<PAGE>

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

                            ------------------------
                                    FORM 10-K
                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1999       Commission file number 1-13953

                                W. R. GRACE & CO.

Incorporated under the Laws of the           I.R.S. Employer Identification No.
         State of Delaware                               65-0773649

                 7500 GRACE DRIVE, COLUMBIA, MARYLAND 21044-4098
                                  410/531-4000

                    SECURITIES REGISTERED PURSUANT TO SECTION
                               12(B) OF THE ACT:

                                                 NAME OF EACH EXCHANGE ON
         TITLE OF EACH CLASS                         WHICH REGISTERED
         -------------------                         ----------------

Common Stock, $.01 par value             }      New York Stock Exchange, Inc.
Preferred Stock Purchase Rights          }

7-3/4% Notes Due 2002                    }
(issued by W. R. Grace & Co.-Conn.,      }      New York Stock Exchange, Inc.
a wholly owned subsidiary) and           }
related Guarantees                       }

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                                      None

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulations S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the Proxy Statement incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K.  [X]

The aggregate market value of W. R. Grace & Co. voting stock held by
nonaffiliates was approximately $668,308,406 at March 13, 2000.

At March 13, 2000, 67,186,224 shares of W. R. Grace & Co. Common Stock, $.01 par
value, were outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

W. R. Grace & Co. is incorporating by reference into Part III of this Annual
Report on Form 10-K specified portions of its Proxy Statement for its Annual
Meeting of Stockholders to be held May 10, 2000.


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                                TABLE OF CONTENTS
<TABLE>
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<S>                                                                                                              <C>
PART I............................................................................................................1
          Item 1.     Business....................................................................................1
                          Introduction and Overview...............................................................1
                          Products and Markets....................................................................3
                          Discontinued Operations.................................................................7
                          Research Activities.....................................................................8
                          Patents and Other Intellectual Property Matters.........................................8
                          Environmental, Health and Safety Matters................................................9
          Item 2.     Properties.................................................................................10
          Item 3.     Legal Proceedings..........................................................................10
          Item 4.     Submission of Matters to a Vote of Security Holders........................................14

          Executive Officers.....................................................................................14

PART II..........................................................................................................15
          Item 5.     Market for Registrant's Common Equity and Related Shareholder Matters......................15
          Item 6.     Selected Financial Data....................................................................17
          Item 7.     Management's Discussion and Analysis of Results of Operations and Financial Condition......17
          Item 7A.    Quantitative and Qualitative Disclosures About Market Risk.................................17
          Item 8.     Financial Statements and Supplementary Data................................................17
          Item 9.     Changes in and Disagreements with Accountants on
                           Accounting and Financial Disclosure...................................................17

PART III.........................................................................................................18
          Item 10.    Directors and Executive Officers of the Registrant.........................................18
          Item 11.    Executive Compensation.....................................................................18
          Item 12.    Security Ownership of Certain Beneficial Owners and Management.............................18
          Item 13.    Certain Relationships and Related Transactions.............................................18

PART IV..........................................................................................................18
          Item 14.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K...........................18

SIGNATURES.......................................................................................................23

FINANCIAL SUPPLEMENT............................................................................................F-1
</TABLE>


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                                     PART I

ITEM 1. BUSINESS

INTRODUCTION AND OVERVIEW

W. R. Grace & Co., through its subsidiaries, is one of the world's leading
specialty chemicals companies. Grace entered the specialty chemicals industry in
1954, when it acquired both the Dewey and Almy Chemical Company and the Davison
Chemical Company. Grace primarily operates through the following two business
segments:

o        Davison Chemicals manufactures catalysts, including (1) fluid cracking
         catalysts and additives used by petroleum refineries to convert
         distilled crude oil into transportation fuels and other petroleum-based
         products; (2) hydroprocessing catalysts that upgrade heavy oils and
         remove certain impurities; and (3) polyolefin catalysts and catalyst
         supports that are essential components in the manufacture of high
         density and linear low density polyethylene resins used in products
         such as plastic film, high-performance plastic pipe and plastic
         household containers. Davison Chemicals also manufactures silica and
         zeolite adsorbents which are used in a wide variety of industrial and
         consumer applications, such as plastics, toothpastes, paints and
         insulated glass, as well as in the refining of edible oils. Davison
         Chemicals accounted for approximately 49% of Grace's 1999 sales.

o        Performance Chemicals produces (1) specialty construction chemicals,
         including performance-enhancing concrete admixtures, cement additives
         and masonry products; (2) specialty building materials, including
         fireproofing and waterproofing materials and systems; and (3) container
         and closure sealants that protect food and beverages from bacteria and
         other contaminants, extend shelf life and preserve flavor, and coatings
         used in the manufacture of cans and closures. Performance Chemicals
         accounted for approximately 51% of Grace's 1999 sales.

