the defendants absorb the cost of removing, containing or repairing the asbestos-containing materials in the affected buildings. Each property damage case is unique in that the age, type, size and use of the building, and the difficulty of asbestos abatement, if necessary, vary from structure to structure. Information regarding product identification, the amount of product in the building, the age, type, size and use of the building, the jurisdictional history of prior cases and the court in which the case is pending has provided meaningful guidance as to the range of potential costs. Grace has recorded a liability for all outstanding property damage cases for which sufficient information is available to form a reasonable estimate of the cost to resolve such litigation. (See "Asbestos-Related Liability" below.) Out of 380 asbestos property damage cases filed prior to the Filing Date, 141 were dismissed without payment of any damages or settlement amounts; judgments were entered in favor of Grace in nine cases (excluding cases settled following appeals of judgments in favor of Grace); judgments were entered in favor of the plaintiffs in eight cases (one of which is on appeal) for a total of $86.1 million; 207 property damage cases were settled for a total of $696.8 million; and 16 cases remain outstanding (including the one on appeal). Of the 16 remaining cases, eight relate to ZAI and eight relate to a number of former asbestos-containing products (two of which also involve ZAI). Approximately 4,000 additional property damage claims were filed prior to the March 31, 2003 claims bar date. Grace has analyzed the information provided by the claimants and has attempted to assess the validity and potential liability related to these claims. Approximately 170 claims contained insufficient information to permit an evaluation. (See "Asbestos-Related Liability" below for further discussion.) The ZAI cases were filed as class action lawsuits in 2000 and 2001 on behalf of owners of homes containing ZAI. These cases seek damages and equitable relief, including the removal, replacement and/or disposal of all such insulation. The plaintiffs assert that this product is in millions of homes throughout the U.S. and that the cost of removal could be several thousand dollars per home. As a result of the Filing, these cases have been transferred to the U.S. Bankruptcy Court. Based on Grace's investigation of the claims described in these lawsuits, and testing and analysis of this product by Grace and others, Grace believes that the product was and continues to be safe for its intended purpose and poses little or no threat to human health. In July 2002, the Bankruptcy Court approved special counsel to represent the ZAI claimants, at the Debtors' expense, in a proceeding to determine certain threshold scientific issues regarding ZAI. The parties have completed discovery with respect to these threshold issues and have filed motions asking the Bankruptcy Court to resolve a number of important legal and factual issues regarding the ZAI claims. The Debtors expect the Bankruptcy Court to establish a schedule for determining the pending motions following the next status conference in May 2004. At this time, Grace is not able to assess the extent of any possible liability related to this matter. BODILY INJURY LITIGATION Asbestos bodily injury claims are generally similar to each other (differing primarily in the type of asbestos-related illness allegedly suffered by the plaintiff). However, Grace's estimated liability for such claims has been influenced by numerous variables, including the F-18 solvency of other former producers of asbestos containing products, cross-claims by co-defendants, the rate at which new claims are filed, the jurisdiction in which the claims are filed, and the defense and disposition costs associated with these claims. Grace's bodily injury liability reflects management's estimate, as of the Filing Date (adjusted for post-Filing defense and claims administration costs), of the number and ultimate cost of present and future bodily injury claims expected to be asserted against Grace given demographic assumptions of possible exposure to asbestos containing products previously manufactured by Grace. Cumulatively through the Filing Date, 16,354 asbestos bodily injury lawsuits involving approximately 35,720 claims were dismissed without payment of any damages or settlement amounts (primarily on the basis that Grace products were not involved), and approximately 55,489 lawsuits involving approximately 163,698 claims were disposed of (through settlement and judgments) for a total of $645.6 million. (See "Asbestos-Related Liability" below.) Approximately 1,000 claims for medical monitoring were filed against the Debtors prior to the bar date. These claims were made by individuals for medical monitoring, but not bodily injury, due to exposure to asbestos through Grace's products or operations. Based on the number and expected value of such claims, Grace does not believe such claims will have a material effect on the Consolidated Financial Statements. ASBESTOS-RELATED LIABILITY Asbestos-related litigation is stayed by the Chapter 11 Cases. Ongoing costs are generally limited to claims administration costs and to defense costs incurred in connection with litigation permitted by the Bankruptcy Court. Other adjustments to the recorded liability will be based on developments in the Chapter 11 Cases including additional information or developments related to the new property damage claims submitted, and the assessment process. For periods prior to and as of the Filing Date, Grace's estimated asbestos-related property damage and bodily injury liabilities were based on its experience with, and recent trends in, asbestos litigation. Its recorded liabilities covered indemnity and defense costs for pending property damage cases for which sufficient information was available, and for pending and projected future bodily injury claims. Since the Filing, Grace is aware that bodily injury claims have continued to be filed against co-defendant companies, and at higher than historical rates. Grace believes that had it not filed for Chapter 11 reorganization, it likely would have received thousands more claims than it had previously projected. The total asbestos-related liability balances as of December 31, 2003 and 2002 were $992.3 million and $973.2 million, respectively. The increase in the liability during 2003 reflects a $30.0 million pre-tax charge taken in the fourth quarter for new asbestos-related property damage claims, net of defense and claims administration costs. The pre-tax charge was based on an initial review, completed in the fourth quarter of 2003, of more than 4,000 new claims submitted prior to the March 31, 2003 claims bar date. Each claim is unique as to property, product in question, legal status of claimant, potential cost of remediation, and other factors. Such claims were reviewed in detail by Grace, categorized into claims with sufficient information to be evaluated or claims that require additional information and, where sufficient information existed, the cost of resolution was estimated. (Grace's revised estimate of liability does not include any amounts for approximately 170 claims for which sufficient information was not available to evaluate potential liability.) However, due to the Filing and the uncertainties of asbestos-related litigation, the actual amount of Grace's asbestos-related liability could differ materially from the recorded liability. The recorded asbestos-related liability is included in "liabilities subject to compromise." Recently, federal legislation has been proposed to address asbestos-related bodily injury litigation. In addition, several states have enacted or proposed legislation affecting asbestos-related bodily injury litigation. At this time, Grace cannot predict what impact any such legislation would have on Grace's asbestos-related bodily injury liability, or its ultimate plan of reorganization. ASBESTOS INSURANCE Grace previously purchased insurance policies with respect to its asbestos-related lawsuits and claims. Insurance coverage for asbestos-related liabilities has not been commercially available since 1985. Grace has settled with and has been paid by all of its primary insurance carriers with respect to both property damage and bodily injury cases and claims. Grace has also settled with its excess insurance carriers that wrote policies available for property damage cases; those settlements involve amounts paid and to be paid to Grace. Grace believes that certain of these settlements may cover ZAI claims, as well as other property damage claims. In addition, Grace believes that additional coverage for ZAI claims may exist under excess F-19 insurance policies not subject to settlement agreements. Grace has settled with excess insurance carriers that wrote policies available for bodily injury claims in layers of insurance that Grace believes may be reached based on its current estimates. The asbestos-related insurance asset represents amounts expected to be received from carriers under settlement agreements for defense and disposition costs to be paid by Grace. Estimated insurance reimbursements are based on the recorded amount of the asbestos-related liability and are only collectible as liabilities are satisfied. In the event that Grace's ultimate asbestos-related liability is determined to exceed recorded amounts, insurance exists to cover a portion of such incremental liability, but generally in a lower proportion than the currently recorded insurance receivable bears to the currently recorded liability. =============================================================================== ESTIMATED INSURANCE RECOVERY ON ASBESTOS-RELATED LIABILITIES (In millions) 2003 2002 - ------------------------------------------------------------------------------- INSURANCE RECEIVABLE Asbestos-related insurance receivable, beginning of year .................... $282.6 $293.4 Proceeds received under asbestos-related insurance settlements ................ (13.2) (10.8) --------------------------------- Asbestos-related insurance receivable, end of year expected to be realized after one year ....................... $269.4 $282.6 =============================================================================== - -------------------------------------------------------------------------------- 4. INCOME TAXES - -------------------------------------------------------------------------------- The components of (loss) income from consolidated operations before income taxes and the related benefit from (provision for) income taxes for 2003, 2002, and 2001 are as follows: =============================================================================== INCOME TAXES - CONSOLIDATED OPERATIONS (In millions) 2003 2002 2001 - ------------------------------------------------------------------------------- (Loss) income before income taxes: Domestic................... $(175.7) $ (44.6) $ 67.1 Foreign.................... 