Grace also has other business interests as described in "Other Businesses and
Investments" below. In 1997, Grace classified its former flexible packaging
business ("Packaging Business") as a discontinued operation. The Packaging
Business was separated from Grace on March 31, 1998 in a transaction described
in Notes 1 and 3 to Grace's Consolidated Financial Statements for the three
years in the period ended December 31, 1999 ("Consolidated Financial
Statements").

         As used in this Report, the term "Company" refers to W. R. Grace & Co.,
a Delaware corporation, and the term "Grace" refers to the Company and/or one or
more of its subsidiaries and, in certain cases, their respective predecessors.
Grace's principal executive offices are located at 7500 Grace Drive, Columbia,
Maryland 21044, telephone 410/531-4000. As of year-end 1999, Grace had
approximately 6,300 full-time employees worldwide in its continuing operations.
<PAGE>

         Information concerning net sales, pretax operating income and total
assets of Grace's continuing operations by business segment and information by
geographic area for 1999, 1998 and 1997 is contained in Note 19 to the
Consolidated Financial Statements in the Financial Supplement.

         Strategic Objectives and Actions. Grace's strategy has been, and will
continue to be, to enhance shareholder value by profitably growing its specialty
chemicals businesses on a global basis and achieving high levels of financial
performance. To achieve these objectives, Grace plans to (i) invest in research
and development activities, with the goals of introducing new high-performance
products and services and enhancing manufacturing processes; (ii) implement
process and productivity improvements and cost-management initiatives (including
the use of Six Sigma processes), including rigorous controls on working capital
and capital spending; and (iii) pursue selected acquisitions and alliances.
These plans are designed to make Grace a high-performance company focused on the
strengths of its global specialty chemicals businesses.

         Projections and Other Forward-Looking Information. This Report
contains, and other communications by Grace may contain, projections or other
"forward-looking" information. Forward-looking information includes all
statements regarding Grace's expected financial position, results of operations,
cash flows, dividends, financing plans, business strategy, budgets, capital and
other expenditures, competitive positions, growth opportunities for existing
products, benefits from new technology, plans and objectives of management, and
markets for stock. Like any other business, Grace is subject to risks and other
uncertainties that could cause its actual results to differ materially from any
projections or that could cause other forward-looking information to prove
incorrect. In addition to general economic, business and market conditions,
Grace is subject to other risks and uncertainties, including the following:

o        a decline in worldwide oil consumption or the development of new
         methods of oil refining;

o        increases in prices of raw materials;

o        an inability to gain customer acceptance, or slower than anticipated
         acceptance, of new products or product enhancements (particularly in
         the construction industry);

o        changes in environmental regulations or societal pressures that make
         Grace's business operations more costly or that change the types of
         products used, especially petroleum-based products;

o        slower than anticipated economic advances in less developed countries;

o        foreign currency devaluations in developing countries or other adverse
         changes in currency exchange rates;

o        technological breakthroughs rendering a product, a class of products or
         a line of business obsolete;

o        an inability to adapt to continuing technological improvements by
         competitors or customers;

o        the acquisition (through theft or other means) and use by others of
         Grace's proprietary formulas and other know-how (particularly in the
         container products business); and

o        greater than expected liabilities with respect to the defense and
         disposition of asbestos-related lawsuits and claims and environmental
         remediation.

                                       2
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         See Notes 1, 2, 3, 5, 8, 11, 12 and 13 to the Consolidated Financial
Statements and "Management's Discussion and Analysis of Results of Operations
and Financial Condition" in the Financial Supplement for additional risks and
uncertainties.

PRODUCTS AND MARKETS

         Specialty Chemicals Industry Overview. Specialty chemicals, such as
those produced by Grace, are high-value-added products used as intermediates,
components or additives in a wide variety of products and processes. They are
produced in relatively small volumes and must satisfy well-defined performance
requirements and specifications. Specialty chemicals are often critical
components of the end products and processes in which they are used;
consequently, they are tailored to customer needs, which generally results in a
close relationship between the specialty chemicals producer and the customer.
Rapid response to changing customer needs and reliability of product and supply
are important competitive factors in specialty chemicals businesses.

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

         Davison Chemicals (Catalysts and Silica-Based Products). Davison,
founded in 1832, is composed of two primary product groups: (i) catalysts and
(ii) silica products and adsorbents. These product groups principally apply
silica, alumina and zeolite technology in the design and manufacture of products
to meet the varying specifications of such diverse customers as major oil
refiners, plastics and chemical manufacturers, and consumer products companies.
Davison believes that its technological expertise provides a competitive edge,
allowing it to quickly design products and materials that meet changing customer
specifications and to develop new products and materials that expand its
existing technology. For example, Davison estimates that approximately 60% of
its 1999 fluid cracking catalyst sales was attributable to products and
materials introduced in the previous five years.

         Davison produces refinery catalysts, including (i) fluid cracking
catalysts used by petroleum refiners to convert distilled crude oil into more
valuable transportation fuels (such as gasoline and jet and diesel fuels) and
other petroleum-based products, and (ii) hydroprocessing catalysts that upgrade
heavy oils and remove certain impurities (such as nitrogen, sulfur and heavy
metals). Davison also develops and manufactures fluid cracking catalyst
additives used for octane enhancement and to reduce emissions of sulfur oxides,
nitrogen oxides and carbon monoxide. Oil refining is a highly specialized
discipline, demanding that products be tailored to meet local variations in
crude oil and the refinery's product output mix. Davison works regularly with
most of the approximately 360 refineries in the world, helping to find the most
appropriate catalyst formulations for refiners' changing needs.

         Davison's catalyst business has benefited from the increased use of
fluid cracking catalyst units to produce selected petrochemical feedstocks. It
has also benefited from the passage of more stringent environmental regulations,
which has increased demand for fluid cracking



                                       3
<PAGE>

catalyst additives that reduce emissions. On the other hand, Davison's business
has been adversely affected by an increase in the availability of lighter crude
oil, which generally requires less fluid cracking catalysts to refine. Davison's
business is also affected by the capacity utilization of refiners' cracking
units -- as capacity utilization increases, the refiner uses a
disproportionately greater amount of fluid cracking catalyst. In addition,
consolidation in the refining industry may affect Davison's sales and margins as
the purchasing power of its customers may increase, and the gain or loss of a
customer may have a greater impact on Davison's sales.

         Davison believes it is one of the world leaders in refinery catalysts
and the largest supplier of fluid cracking catalysts in the world. Competition
in the refinery catalyst business is based on technology, product performance,
customer service and price. Davison has recently introduced new catalyst
technologies for certain high technology market segments such as sulfur
reduction in gasoline.

         Davison is also a major producer of polyolefin catalysts and catalyst
supports, essential components in the manufacture of high density and linear low
density polyethylene resins used in products such as plastic film,
high-performance plastic pipe and plastic household containers. Davison
catalysts and catalyst supports are used in manufacturing nearly half of all
such resins produced worldwide. A new plant for the manufacture of
organometallic polymerization catalysts was commissioned by Davison in May 1998.
The polyolefin catalyst business is technology-intensive and focused on
providing products formulated to meet customer specifications. Manufacturers
generally compete on a worldwide basis, and competition has recently intensified
due to evolving technologies, particularly the use of metallocene catalysts.
Davison believes that metallocene catalysts represent a revolutionary
development in the making of plastics, allowing manufacturers to design polymers
with exact performance characteristics. Davison is continuing to work with third
parties on the development and commercialization of metallocene catalysts.

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

         Davison is using its expertise in silica gels technology to develop new
products for existing markets. Davison has recently introduced new products for
higher growth segments such as coatings and consumer products, including
improved gels for ink absorption for glossy media and a new whitening product
for toothpaste. The silicas and adsorbents business has a large, fragmented
customer base due to the diverse markets served by its products. Europe accounts
for almost half of silica and adsorbent sales, which have recently been subject
to unfavorable currency exchange.