126.2 104.8 75.7 Intercompany eliminations.. (18.0) (0.1) (0.5) -------------------------------------------- $ (67.5) $ 60.1 $ 142.3 ============================================ Benefit from (provision for) income taxes: Federal - current.......... $ 9.9 $ 8.1 $ (7.7) Federal - deferred......... 34.5 (11.0) (27.5) State and local - current.. 3.8 (1.0) (3.2) Foreign - current.......... (34.3) (27.6) (22.2) Foreign - deferred......... (1.6) (6.5) (3.1) -------------------------------------------- $ 12.3 $ (38.0) $ (63.7) =============================================================================== At December 31, 2003 and 2002, the tax attributes giving rise to deferred tax assets and liabilities consisted of the following items: =============================================================================== DEFERRED TAX ANALYSIS (In millions) 2003 2002 - ------------------------------------------------------------------------------- Liability for asbestos-related litigation $ 347.3 $ 340.6 Net operating loss/credit carryforwards.. 141.4 155.1 Deferred state taxes..................... 126.1 117.7 Liability for environmental remediation.. 116.4 70.4 Other postretirement benefits............ 47.0 51.5 Deferred charges......................... 42.9 46.1 Reserves and allowances.................. 28.8 27.1 Research and development................. 34.6 35.0 Pension liabilities...................... 83.1 94.6 Foreign loss/credit carryforwards........ 20.0 14.8 Other.................................... 9.8 12.4 - ------------------------------------------------------------------------------- Total deferred tax assets................ 997.4 965.3 - ------------------------------------------------------------------------------- Asbestos-related insurance receivable.... (100.6) (103.6) Pension assets........................... (14.2) (13.7) Properties and equipment................. (72.4) (71.7) Other.................................... (60.8) (60.4) - ------------------------------------------------------------------------------- Total deferred tax liabilities........... (248.0) (249.4) - ------------------------------------------------------------------------------- Deferred state taxes..................... (126.1) (117.7) Net operating loss/credit carryforwards.. (23.7) (23.7) Foreign loss carryforwards............... (18.5) (11.1) - ------------------------------------------------------------------------------- Total valuation allowance ............... (168.3) (152.5) - ------------------------------------------------------------------------------- Net deferred tax assets.................. $ 581.1 $ 563.4 =============================================================================== The valuation allowance shown above arises from uncertainty as to the realization of certain deferred tax assets, primarily foreign tax credit carryforwards and foreign, state and local net operating loss carryforwards. Based upon anticipated future results, Grace has concluded that it is more likely than not that the balance of the net deferred tax assets, after consideration of the valuation allowance, will be realized. Because of the nature of the items that make up this balance, the realization period is likely to extend over a number of years and the outcome of the Chapter 11 process could materially impact the realization period. At December 31, 2003, there were $213.7 million of U.S. federal net operating loss carryforwards, representing deferred tax assets of $74.8 million, with expiration dates through 2023; $6.2 million of foreign tax credit carryforwards with expiration dates through 2006; $15.8 million of general business credit carryforwards with expiration dates through 2008; and $44.6 million of alternative minimum tax credit carryforwards with no expiration dates. The difference between the benefit from (provision for) income taxes at the federal income tax rate of 35% and Grace's overall income tax provision are summarized as follows: F-20 =============================================================================== INCOME TAX BENEFIT (PROVISION) ANALYSIS (In millions) 2003 2002 2001 - ------------------------------------------------------------------------------- Tax benefit (provision) at federal corporate rate.............. $23.6 $(21.0) $(49.8) Change in provision resulting from: Nontaxable income/non-deductible expenses.................. (0.6) (1.0) (1.6) State and local income taxes, net of federal income tax benefit................... 2.5 (0.7) (1.7) Federal and foreign taxes on foreign operations........ (3.6) 1.6 1.3 Chapter 11 expenses (non-deductible).......... (4.3) (10.5) (5.5) Tax and interest relating to tax deductibility of interest on life insurance policy loans (See Note 14)............. (5.3) (6.4) (6.4) --------------------------------------- Income tax benefit from (provision for) continuing operations ................. $12.3 $(38.0) $(63.7) =============================================================================== Federal, state, local and foreign taxes have not been accrued on approximately $371.0 million of undistributed earnings of certain foreign subsidiaries, as such earnings are expected to be retained indefinitely by such subsidiaries for reinvestment. However, Chapter 11 and/or changes in the tax laws could affect this expectation in the future. The distribution of these earnings would result in additional foreign withholding taxes of approximately $17.3 million and additional federal income taxes to the extent they are not offset by foreign tax credits. It is not practicable to estimate the total tax liability that would be incurred upon such a distribution. - -------------------------------------------------------------------------------- 5. ACQUISITIONS AND JOINT VENTURES - -------------------------------------------------------------------------------- In 2003, Grace completed three business combinations for a total cash cost of $26.9 million as follows: o In April 2003, Grace, through its subsidiary The Separations Group, acquired the business and assets of MODcol Corporation, a manufacturer of preparative chromatography columns and provider of custom column packaging services. o In July 2003, Grace acquired the chromatography business of Argonaut Technologies, Inc., which had been marketed under the Jones Chromatography name. o In October 2003, Grace through its German subsidiary, acquired certain assets of Tricosal Beton - Chemie GmbH & Co. KG, a leading supplier of specialty chemicals and materials to the European construction industry. Goodwill recognized in those transactions amounted to $12.0 million, of which $1.3 million was assigned to Davison Chemicals and $10.7 million was assigned to Performance Chemicals. In 2002, Grace completed three business combinations for a total cash cost of $28.5 million as follows: o In January 2002, Grace, through its Swedish subsidiary, acquired the catalyst manufacturing assets of Borealis A/S. o In March 2002, Grace acquired the business and assets of Addiment, Incorporated, a leading supplier of specialty chemicals to the concrete paver and masonry industries in the U.S. and Canada. o In August 2002, Advanced Refining Technologies LLC ("ART"), a joint venture between Grace and Chevron Products Company ("Chevron"), acquired an exclusive license for the hydroprocessing catalyst technology of Japan Energy Corporation and its subsidiary Orient Catalyst Company. Goodwill recognized in those transactions amounted to $3.8 million, $0.9 million of which was assigned to Davison Chemicals and $2.9 million of which was assigned to Performance Chemicals. - -------------------------------------------------------------------------------- 6. OTHER INCOME - -------------------------------------------------------------------------------- Components of other income are as follows: =============================================================================== OTHER INCOME (In millions) 2003 2002 2001 - ------------------------------------------------------------------------------- Investment income............. $ 5.6 $ 4.7 $ 5.4 Interest income............... 4.3 3.9 4.6 Gain on sale of investments... -- 1.2 7.9 Net (loss) gain on dispositions of assets.................. (1.5) 0.7 1.8 Tolling revenue............... 1.0 3.1 3.1 Foreign currency.............. (4.4) (1.1) 0.9 Other miscellaneous income ... 11.7 10.0 7.1 -------------------------------------------- Total other income............ $ 16.7 $ 22.5 $ 30.8 =============================================================================== - -------------------------------------------------------------------------------- 7. GOODWILL AND OTHER INTANGIBLE ASSETS - -------------------------------------------------------------------------------- Grace adopted SFAS No. 142, "Goodwill and Other Intangible Assets" on January 1, 2002 and ceased the amortization of goodwill. The pro forma impact on pre-tax income and earnings per share was immaterial. SFAS No. 142 requires that goodwill and indefinite life intangible assets be tested for impairment on at least an annual basis. For the purpose of measuring impairment under the provisions of SFAS No. 142, Grace has identified its reporting units as catalyst products and F-21 silica products (Davison Chemicals), and construction chemicals, building materials, and sealants and coatings (Performance Chemicals). In connection with the adoption of SFAS No. 142 and as of November 30, 2003, Grace evaluated its goodwill and other intangible assets that have indefinite useful lives, with no impairment charge required. At December 31, 2003 and December 31, 2002, Grace had goodwill balances of $85.2 million and $65.2 million, respectively. The carrying amount of goodwill attributable to each reporting unit and the changes in those balances during the year ended December 31, 2003 are as follows: =============================================================================== Davison Performance Total (In millions) Chemicals Chemicals Grace =============================================================================== Balance as of December 31, 2002 ................. $17.0 $48.2 $65.2 Goodwill acquired during the year.............. 1.3 10.7 12.0 Foreign currency translation adjustment.............. 