         Davison's net sales were $724 million in 1999, $731 million in 1998 and
$712 million in 1997; 49.2% of Davison's 1999 net sales were generated in North
America, 35.8 % in Europe, 10.1% in Asia Pacific and 4.9% in Latin America.
Sales of catalysts accounted for 35% of total



                                       4
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net sales of Grace in 1999, 36% in 1998 and 34% in 1997. Sales of silica
products and zeolite adsorbents accounted for 14% of Grace's total net sales in
1999 and 1998 and 15% in 1997. At year-end 1999, Davison employed approximately
2,800 people worldwide in 11 facilities (seven in the U.S. and one each in
Canada, Germany, Brazil and Malaysia). Davison's principal U.S. manufacturing
facilities are located in Baltimore, Maryland and Lake Charles, Louisiana.
Davison has a direct selling force and distributes its products directly to over
8,300 customers (300 for catalysts and 8,000 for silicas/adsorbents), the
largest of which accounted for approximately 6% of Davison's 1999 sales.

         Most raw materials used in the manufacture of Davison products are
available from multiple sources; in some instances, Davison produces its own raw
materials. Seasonality does not have a significant overall effect on Davison's
business. However, sales of refining catalysts tend to be lower in the first and
fourth quarters due to a shift in production by refineries from gasoline to home
heating oil for the winter season.

         Performance Chemicals (Specialty Construction Chemicals, Specialty
Building Materials and Container Products). Performance Chemicals was formed in
July 1999 by integrating Grace's construction products businesses with its
Darex(R) container products businesses. Grace integrated these businesses, which
share many facilities around the world and are headquartered in the Cambridge,
Massachusetts area, in order to realize efficiencies in supply chain management,
process improvement, commercialization of new products and marketing.

         Performance Chemicals is a leading supplier of specialty construction
chemicals and building materials to the nonresidential (commercial and
infrastructure) construction industry, and to a lesser extent, the residential
construction industry. Specialty construction chemicals (principally concrete
admixtures, cement additives and masonry products) add strength, control
corrosion and enhance the handling and application of concrete, improve the
manufacturing efficiency and performance of cement, and improve the water
resistance and other qualities of masonry wall systems. Performance Chemicals
has introduced a number of new construction chemicals products and product
enhancements in recent years. These include an admixture that reduces concrete
shrinkage and helps prevent cracking; a product that enables contractors to
obtain acceptable concrete set times in colder temperatures; an admixture that
inhibits corrosion and prolongs the life of concrete structures; and an additive
that improves cement processing efficiency and product quality. In 1999,
Performance Chemicals introduced a new masonry admixture for improving the
freeze/thaw durability of segmental retaining wall units and pavers, and new
structural fiber reinforcements for concrete that provide a corrosion-free
alternative to steel fibers and welded wire mesh.

         Performance Chemicals' specialty building materials prevent water
damage to structures (such as water- and ice-barrier products for residential
use and waterproofing systems for commercial structures) and protect structural
steel against collapse due to fire. In North America, the specialty building
materials product line also manufactures and distributes vermiculite products
used in insulation and other applications. Recent product developments include
liquid-applied waterproofing products and new roof underlayments that provide
protection from ice and wind-driven rain; enhancements to fireproofing products
that make Performance Chemicals' systems more competitive by improving
applicator productivity; and fireproofing products for industrial, petrochemical
and acoustical applications.

                                       5
<PAGE>

         In addition to new product introductions and enhancements described
above, Performance Chemicals looks for growth opportunities in developing
economies, where increases in construction activity and sophistication of
construction practices can increase demand for Performance Chemicals'
construction chemicals and building materials products.

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

         The construction business is cyclical, in response to economic
conditions and construction demand. The construction business is also seasonal
due to weather conditions. Performance Chemicals seeks to increase profitability
and minimize the impact of cyclical downturns in regional economies by
introducing technically advanced higher-performance products, expanding
geographically, and developing business opportunities in renovation construction
markets. Although in recent years these strategies have been successful in
minimizing the impact of cyclicality on Performance Chemicals' construction
business, there can be no assurance that this strategy will continue to succeed,
and such cyclicality could adversely affect its business and results of
operations in the future.

         The raw materials used by the construction chemicals and building
materials product lines can be obtained from multiple sources, including
commodity chemical producers, petroleum companies and paper manufacturers. In
most instances, there are at least two alternative suppliers for each of the
principal raw materials used by these businesses.