2.5 5.5 8.0 - ------------------------------------------------------------------------------- BALANCE AS OF DECEMBER 31, 2003 ................... $20.8 $64.4 $85.2 =============================================================================== Grace's book value of other intangible assets at December 31, 2003 and December 31, 2002 was $65.1 million and $63.3 million, respectively, including unamortizable intangible assets (primarily trademarks) of $6.9 million in 2002. The composition of the remaining net amortizable intangible assets of $65.1 million and $56.4 million as of December 31, 2003 and December 31, 2002, respectively, was as follows: =============================================================================== (In millions) AS OF DECEMBER 31, 2003 =============================================================================== GROSS CARRYING ACCUMULATED AMOUNT AMORTIZATION ----------------------------------------------- Technology ............... $38.1 $10.8 Patents................... 15.3 15.2 Customer lists............ 29.8 5.8 Other..................... 15.7 2.0 ----------------------------------------------- Total..................... $98.9 $33.8 =============================================================================== =============================================================================== (In millions) As of December 31, 2002 =============================================================================== Gross Carrying Accumulated Amount Amortization ----------------------------------------------- Technology ............... $34.6 $ 4.6 Patents................... 15.3 13.6 Customer lists............ 24.1 3.3 Other..................... 5.0 1.1 ----------------------------------------------- Total..................... $79.0 $22.6 =============================================================================== At December 31, 2003, estimated future annual amortization expenses were: =============================================================================== ESTIMATED AMORTIZATION EXPENSE (In millions) - ------------------------------------------------------------------------------- 2004............................................ $6.0 2005............................................ 5.9 2006............................................ 5.7 2007............................................ 5.1 2008............................................ 5.0 =============================================================================== - -------------------------------------------------------------------------------- 8. COMPREHENSIVE INCOME (LOSS) - -------------------------------------------------------------------------------- The tables below present the pre-tax, tax, and after tax components of Grace's other comprehensive income (loss) for the years ended December 31, 2003, 2002 and 2001: =============================================================================== YEAR ENDED AFTER DECEMBER 31, 2003 (RESTATED) Pre-Tax Tax TAX (In millions) Amount Expense AMOUNT - ------------------------------------------------------------------------------- Minimum pension liability adjustments................ $ 28.2 $ (9.9) $ 18.3 Foreign currency translation adjustments................ 95.1 -- 95.1 ----------------------------------------- Other comprehensive income.... $123.3 $ (9.9) $113.4 =============================================================================== =============================================================================== YEAR ENDED After DECEMBER 31, 2002 Pre-Tax Tax Tax (In millions) Amount Benefit Amount - ------------------------------------------------------------------------------- Minimum pension liability adjustments................ $(227.2) $ 79.5 $(147.7) Foreign currency translation adjustments................ 45.1 -- 45.1 ----------------------------------------- Other comprehensive loss...... $(182.1) $ 79.5 $(102.6) =============================================================================== =============================================================================== YEAR ENDED After DECEMBER 31, 2001 Pre-Tax Tax Tax (In millions) Amount Benefit Amount - ------------------------------------------------------------------------------- Minimum pension liability adjustments................ $(191.4) $ 67.0 $(124.4) Foreign currency translation adjustments................ (24.8) -- (24.8) ------------------------------------------ Other comprehensive loss...... $(216.2) $ 67.0 $(149.2) =============================================================================== =============================================================================== COMPOSITION OF ACCUMULATED OTHER COMPREHENSIVE LOSS (RESTATED) (In millions) 2003 2002 - ------------------------------------------------------------------------------- Minimum pension liability................ $(265.4) $(283.7) Foreign currency translation ............ (24.5) (119.6) ------------------------------------ Accumulated other comprehensive loss..... $(289.9) $(403.3) =============================================================================== Grace is a global enterprise which operates in over 40 countries with local currency generally deemed to be the functional currency for accounting purposes. The foreign currency translation amount represents the adjustment necessary to translate the balance sheets valued in local currencies to the U.S. dollar as of the end of each year presented. The decline in foreign currency translation over 2003 is due to the weakening of the U.S. dollar against most other reporting currencies. F-22 The decline in equity market returns in 2000-2002, coupled with a decline in interest rates, created a shortfall between the accounting measurement of Grace's obligations under certain of its qualified pension plans for U.S. employees and the market value of dedicated pension assets. This condition required Grace to record a minimum pension liability for these plans equal to the funding shortfall and to offset related deferred costs against shareholders' equity (deficit) at December 31, 2003 and 2002. Market returns in 2003 (22.5% for Grace's domestic pension plan assets) and contributions of $48.5 million to under-funded domestic plans were not sufficient to eliminate the minimum pension liability. (See Note 18.) - -------------------------------------------------------------------------------- 9. OTHER BALANCE SHEET ACCOUNTS - -------------------------------------------------------------------------------- =============================================================================== (RESTATED) (In millions) 2003 2002 - ------------------------------------------------------------------------------- ACCOUNTS AND OTHER RECEIVABLES, NET Trade receivables, less allowance of $4.6 (2002 - $3.7)......................... $ 331.5 $ 302.8 Other receivables, less allowances of $1.7 (2002 - $1.7)......................... 16.0 13.8 --------------------------------- $ 347.5 $ 316.6 =============================================================================== INVENTORIES (1) Raw materials ........................... $ 53.5 $ 39.2 In process .............................. 35.8 30.3 Finished products ....................... 134.0 110.8 General merchandise ..................... 29.4 26.8 Less: Adjustment of certain inventories to a last-in/first-out (LIFO) basis (2) . (38.1) (33.5) --------------------------------- $ 214.6 $ 173.6 =============================================================================== (1) Inventories valued at LIFO cost comprised 49.2% of total inventories at December 31, 2003 and 48.4% at December 31, 2002 (2) During 2002, a reduction in U.S. LIFO inventory levels resulted in product valued at costs pertaining to prior years being reflected in 2002 cost of sales. This so-called LIFO liquidation had the effect of increasing pre-tax income for the Davison segment and Grace by $0.5 million. =============================================================================== OTHER ASSETS Deferred pension costs................... $ 115.9 $ 104.2 Deferred charges ........................ 45.7 38.7 Long-term receivables, less allowances of $0.7 (2002 - $0.8) ................... 9.2 2.0 Patents, licenses and other intangible assets, net ......................... 65.1 63.3 Pension-unamortized prior service cost .. 19.8 26.4 Investments in unconsolidated affiliates and other............................ 0.5 0.3 --------------------------------- $ 256.2 $ 234.9 =============================================================================== OTHER CURRENT LIABILITIES Accrued compensation .................... $ 44.8 $ 40.0 Deferred tax liability .................. 0.5 0.8 Customer volume rebates ................. 28.1 21.2 Accrued commissions ..................... 9.8 6.0 Accrued reorganization fees ............. 6.9 9.4 Other accrued liabilities ............... 39.1 53.9 --------------------------------- $ 129.2 $ 131.3 =============================================================================== OTHER LIABILITIES Pension-underfunded plans ............... $ 278.5 $ 295.1 Other accrued liabilities ............... 17.5 6.3 --------------------------------- $ 296.0 $ 301.4 =============================================================================== - -------------------------------------------------------------------------------- 10. PROPERTIES AND EQUIPMENT - -------------------------------------------------------------------------------- =============================================================================== (In millions) 2003 2002 - ------------------------------------------------------------------------------- Land.................................... $ 21.3 $ 20.5 Buildings............................... 416.1 367.2 Information technology and equipment.... 107.2 99.8 Machinery, equipment and other.......... 1,304.0 1,140.2 Projects under construction............. 24.9 66.2 --------------------------------- Properties and equipment, gross......... 1,873.5 1,693.9 Accumulated depreciation and amortization ......................... (1,216.9) (1,071.7) --------------------------------- Properties and equipment, net........... $ 656.6 $ 622.2 =============================================================================== Interest costs are capitalized for significant, extended construction projects. Capitalized interest cost was insignificant for the periods presented. Depreciation and lease amortization expense relating to properties and equipment amounted to $96.2 million in 2003, $89.8 million in 2002, and $84.2 million in 2001. Grace's rental expense for operating leases amounted to $15.4 million in 2003, $14.9 million in 2002, and $14.2 million in 2001. (See Note 14 for information regarding contingent rentals.) At December 31, 2003, minimum future non-cancelable payments for operating leases were: =============================================================================== MINIMUM FUTURE PAYMENTS UNDER OPERATING LEASES (In millions) - ------------------------------------------------------------------------------- 2004............................................ $16.7 2005............................................ 13.5 2006............................................ 12.6 2007............................................ 7.3 2008............................................ 6.3 Thereafter...................................... 10.7 - ------------------------------------------------------------------------------- Total minimum lease payments.................... $67.1 =============================================================================== The above minimum non-cancelable lease payments are net of anticipated sublease income of $1.6 million in 2004, $1.5 million in 2005, $1.4 million in 2006, $1.4 million in 2007, and $0.9 million in 2008. - -------------------------------------------------------------------------------- 11. LIFE INSURANCE - -------------------------------------------------------------------------------- Grace is the beneficiary of life insurance policies on certain current and former employees with a net cash surrender value of $90.8 million and $82.4 million at December 31, 2003 and 2002, respectively. The policies were acquired to fund various employee benefit programs and other long-term liabilities and are structured to provide cash flow (primarily tax-free) over an extended number of years. F-23 The following table summarizes activity in these policies for 2003, 2002 and 2001: =============================================================================== LIFE INSURANCE - ACTIVITY SUMMARY (In millions) 2003 2002 2001 - ------------------------------------------------------------------------------- Earnings on policy assets.... $ 38.7 $ 39.4 $ 40.3 Interest on policy loans..... (33.1) (34.7) (34.9) Premiums..................... 2.4 2.4 2.5 Proceeds from policy loans... -- -- (48.7) Policy loan repayments....... 3.1 5.1 15.0 Net investing activity....... (2.7) (5.4) (2.9) ----------------------------------------------- Change in net cash value..... $ 8.4 $ 6.8 $ (28.7) =============================================================================== Gross cash value............. $ 478.5 $ 471.3 $ 477.5 Principal - policy loans..... (365.3) (365.4) (377.6) Accrued interest - policy loans ..................... (22.4) (23.5) (24.3) ----------------------------------------------- Net cash value............... $ 90.8 $ 82.4 $ 75.6 =============================================================================== Insurance benefits in force...................... $2,213.1 $2,240.8 $2,291.0 =============================================================================== Tax-free proceeds received... $ 11.9 $ 19.4 $ 18.0 =============================================================================== Grace's financial statements display income statement activity and balance sheet amounts on a net basis, reflecting the contractual interdependency of policy assets and liabilities. See Note 14 for tax contingencies regarding certain of these life insurance policies. - -------------------------------------------------------------------------------- 12. DEBT - -------------------------------------------------------------------------------- =============================================================================== COMPONENTS OF DEBT (In millions) 2003 2002 - ------------------------------------------------------------------------------- DEBT PAYABLE WITHIN ONE YEAR Other short-term borrowings (1)........ $ 6.8 $ 4.3 ----------------------------------- $ 6.8 $ 4.3 =================================== DEBT PAYABLE AFTER ONE YEAR DIP facility (2)....................... $ -- $ -- DEBT SUBJECT TO COMPROMISE Bank borrowings (3).................... $500.0 $500.0 Other borrowings (4)................... 3.7 1.0 Accrued interest (5)................... 49.0 37.8 ----------------------------------- $552.7 $538.8 =================================== Full-year weighted average interest rates on total debt ...................... 2.1% 2.8% =============================================================================== (1) Represents borrowings under various lines of credit and other miscellaneous borrowings. (2) In April 2001, the Debtors entered into a debtor-in-possession post-petition loan and security agreement with Bank of America, N.A. (the "DIP facility") in the aggregate amount of $250 million. The DIP facility is secured by priority liens on substantially all assets of the Debtors, and bears interest based on LIBOR plus 2.00 to 2.25 percentage points. The Debtors have extended the term of the DIP facility through April 1, 2006. As of December 31, 2003, the Debtors had no outstanding borrowings under the DIP facility. However, $25.6 million of standby letters of credit were issued and outstanding under the facility as of December 31, 2003, which were issued mainly for trade-related matters such as performance bonds, as well as certain insurance and environmental matters. The outstanding amount of standby letters of credit issued under the DIP facility reduces the borrowing availability by a corresponding amount. Under the DIP facility, the Debtors are required to maintain $50 million of liquidity, a combination of cash, cash equivalents and the cash value of life insurance policies. As of December 31, 2003, the cash value of life insurance policies exceeded the $50 million requirement. (3) Under bank revolving credit agreements in effect prior to the Filing, Grace could borrow up to $500 million at interest rates based upon the prevailing prime, federal funds and/or Eurodollar rates. Of that amount, $250 million was available under short-term facilities expiring in May 2001, and $250 million was available under a long-term facility expiring in May 2003. As a result of the Filing, Grace was in default under the bank revolving credit agreements, and accordingly, the balance as of the Filing Date was reclassified to debt subject to compromise in the Consolidated Balance Sheet. (4) Miscellaneous borrowings primarily consisting of U.S. mortgages and leases. (5) Grace is continuing to accrue interest expense on its pre-petition debt at the pre-petition contractual rate of LIBOR plus 100 basis points. Interest payments amounted to $4.2 million in 2003, $1.1 million in 2002, and $9.5 million in 2001. - -------------------------------------------------------------------------------- 13. FINANCIAL INSTRUMENTS - -------------------------------------------------------------------------------- DEBT AND INTEREST RATE SWAP AGREEMENTS Grace was not a party to any derivative financial instruments at December 31, 2003 and December 31, 2002. FAIR VALUE OF DEBT AND OTHER FINANCIAL INSTRUMENTS At December 31, 2003, the fair value of Grace's debt payable within one year not subject to compromise approximated the recorded value of $6.8 million. Fair value is determined based on expected future cash flows (discounted at market interest rates), quotes from financial institutions and other appropriate valuation methodologies. At December 31, 2003, the recorded values of other financial instruments such as cash, short-term investments, trade receivables and payables and short-term debt approximated their fair values, based on the short-term maturities and floating rate characteristics of these instruments. The fair value of debt subject to compromise is undeterminable; the ultimate value of such debt will be determined by the outcome of the Chapter 11 proceedings. SALE OF ACCOUNTS RECEIVABLE Prior to the Filing, Grace sold, on an ongoing basis, approximately a $100 million pool of its eligible trade accounts receivable to a multi-seller receivables company (the "conduit") through a wholly owned special purpose subsidiary (the "SPS"). Upon sale of the receivables, the SPS held a subordinated retained interest in the receivables. Under the terms of the agreement, new receivables were added to the pool as collections reduced previously sold receivables. Grace serviced, administered and collected the receivables on behalf of the SPS and the conduit. The proceeds were used for the reduction of other short-term obligations and are reflected as operating cash flows in the Consolidated Statement of Cash Flows for the year ended December 31, 2001. Grace recorded a net loss of F-24 $1.2 million in 2001 from the corresponding sales to the conduit. As a result of the Filing, which constituted an event of default under the program, the amount outstanding under the program, approximately $65.3 million, was satisfied through the use of pre-petition trade receivables collected by the SPS during the period from the Filing Date to early May 2001. The program was terminated effective May 14, 2001. CREDIT RISK Trade receivables potentially subject Grace to credit risk. Concentrations of credit to customers in the petroleum and construction industries represent the greatest exposure. Grace's credit evaluation policies, relatively short collection terms and history of minimal credit losses mitigate credit risk exposures. Grace does not generally require collateral for its trade accounts receivable. - -------------------------------------------------------------------------------- 14. COMMITMENTS AND CONTINGENT LIABILITIES - -------------------------------------------------------------------------------- ASBESTOS-RELATED LITIGATION - SEE NOTE 3 ENVIRONMENTAL REMEDIATION General Matters and Discussion Grace is subject to loss contingencies resulting from extensive and evolving federal, state, local and foreign environmental laws and regulations relating to the generation, storage, handling, discharge and disposition of hazardous wastes and other materials. Grace accrues for anticipated costs associated with investigative and remediation efforts where an assessment has indicated that a probable liability has been incurred and the cost can be reasonably estimated. These accruals do not take into account any discounting for the time value of money. Grace's environmental liabilities are reassessed whenever circumstances become better defined or remediation efforts and their costs can be better estimated. These liabilities are evaluated based on currently available information, including the progress of remedial investigation at each site, the current status of discussions with regulatory authorities regarding the method and extent of remediation at each site, existing technology, prior experience in contaminated site remediation and the apportionment of costs among potentially