         The container products business consists primarily of three product
lines: can sealants and closure sealants for rigid containers, and coatings for
metal packaging. These products are used to assure the quality of packaging and
preserve container contents. Can sealants ensure a hermetic seal between the lid
and the body of beverage, food, aerosol and other cans. Closure sealants are
used to seal pry-off and twist-off metal crowns, as well as roll-on pilfer-proof
and plastic closures for glass and plastic bottles and jars used in beverage and
food applications. Coatings are used in the manufacture of cans and closures to
protect the metal against corrosion, to protect the contents against the
influences of metal, to ensure proper adhesion of sealing compounds to metal
surfaces, and to provide base coats for inks and for decorative purposes. These
products are principally sold to companies that manufacture containers.

                                       6
<PAGE>

         Performance Chemicals is seeking to expand its container product
offerings and improve sales growth through new technologies, such as its
oxygen-scavenging compounds (which absorb oxygen resulting in extended shelf
life) and high barrier materials that limit gas transmission into plastic
packaging. Performance Chemicals is also looking to improve container product
sales through continued growth in developing regions. However, sales growth has
been impacted and will likely be impacted in the future by the trend toward can
systems requiring fewer seams, as well as the increasing use of plastic and
glass containers.

         Competition is based on providing high-quality customer service at
customer sites, as well as on uniform product quality, reliability, the ability
to offer environmentally-friendly products and price. In addition, because of
the relative concentration of the canning and bottling market, maintaining
relationships with leading container manufacturers, canners and bottlers, and
assisting them as they install new production equipment and reengineer
processes, are key elements for success. In 1999, approximately 35% of container
product sales were derived from its top ten customers.

         Although most raw materials used in the container products business,
including resins, rubber and latices, are generally available from multiple
sources, certain raw materials are purchased from single source suppliers. Some
raw materials are also subject to pricing pressures from time to time,
particularly for certain specialty resins. Also, currency devaluations in
developing countries may adversely affect raw material costs and the prices the
business may charge for its products. Performance Chemicals has been successful
in establishing a supply chain organization focused on managing raw material
costs and flow to alleviate some of these pressures. The impact of seasonality
is not significant to the container products business.

         Performance Chemicals' 1999 net sales totaled $748 million (55.3% in
North America, 21.7% in Europe, 16.9% in Asia Pacific and 6.1% in Latin
America), versus $733 million in 1998 and $742 million in 1997. Sales of
specialty construction chemicals accounted for 21% of Grace's total net sales in
1999, and 19% in 1998 and 1997; sales of specialty building materials accounted
for 14% of Grace's total net sales in 1999, 1998 and 1997; and sales of
container products accounted for 16% of Grace's total net sales in 1999, 17% in
1998 and 18% in 1997. At year-end 1999, Performance Chemicals employed
approximately 3,300 people at 64 production facilities (24 in North America, 19
in Asia Pacific, 14 in Europe and 8 in Latin America) and approximately 100
sales offices worldwide. Performance Chemicals' capital expenditures tend to be
relatively lower, and sales and marketing expenditures tend to be relatively
higher, than those of Davison Chemicals.

         Other Businesses and Investments. In January 1999, the Company sold its
Circe biomedical subsidiary to an investment group. Circe was engaged in the
development of bioartificial organs. The Company also owns miscellaneous
businesses and investments.

DISCONTINUED OPERATIONS

         Grace's former Packaging Business was a leading global supplier of
high-performance materials and systems used in packaging food and industrial and
consumer products. The Packaging Business operated in the U.S. and in 45 other
countries throughout the world.



                                       7
<PAGE>

Its principal products were various food packaging products and shrink and
nonshrink films for industrial and consumer products. On March 31, 1998, the
predecessor and former parent company of Grace ("Old Grace") combined its
Packaging Business with Sealed Air Corporation ("Sealed Air"). Old Grace
effected the transaction with Sealed Air by transferring its specialty chemicals
and other non-packaging businesses to Grace, spinning off Grace to Old Grace
shareholders and merging a subsidiary of Old Grace with Sealed Air. For further
information, see Notes 1 and 3 to the Consolidated Financial Statements in the
Financial Supplement.

         In July, 1999, Grace sold substantially all of its interest in Cross
Country Staffing, a provider of temporary nurses and other health care related
services to an affiliate of Charterhouse Group International, Inc., a private
equity firm, and the management of Cross Country Staffing. The transaction was
preceded by Grace's purchase of a minority interest in Cross Country Staffing
held by Nestor Healthcare Group plc. Grace received pretax net cash proceeds of
approximately $103 million as a result of these two transactions.

RESEARCH ACTIVITIES

         Grace's research and development programs are directed toward the
development of new products and processes and the improvement of, and
development of new uses for, existing products and processes. Research is
conducted in all regions, with North America and Europe accounting for the most
activity. Grace's research and development strategy is to develop technology
platforms on which new products will be based, while focusing development
efforts in each business unit on the improvement of existing products and/or the
adaptation of existing products to customer needs.

         Research and development expenses relating to continuing operations
amounted to $42 million in 1999, $47 million in 1998 and $42 million in 1997
(including expenses incurred in funding external research projects). The amount
of research and development expenses relating to government- and
customer-sponsored projects (rather than projects sponsored by Grace) was not
material.

PATENTS AND OTHER INTELLECTUAL PROPERTY MATTERS

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

                                       8
<PAGE>

ENVIRONMENTAL, HEALTH AND SAFETY MATTERS

         Manufacturers of specialty chemicals products, including Grace, are
subject to stringent regulations under numerous U.S. federal, state and local
and foreign environmental, health and safety laws and regulations relating to
the generation, storage, handling, discharge and disposition of hazardous wastes
and other materials. Grace has expended substantial funds to comply with such
laws and regulations and expects to continue to do so in the future. The
following table sets forth Grace's expenditures in the past three years, and its
estimated expenditures in 2000 and 2001, for (i) the operation and maintenance
of environmental facilities and the disposal of wastes with respect to
continuing operations; (ii) capital expenditures for environmental control
facilities relating to continuing operations; and (iii) site remediation:

                        (i)                       (ii)                  (iii)
                   Operation of
                  Facilities and                 Capital                Site
                  Waste Disposal              Expenditures           Remediation
                  --------------              ------------           -----------
                                              (in millions)

1997                    $36                        $7                    $37

1998                     38                         6                     37

1999                     31                         6                     25

2000 (est.)              33                         7                     43

2001 (est.)              38                         7                     38

         Additional material environmental costs may arise as a result of future
legislation or other developments. Grace's earnings, competitive position and
other capital expenditures have not been, and are not expected to be, materially
adversely affected by compliance with environmental requirements. See Note 13 to
the Consolidated Financial Statements and "Management's Discussion and Analysis
of Results of Operations and Financial Condition" in the Financial Supplement.

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

         See Item 3 below for information concerning environmental proceedings
to which Grace is a party.

                                       9
<PAGE>

ITEM 2. PROPERTIES

         Grace operates manufacturing and other types of plants and facilities
(including office and other service facilities) throughout the world. Some of
these plants and facilities are shared by more than one Grace business unit, and
since the disposition of the Packaging Business, some plants and facilities are
shared with Sealed Air Corporation. Grace considers its major operating
properties to be in good operating condition and suitable for their current use.
Although Grace believes that, after taking planned expansion into account, the
productive capacity of its plants and other facilities is generally adequate for
current operations and foreseeable growth, it conducts ongoing, long-range
forecasting of its capital requirements to assure that additional capacity will
be available when and as needed. Accordingly, Grace does not anticipate that its
operations or income will be materially affected by the absence of available
capacity. See Note 19 to the Consolidated Financial Statements and "Management's
Discussion and Analysis of Results of Operations and Financial Condition" in the
Financial Supplement for information regarding Grace's capital expenditures.

         Additional information regarding Grace's properties is set forth in
Item 1 above and in Notes 1, 8 and 13 to the Consolidated Financial Statements.

ITEM 3. LEGAL PROCEEDINGS

         Asbestos Litigation. Grace is a defendant in property damage and bodily
injury lawsuits relating to previously sold asbestos-containing products and
expects that it will be named as a defendant in additional asbestos-related
lawsuits in the future. Grace was a defendant in 50,342 asbestos-related
lawsuits at December 31, 1999 (11 involving claims for property damage and the
remainder involving 105,670 claims for bodily injury), as compared to 45,086
lawsuits at year-end 1998 (14 involving claims for property damage and the
remainder involving 97,017 claims for bodily injury). In most of these lawsuits,
Grace is one of many defendants.

         The plaintiffs in property damage lawsuits generally seek to have the
defendants absorb the cost of removing, containing or repairing the
asbestos-containing materials in the affected buildings. Cumulatively through
December 31, 1999, 140 asbestos property damage cases were dismissed without
payment of any damages or settlement amounts; judgments were entered in favor of
Grace in nine cases (excluding cases settled following appeals of judgments in
favor of Grace); judgments were entered in favor of the plaintiffs in seven
cases for a total of $60.3 million (none of which is on appeal); and 203
property damage cases were settled for a total of $603.8 million.