responsible parties. Grace expects that the funding of environmental remediation activities will be affected by the Chapter 11 proceedings; any such effect could be material. Grace's environmental liabilities are included in "liabilities subject to compromise" as of December 31, 2003. At December 31, 2003, Grace's estimated liability for environmental investigative and remediation costs totaled $332.4 million, as compared with $201.1 million at December 31, 2002. This liability covers both vermiculite and non-vermiculite related matters. The amount is based on funding and/or remediation agreements in place and Grace's best estimate of its cost for sites not subject to a formal remediation plan. For the years ended December 31, 2003 and 2002, Grace recorded pre-tax charges of $142.5 million and $70.7 million, respectively, for environmental matters. Approximately $180.0 million of the pre-tax charges for these two years were in connection with a cost recovery lawsuit brought by the U.S. government relating to Grace's former vermiculite mining near Libby, Montana, and Grace's evaluation of probable remediation costs at vermiculite processing sites currently or formerly operated by Grace, as described below. The remainder of the pre-tax charges were primarily attributable to the ongoing review of bankruptcy claims. Cash expenditures charged against previously established reserves for the years ended December 31, 2003, 2002 and 2001 were $11.2 million, $20.8 million and $28.9 million, respectively. Vermiculite Related Matters From the 1920's until 1990, Grace and previous owners conducted vermiculite mining and related activities near Libby, Montana. The vermiculite ore that was mined contained varying amounts of asbestos as a contaminant, almost all of which was removed during processing. Expanded vermiculite from Libby was used in products such as fireproofing, insulation and potting soil. In November 1999, Region 8 of the Environmental Protection Agency ("EPA") began an investigation into alleged excessive levels of asbestos-related disease in the Libby population related to these former mining activities. This investigation led the EPA to undertake additional investigative activity and to carry out response actions in and around Libby. On March 30, 2001, the EPA filed a lawsuit in U.S. District Court for the District of Montana, Missoula Division (United States v. W. R. Grace & Company et al.) under the Comprehensive Environmental Response, Compensation and Liability Act for the recovery of costs allegedly incurred by the United States in response to the release or threatened release of asbestos in the Libby, Montana area relating to such former mining activities. These F-25 costs include cleaning and/or demolition of contaminated buildings, the excavation and removal of contaminated soil, health screening of Libby residents and former mine workers, and investigation and monitoring costs. In this action, the EPA also sought a declaration of Grace's liability that would be binding in future actions to recover further response costs. In connection with its defense, Grace conducted its own investigation to determine whether the EPA's actions and cost claims were justified and reasonable. However, in December 2002, the District Court granted the United States' motion for partial summary judgment on a number of issues that limited Grace's ability to challenge the EPA's response actions. In January 2003, a trial was held on the remainder of the issues, which primarily involved the reasonableness and adequacy of documentation of the EPA's cost recovery claims through December 31, 2001. On August 28, 2003, the District Court issued a ruling in favor of the United States that requires Grace to reimburse the government for $54.5 million in costs expended through December 2001, and for all appropriate future costs to complete the clean-up. Grace has appealed the court's ruling. As a result of such ruling, Grace recorded a pre-tax charge of $50.0 million in the third quarter of 2003. During the fourth quarter of 2003, Grace recorded a $70.0 million pre-tax charge for estimated remediation costs in and around Libby, Montana, and at vermiculite processing sites currently or formerly operated by Grace. Grace's estimated liability for vermiculite-related matters at December 31, 2003 and 2002 was $181.0 million and $62.7 million, respectively. Grace's estimate of expected costs is based on public comments regarding the EPA's spending plans, discussions of spending forecasts with EPA representatives, analysis of other information made available from the EPA, and evaluation of probable remediation costs at vermiculite processing sites. However, the EPA's cost estimates have changed regularly and increased substantially over the course of this clean-up. Consequently, Grace's estimate may change materially as more information becomes available. Grace's liability for this matter is included in "liabilities subject to compromise" as of December 31, 2003. Non-Vermiculite Related Matters At December 31, 2003 and 2002, Grace's estimated liability for remediation of sites not related to its former vermiculite mining and processing activities was $151.4 million and $138.4 million, respectively. This liability relates to Grace's current and former operations, including its share of liability for off-site disposal at facilities where it has been identified as a potentially responsible party. During the fourth quarter of 2003, Grace recorded a $20.0 million increase in its estimated environmental liability for non-vermiculite related sites as part of the Chapter 11 claims review process. Grace's revised estimated liability is based upon claims for which sufficient information was available. As Grace receives new information and continues its claims evaluation process, its estimated liability may change materially. Grace's liability for this matter is included in "liabilities subject to compromise" as of December 31, 2003. Insurance Matters Grace is a party to three environmental insurance coverage actions involving one primary and one excess insurance carrier regarding the applicability of the carriers' policies to Grace's environmental remediation costs. The outcome of such litigation, as well as the amounts of any recoveries that Grace may receive, is presently uncertain. Accordingly, Grace has not recorded a receivable with respect to such insurance coverage. CONTINGENT RENTALS Grace is the named tenant or guarantor with respect to leases entered into by previously divested businesses. These leases, some of which extend through the year 2017, have future minimum lease payments aggregating $123.8 million, and are fully offset by anticipated future minimum rental income from existing tenants and subtenants. In addition, Grace is liable for other expenses (primarily property taxes) relating to the above leases; these expenses are paid by current tenants and subtenants. Certain of the rental income and other expenses are payable by tenants and subtenants that have filed for bankruptcy protection or are otherwise experiencing financial difficulties. Grace believes that any loss from these lease obligations would be immaterial. Grace has rejected certain of these leases as permitted by the Bankruptcy Code, the financial impacts of which are insignificant. TAX MATTERS Grace has received the examination report from the Internal Revenue Service (the "IRS") for tax periods 1993 through 1996 asserting, in the aggregate, approximately $114.0 million of proposed tax adjustments, including accrued interest. The most significant contested issue addressed in such report concerns corporate-owned life insurance ("COLI") policies and is discussed below. Other proposed IRS tax F-26 adjustments include Grace's tax position regarding research and development credits, the reporting of certain divestitures and other miscellaneous proposed adjustments. The tax audit for the 1993 through 1996 tax period was under the jurisdiction of the IRS Office of Appeals, where Grace filed a protest. The IRS Office of Appeals has returned the audit to the examination team for further review of the proposed adjustments as well as several affirmative tax claims raised by Grace. Grace's federal tax returns covering periods 1997 and forward are either under examination by the IRS or open for future examination. In addition, Grace will be required to report the additional taxable income (and the related accrued interest) resulting from IRS adjustments to state and local tax jurisdictions upon resolution of the Federal tax audits. Grace believes that the impact of probable tax return adjustments are adequately recognized as liabilities at December 31, 2003. Any cash payment as a result of such adjustment would be subject to Grace's Chapter 11 proceedings. In 1988 and 1990, Grace acquired COLI policies on the lives of certain of its employees as part of a strategy to fund the cost of postretirement employee health care benefits and other long-term liabilities. COLI premiums have been funded in part by loans issued against the cash surrender value of the COLI policies. The IRS is challenging deductions of interest on loans secured by COLI policies for years prior to 1999. In 2000, Grace paid $21.2 million of tax and interest related to this issue for tax years 1990 through 1992. Subsequent to 1992, Grace deducted approximately $163.2 million in interest attributable to COLI policy loans. Although Grace continues to believe that the deductions were legitimate, the IRS has successfully challenged interest deductions claimed by other corporations with respect to broad-based COLI policies in three out of four litigated cases. Given the level of IRS success in COLI cases, Grace requested and was granted early referral to the IRS Office of Appeals for consideration of possible settlement alternatives of the COLI interest deduction issue. On September 23, 2002, Grace filed a motion in its Chapter 11 proceeding requesting that the Bankruptcy Court authorize Grace to enter into a settlement agreement with the IRS with respect to Grace's COLI interest deductions. The tax years at issue are 1989 through 1998. Under the terms of the proposed settlement, the government would allow 20% of the aggregate amount of the COLI interest deductions and Grace would owe federal income tax and interest on the remaining 80%. Grace has accrued for the potential tax and interest liability related to the disallowance of all COLI interest deductions and continues to accrue interest as part of its quarterly income tax provision. On October 22, 2002, the Bankruptcy Court issued an order authorizing Grace to enter into settlement discussions with the IRS consistent with the aforementioned terms and further ordered that any final agreement would be subject to Bankruptcy Court approval. Grace is currently in negotiations with the IRS concerning the proposed settlement, and the possible termination of the COLI policies. The IRS has assessed additional federal income tax withholding and Federal Insurance Contributions Act taxes plus interest and related penalties for calendar years 1993 through 1995 against a Grace subsidiary that formerly operated a temporary staffing business for nurses and other health care personnel. The assessments, aggregating $21.8 million, were made in connection with a meal and incidental expense per diem plan for traveling health care personnel, which was in effect through 1999, the year in which Grace sold the business. The IRS contends that certain per diem reimbursements should have been treated as wages subject to employment taxes and federal income tax withholding. Grace contends that its per diem and expense allowance plans were in accordance with statutory and regulatory requirements, as well as other published guidance from the IRS. The IRS has issued additional assessments aggregating $40.1 million for the 1996 through 1998 tax periods. The statute of limitations has expired with respect to the 1999 tax year. Grace has a right to indemnification for approximately 36% of any tax liability (including interest thereon) for the period from July, 1996 through December, 1998 from its former partner in the business. The matter is currently pending in the United States Court of Claims. Grace is currently in discussions with the Department of Justice concerning possible settlement options. Grace does not expect the resolution of this matter to have significant adverse impact on its Consolidated Financial Statements. PURCHASE COMMITMENTS From time to time, Grace engages in purchase commitments in its various business activities, all of which are expected to be fulfilled with no material adverse consequences to Grace's operations or financial position. GUARANTEES AND INDEMNIFICATION OBLIGATIONS Grace is a party to many contracts containing guarantees and indemnification obligations. These contracts primarily consist of: F-27 o Contracts providing for the sale of a former business unit or product line in which Grace has agreed to indemnify the buyer against liabilities arising prior to the closing of the transaction, including environmental liabilities. These liabilities are included in "liabilities subject to compromise" in the Consolidated Balance Sheets; o Guarantees of real property lease obligations of third parties, typically arising out of (a) leases entered into by former subsidiaries of Grace, or (b) the assignment or sublease of a lease by Grace to a third party. These obligations are included in "liabilities subject to compromise" in the Consolidated Balance Sheets; o Licenses of intellectual property by Grace to third parties in which Grace has agreed to indemnify the licensee against third party infringement claims; o Contracts entered into with third party consultants, independent contractors, and other service providers in which Grace has agreed to indemnify such parties against certain liabilities in connection with their performance. Based on historical experience and the likelihood that such parties will ever make a claim against Grace, such indemnification obligations are immaterial; and o Product warranties with respect to certain products sold to customers in the ordinary course of business. These warranties typically provide that product will conform to specifications. Grace generally does not establish a liability for product warranty based on a percentage of sales or other formula. Grace accrues a warranty liability on a transaction-specific basis depending on the individual facts and circumstances related to each sale. Both the liability and annual expense related to product warranties are immaterial to the Consolidated Financial Statements. FINANCIAL ASSURANCES Financial assurances have been established for a variety of purposes, including insurance and environmental matters, asbestos settlements and appeals, trade-related commitments and other matters. At December 31, 2003, Grace had gross financial assurances issued and outstanding of $249.2 million, comprised of $136.8 million of surety bonds issued by various insurance companies, and $112.4 million of standby letters of credit and other financial assurances issued by various banks. Of the standby letters of credit, $19.0 million act as collateral for surety bonds, thereby reducing Grace's overall obligations under its financial assurances to a net amount of $230.2 million. Of this net amount of financial assurances, approximately $8.8 million were issued by non-Debtor entities and $221.4 million were issued by the Debtors. Of the amounts issued by the Debtors, approximately $191.3 million were issued before the Filing Date, with the remaining $30.1 million being issued subsequent to the Filing, of which $25.6 million was issued under the DIP facility. ACCOUNTING FOR CONTINGENCIES Although the outcome of each of the matters discussed above cannot be predicted with certainty, Grace has assessed its risk and has made accounting estimates as required under U.S. generally accepted accounting principles. As a result of the Filing, claims related to certain of the items discussed above will be addressed as part of Grace's Chapter 11 proceedings. Accruals recorded for such contingencies have been included in "liabilities subject to compromise" on the accompanying Consolidated Balance Sheets. The amounts of these liabilities as ultimately determined through the Chapter 11 proceedings could be materially different from amounts recorded by Grace at December 31, 2003. - -------------------------------------------------------------------------------- 15. SHAREHOLDERS' EQUITY (DEFICIT) - -------------------------------------------------------------------------------- Under its Certificate of Incorporation, the Company is authorized to issue 300,000,000 shares of common stock, $0.01 par value. Of the common stock unissued at December 31, 2003, approximately 9,582,784 shares were reserved for issuance pursuant to stock options and other stock incentives. The Company has not paid a dividend on its common stock since 1998. The Certificate of Incorporation also authorizes 53,000,000 shares of preferred stock, $0.01 par value, none of which has been issued. Of the total, 3,000,000 shares have been designated as Series A Junior Participating Preferred Stock and are reserved for issuance in connection with the Company's Preferred Stock Purchase Rights ("Rights"). A Right trades together with each outstanding share of common stock and entitles the holder to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock under certain circumstances and subject to certain conditions. The Rights are not and will not become exercisable unless and until certain events occur, and at no time will the Rights have any voting power. In November 2001, 56,911 shares of restricted stock were reclassified as treasury shares to reflect an election made by Paul J. Norris, Grace's Chairman and Chief Executive Officer, under a Bankruptcy Court approved employment agreement. F-28 - -------------------------------------------------------------------------------- 16. (LOSS) EARNINGS PER SHARE - -------------------------------------------------------------------------------- The following table shows a reconciliation of the numerators and denominators used in calculating basic and diluted (loss) earnings per share. =============================================================================== (LOSS) EARNINGS PER SHARE (In millions, except per share amounts) 2003 2002 2001 - ------------------------------------------------------------------------------- NUMERATORS Net (loss) income............ $ (55.2) $ 22.1 $ 78.6 =============================================== DENOMINATORS Weighted average common shares - basic calculation ................ 65.5 65.4 65.3 Dilutive effect of employee stock options and restricted shares....... -- 0.1 0.1 ----------------------------------------------- Weighted average common shares - diluted calculation................. 65.5 65.5 65.4 =============================================== BASIC (LOSS) EARNINGS PER SHARE....................... $(0.84) $ 0.34 $ 1.20 =============================================== DILUTED (LOSS) EARNINGS PER SHARE....................... $(0.84) $ 0.34 $ 1.20 =============================================================================== Stock options that could potentially dilute basic (loss) earnings per share (that were excluded from the computation of diluted (loss) earnings per share because their exercise prices were greater than the average market price of the common shares) averaged approximately 9.4 million in 2003, 11.5 million in 2002, and 14.2 million in 2001. As a result of the 2003 net loss of $55.2 million, approximately 100,000 of employee compensation-related shares issuable under stock options were excluded from the diluted loss per share calculation in 2003 because their effect would have been antidilutive. - -------------------------------------------------------------------------------- 17. STOCK INCENTIVE PLANS - -------------------------------------------------------------------------------- Each stock option granted under the Company's stock incentive plans has an exercise price equal to the fair market value of the Company's common stock on the date of grant. Options become exercisable at the time or times determined by the Compensation Committee of the Company's Board of Directors and may have terms of up to ten years and one month. The following table sets forth information relating to such options during 2003, 2002 and 2001: =============================================================================== STOCK OPTION ACTIVITY 2003 - ------------------------------------------------------------------------------- Average Number Exercise of Shares Price ----------------------------------- Balance at beginning of year........... 10,440,417 $11.94 Options exercised...................... (15,831) 2.40 Options terminated or cancelled........ (841,802) 11.24 ------------------- Balance at end of year................. 9,582,784 12.02 =============================================================================== Exercisable at end of year............. 9,227,438 $12.39 =============================================================================== 2002 ----------------------------------- Balance at beginning of year........... 12,772,431 $11.88 Options exercised...................... (1,266) 2.40 Options terminated or cancelled........ (2,330,748) 11.60 ------------------- Balance at end of year................. 10,440,417 11.94 =============================================================================== Exercisable at end of year............. 8,973,964 $12.58 =============================================================================== 2001 ----------------------------------- Balance at beginning of year........... 14,005,209 $12.70 Options granted........................ 1,339,846 2.53 Options terminated or cancelled........ (2,572,624) 11.46 ------------------- Balance at end of year................. 12,772,431 11.88 =============================================================================== Exercisable at end of year............. 9,586,993 $12.64 =============================================================================== Currently outstanding options expire on various dates through November 2011. At December 31, 2003, 4,474,004 shares were available for additional stock option or restricted stock grants. Following is a summary of stock options outstanding at December 31, 2003: =============================================================================== STOCK OPTIONS OUTSTANDING - ------------------------------------------------------------------------------- Weighted- Average Remaining Weighted- Weighted- EXERCISE Contractual Average Average PRICE Number Life Exercise Number Exercise RANGE Outstanding (Years) Price Exercisable Price - ------------------------------------------------------------------------------- $1 - $8 2,300,702 5.23 $ 4.17 1,945,356 $ 4.49 $8 - $13 2,974,756 4.81 12.30 2,974,756 12.30 $13 - $18 2,791,126 7.44 14.14 2,791,126 14.14 $18 - $21 1,516,200 6.02 19.47 1,516,200 19.47 ----------- ----------- 9,582,784 5.87 12.02 9,227,438 12.39 =============================================================================== At December 31, 2001, restrictions on all prior grants of restricted stock, net of forfeitures, totaled 55,000 shares; these restrictions lapsed in 2002. The quoted market value of the restricted shares at the date of grant was amortized to expense ratably over the restriction period. - -------------------------------------------------------------------------------- 18. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS PLANS - -------------------------------------------------------------------------------- Grace maintains defined benefit pension plans covering employees of certain units who meet age and service requirements. Benefits are generally based on final average salary and years of service. Grace funds its U.S. pension plans ("domestic plans") in accordance with U.S. federal laws and regulations. Non-U.S. pension plans ("foreign plans") are funded under a variety of F-29 methods, as required under local laws and customs, and therefore cannot be summarized. Grace provides certain other postretirement health care and life insurance benefits for retired employees of certain U.S. business units and certain divested units. The postretirement medical plan provides various levels of benefits to employees (depending on their dates of hire) who retire from Grace after age 55 with at least 10 years of service. These plans are unfunded, and Grace pays the costs of benefits under these plans as they are incurred. Grace applies SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," which requires that the future costs of postretirement health care and life insurance benefits be accrued over the employees' years of service. An amendment to the structure of the retiree-paid premiums for postretirement medical benefits was approved by the Company's Board in November 2001. The amendment became effective January 1, 2002, and requires all retirees and beneficiaries covered by the postretirement medical plan to contribute a minimum of 40% of the calculated premium for that coverage. Also, during 2002, per capita costs under the retiree medical plans exceeded caps on the amount Grace was required to contribute under a 1993 amendment to the plan. As a result, for 2003 and future years, retirees will bear 100% of any increase in premium costs. At December 31, 2003 and 2002 the accounting measure of the accumulated benefit obligation for certain of the domestic and foreign plans exceeded the fair value of dedicated plan assets. As a result, Grace's accumulated other comprehensive loss, reflected as a reduction of shareholders' equity (deficit), includes the recognition of a minimum pension liability as of December 31, 2003 and 2002 of $408.3 million ($265.4 million, net of tax) and $436.5 million ($283.7 million, net of tax), respectively. These amounts include offsets of related deferred pension costs. The following summarizes the changes in benefit obligations and fair value of retirement plan assets during 2003 and 2002 (Grace uses a December 31 measurement date for the majority of its plans): F-30

~~NM - Not meaningful N/A - Not applicable F-31~~

N/A - Not applicable (1) The accumulated benefit obligation for all domestic plans was $896.2 million and $845.0 million at December 31, 2003 and 2002, respectively. The target allocation of investment assets for 2004, the actual allocation at December 31, 2003 and 2002, and the expected long-term rate of return by asset category for Grace's domestic plans are as follows:

The investment goal for the domestic plans is to earn a long-term rate of return consistent with the long-term funding requirements of the underlying benefit obligation and cash flow profile. Plan amendments, assumptions and demographics are considered in determining the necessary level of returns. The domestic pension plans have assets managed by six investment managers. Some of the general restrictions on their investments are summarized as follows: o For fixed income securities: single issuers are limited to 5% of the portfolio's market value (with the exception of U.S. government and agency securities); the average credit quality of the portfolio shall be at least A rated; no more than 15% of the market value of the portfolio shall be invested in non-dollar denominated bonds; and privately placed securities are limited to no more than 50% of the portfolio's market value. o For U.S. equity securities; the portfolio is entirely passively managed through investment in the Wilshire 5000 index. o For non-U.S. equity securities; no individual security shall represent more than 5% of the portfolio's market value at any time, investment in U.S. common stock securities is prohibited (with the exception of American Depository Receipts) and emerging market securities may represent up to 30% of the total portfolio's market value. Currency futures and forward contracts may be held for the sole purpose of hedging existing currency risk in the portfolio. For 2004, the expected long-term rate of return on assets for domestic plans is 8.0% (8.25% in 2003). Average annual returns over one, three, five, ten and fifteen year periods were 22.57%, 0.98%, 3.28%, 7.12%, and 8.50%, respectively. The change in the expected rate is due to the reallocation of targeted equity from 65% stocks/35% bonds to 60% stocks/40% bonds in December 2003. Grace reallocated the assets due to the volatility in the equity markets and to maintain an investment portfolio more in line with the profile of the domestic plan participants, a significant portion of whom are drawing current benefits. Non-U.S. pension plans accounted for approximately 22% of total global pension assets at December 31, 2003 and 2002, respectively. Each of these plans, where applicable, abide by local requirements and regulations. Some of the local requirements include the establishment of a local pension committee, a formal statement of investment policy and procedures, and routine plan valuations by hired plan actuaries. Subject to the approval of the Bankruptcy Court, Grace expects to contribute approximately $40.0 million to its domestic qualified defined benefit pension plans and approximately $12.0 million to its other postretirement plans in 2004. Of the approximately $40.0 million expected to be contributed to the domestic pension plans during 2004, approximately $33.0 million is estimated to be needed to satisfy minimum funding requirements under the Employee Retirement Income Security Act of 1984. F-32 Grace intends to contribute the additional $7.0 million to help fund the shortfall between the accounting measurement of Grace's U.S. qualified pension obligations and the market value of dedicated pension assets. The entire contribution to fund the other postretirement benefit plans is discretionary, as the plans are not subject to any minimum regulatory funding requirements. For 2003 measurement purposes, the per capita cost of covered retiree health care benefits for pre-age 65 and post-age 65, respectively, were assumed to increase at rates of 8.25% and 8.65%, respectively. The rate is assumed to decrease gradually to 5.3% through 2007 and remain at that level thereafter. A one percentage point increase or decrease in assumed health care medical cost trend rates would have a negligible impact on Grace's postretirement benefit obligations. - -------------------------------------------------------------------------------- 19. BUSINESS SEGMENT INFORMATION - -------------------------------------------------------------------------------- Grace is a global producer of specialty chemicals and specialty materials. It generates revenues from two business segments: Davison Chemicals and Performance Chemicals. Davison Chemicals produces a variety of catalyst and silica products. Performance Chemicals produces specialty construction chemicals, building materials and sealants and coatings. Intersegment sales, eliminated in consolidation, are not material. The table below presents information related to Grace's business segments for 2003, 2002, and 2001. Only those corporate expenses directly related to the segment are allocated for reporting purposes. All remaining corporate items are reported separately and labeled as such. =============================================================================== BUSINESS SEGMENT DATA (In millions) 2003 2002 2001 - ------------------------------------------------------------------------------- NET SALES Davison Chemicals......... $1,039.9 $ 939.3 $ 868.3 Performance Chemicals..... 940.6 880.4 854.6 ------------------------------------------------ Total..................... $1,980.5 $1,819.7 $1,722.9 ================================================ PRE-TAX OPERATING INCOME Davison Chemicals......... $ 118.9 $ 129.4 $ 123.8 Performance Chemicals..... 107.9 98.8 96.7 ------------------------------------------------ Total..................... $ 226.8 $ 228.2 $ 220.5 ================================================ DEPRECIATION AND AMORTIZATION Davison Chemicals......... $ 67.6 $ 61.7 $ 58.5 Performance Chemicals..... 33.1 32.0 29.6 ------------------------------------------------ Total..................... $ 100.7 $ 93.7 $ 88.1 ================================================ CAPITAL EXPENDITURES Davison Chemicals......... $ 68.1 $ 59.5 $ 39.3 Performance Chemicals..... 16.5 27.9 22.8 ------------------------------------------------ Total..................... $ 84.6 $ 87.4 $ 62.1 ================================================ TOTAL ASSETS Davison Chemicals......... $ 797.1 $ 734.1 $ 687.2 Performance Chemicals..... 609.2 528.7 498.8 ------------------------------------------------ Total..................... $1,406.3 $1,262.8 $1,186.0 =============================================================================== The table below presents information related to the geographic areas in which Grace operated in 2003, 2002 and 2001. =============================================================================== GEOGRAPHIC AREA DATA (In millions) 2003 2002 2001 - ------------------------------------------------------------------------------- NET SALES United States.............. $ 804.3 $ 827.1 $ 829.7 Canada and Puerto Rico..... 78.9 56.1 40.3 Germany.................... 92.2 70.9 61.8 Europe, other than Germany.................... 584.7 490.0 417.6 Asia Pacific............... 312.7 269.0 266.7 Latin America.............. 107.7 106.6 106.8 ------------------------------------------------ Total...................... $1,980.5 $1,819.7 $1,722.9 =============================================================================== PROPERTIES AND EQUIPMENT, NET United States.............. $ 386.4 $ 392.0 $ 386.7 Canada and Puerto Rico..... 19.4 18.5 20.1 Germany.................... 120.7 89.6 77.7 Europe, other than Germany.................... 72.3 63.7 41.6 Asia Pacific............... 46.8 47.4 49.1 Latin America.............. 11.0 11.0 15.1 ------------------------------------------------ Total...................... $ 656.6 $ 622.2 $ 590.3 =============================================================================== F-33 Pre-tax operating income, depreciation and amortization, capital expenditures and total assets for Grace's business segments are reconciled below to amounts presented in the Consolidated Financial Statements. =============================================================================== RECONCILIATION OF BUSINESS SEGMENT DATA TO FINANCIAL STATEMENTS (In millions) 2003 2002 2001 - ------------------------------------------------------------------------------- Pre-tax operating income - business segments.......... $ 226.8 $ 228.2 $ 220.5 Minority interest............. (1.2) 2.2 3.7 (Loss) gain on sale of investments and disposal of assets..................... (1.5) 1.9 9.7 Provision for environmental remediation................ (142.5) (70.7) (5.8) Provision for asbestos-related litigation................. (30.0) -- -- Interest expense and related financing costs............ (15.6) (20.0) (37.1) Corporate costs............... (78.1) (47.4) (33.0) Other, net.................... (11.8) (1.8) 3.7 ------------------------------------------- (Loss) income from operations before Chapter 11 expenses, income taxes, and minority interest...... $ (53.9) $ 92.4 $ 161.7 =============================================================================== Depreciation and amortization - business segments........ $ 100.7 $ 93.7 $ 88.1 - corporate................ 2.2 1.2 1.1 ------------------------------------------- Total depreciation and amortization .............. $ 102.9 $ 94.9 $ 89.2 =============================================================================== Capital Expenditures - business segments........ $ 84.6 $ 87.4 $ 62.1 - corporate................ 1.8 3.7 0.8 ------------------------------------------- Total capital expenditures.... $ 86.4 $ 91.1 $ 62.9 =============================================================================== Total assets - business segments........ $ 1,406.3 $ 1,262.8 $ 1,186.0 - corporate................ 581.6 551.6 558.1 Asbestos-related receivables.. 269.4 282.6 283.7 Deferred tax assets........... 616.9 594.7 525.4 ------------------------------------------- Total assets.................. $ 2,874.2 $ 2,691.7 $ 2,553.2 =============================================================================== F-34 - -------------------------------------------------------------------------------- 20. QUARTERLY SUMMARY AND STATISTICAL INFORMATION (UNAUDITED) - --------------------------------------------------------------------------------

(1) Fourth quarter 2003 net loss includes $120.0 million for pre-tax charges to adjust Grace's estimated liability for environmental remediation and asbestos-related property damage. Fourth quarter 2002 net loss includes a $51.0 million pre-tax charge to adjust Grace's estimate of defense and other probable costs to resolve cost recovery claims by the EPA for clean-up of vermiculite in and around Libby, Montana. (2) Per share results for the four quarters may differ from full-year per share results, as a separate computation of the weighted average number of shares outstanding is made for each quarter presented. (3) Principal market: New York Stock Exchange. F-35

(1) Certain prior-year amounts have been reclassified to conform to the 2003 presentation. (2) Amounts contain a provision for environmental remediation of $142.5 million and a provision for asbestos-related claims of $30.0 million for 2003. Amounts contain a provision for environmental remediation of $70.7 million for 2002. Amounts for 2000 also contain a provision for asbestos litigation, net of expected insurance recovery, of $208.0 million. (3) 2001 results are retroactively restated to reflect the full consolidation of Advanced Refining Technologies LLC, previously reported as an equity method joint venture. This restatement had no effect on reported sales or net income. F-36 W. R. GRACE & CO. AND SUBSIDIARIES REPORT ON INTERNAL CONTROLS AND PROCEDURES General Statement Of Responsibility. - ----------------------------------- The management of Grace is responsible for the preparation, integrity and objectivity of the Consolidated Financial Statements and the other information included in this report. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and accordingly include certain amounts that represent management's best estimates and judgments. Actual amounts could differ from those estimates. Management maintains internal controls to assist it in fulfilling its responsibility for financial reporting. These internal controls consist of the control environment, risk assessment, control activities, information and communication, and monitoring. A chartered Disclosure Committee oversees Grace's public financial reporting process and key managers are required to confirm their compliance with Grace's policies and internal controls. While no system of internal controls can ensure elimination of all errors and irregularities, Grace's internal controls, which are reviewed and modified in response to changing conditions, have been designed to provide reasonable assurance that assets are safeguarded, policies and procedures are followed, transactions are properly executed and reported, and appropriate disclosures are made. The concept of reasonable assurance is based on the recognition that there are limitations in all systems of internal control and that the costs of such systems should not exceed their benefits. Evaluation Of Disclosure Controls And Procedures. - ------------------------------------------------ As of December 31, 2003, Grace carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based upon that evaluation, Grace's Chief Executive Officer and Chief Financial Officer (the "Officers") concluded that the Company's disclosure controls and procedures were effective in ensuring that information required to be disclosed in the Company's periodic filings under the Exchange Act is accumulated and communicated to such officers to allow timely decisions regarding required disclosures. However, in early August 2004, the Officers became aware of a mistake in Grace's measurement of the U.S. dollar translation of a third party's equity interest in a small foreign joint venture caused by a two-decimal-point error in the currency conversion factor. The joint venture has 2003 net sales of approximately $775,000, all of which were made to Grace affiliates, and owner's equity of approximately $400,000. The third party's equity interest was measured at $20 million instead of $200,000, which resulted in an overstatement of Grace's liabilities and an understatement of Grace's shareholders' equity by $19.8 million in Grace's December 31, 2003 and March 31, 2004 consolidated balance sheets. This noncash error was uncovered as part of Grace's financial review procedures for the quarter ended June 30, 2004. The error had no effect on originally reported net income/loss, per share amounts, net sales, operating income, or any other item in Grace's Consolidated Statements of Operations for the year ended December 31, 2003 or for the first quarter ended March 31, 2004. The error was communicated to Grace's Audit Committee and independent auditors when found. Upon investigation, it was determined that Grace's validation and review procedures existing at both December 31, 2003 and March 31, 2004 related to the consolidation accounting process should have, but failed to, detect this computational error. As a result, such Officers now conclude that the Company's disclosure controls and procedures were effective except as they relate to the consolidation accounting process in operation at December 31, 2003 or at March 31, 2004. The Officers' believe that added validation and review procedures implemented during 2004, together with those existing before, when appropriately applied, are effective to identify errors of this nature. Grace's independent auditors have advised the Officers that the condition existing, prior to the implementation of added procedures in 2004, when combined with the relative magnitude of the identified error on the measurement of components of shareholders' equity, constituted, at the December and March balance sheet dates, a material weakness in disclosure controls and procedures. Except for the changes in Grace's consolidation accounting procedures which now include added steps of validation and review, and for periodic enhancements to control processes and policies in response to changing business, organizational, legal and regulatory conditions, there were no changes in the Company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. F-37 2021