         Included in the asbestos property damage cases pending against Grace
and others at December 31, 1999 were the following class actions: (i) an action,
conditionally certified by the U.S. Court of Appeals for the Fourth Circuit in
1993 and pending in the U.S. District Court for the District of South Carolina,
covering all public and private colleges and universities in the U.S. whose
buildings contain asbestos materials, which Grace has moved to decertify
(Central Wesleyan College, et al. v. W. R. Grace, et al.). During the fourth
quarter of 1999, the parties agreed to a preliminary settlement of this action
pending final approval by the court; and (ii) a purported class action (Anderson
Memorial Hospital, et al. v. W. R. Grace & Co., et al.), filed in 1992 in the
Court of Common Pleas for Hampton County, South Carolina, on behalf of all

                                       10
<PAGE>

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

         In February 2000 an action filed as a class action lawsuit was filed in
U.S. District Court in Boston, Massachusetts against the Company (Lindholm v. W.
R. Grace & Co.) on behalf of all owners of homes containing Zonolite(R) attic
fill insulation, a product previously sold by Grace that may contain trace
amounts of asbestos. The action seeks damages and equitable relief, including
the removal, replacement and/or disposal of all such insulation. While Grace has
not completed its investigation of the claims described in this lawsuit, Grace
believes that this product is safe for its intended purpose and poses little or
no threat to human health. At this time Grace is not able to assess the extent
of any possible liability related to this matter.

         Cumulatively through December 31, 1999, approximately 14,700 bodily
injury lawsuits involving 32,800 claims were dismissed without payment of any
damages or settlement amounts (primarily on the basis that Grace products were
not involved), and approximately 48,200 such suits involving approximately
124,900 claims were disposed of for a total of $410.3 million.

         Grace previously purchased insurance policies with respect to its
asbestos-related lawsuits and claims. Grace has settled with and been paid by
its primary insurance carriers with respect to both property damage and bodily
injury cases and claims. Grace also has settled with its excess insurance
carriers that wrote policies available for both property damage and bodily
injury cases and claims with the exception of two carriers that wrote policies
Grace believes are available for bodily injury claims. Grace is currently in
litigation with these two excess insurance carriers, whose policies represent
layers of coverage Grace has not yet reached, in the action Maryland Casualty
Co. v. W. R. Grace & Co. (filed April 13, 1988), pending in the U.S. District
Court for the Southern District of New York. Insurance coverage for
asbestos-related liabilities has not been commercially available since 1985.

         Pursuant to settlements with primary-level and excess-level insurance
carriers with respect to asbestos-related claims, Grace received payments
totaling $752.7 million prior to 1997, as well as payments totaling $68.7
million in 1997, $74.0 million in 1998 and $73.1 million in 1999. Under certain
settlements, Grace expects to receive additional amounts from insurance carriers
in the future and has recorded receivables to reflect the expected amounts to be
recovered as asbestos-related claims are paid.

         In the fourth quarter of 1998, Grace changed the period for accruing
for asbestos-related bodily injury claims. Since 1996, Grace had been accruing
for all current asbestos-related bodily injury claims and those expected to be
asserted over the ensuing five-year period. Based on Grace's experience and
recent trends in asbestos bodily injury litigation, Grace believes that it can
now reasonably forecast the number and ultimate cost of all present and future
bodily injury claims expected to be asserted, and now has accrued for this
ultimate cost. Under the new accrual period, Grace's gross aggregate accrual for
asbestos liabilities at December 31, 1999 was $1,084.0 million; this amount
reflects all asbestos-related property damage and bodily injury


                                       11
<PAGE>

cases and claims then pending (except for the Lindholm case referenced above
with respect to Grace's attic fill insulation, which was not filed until
February 2000 and for which insufficient information exists to estimate any
potential liability), as well as all bodily injury claims expected to be filed
in the future.

         Grace's ultimate exposure with respect to its asbestos-related cases
and claims will depend on the actual number and nature of claims filed and the
extent to which insurance will cover damages for which it may be liable, amounts
paid in settlement and litigation costs. At December 31, 1999, Grace had
recorded a receivable of $366.1 million, as well as notes receivable of $5.3
million from insurance carriers, reflecting the estimated recovery from
insurance carriers with respect to pending and projected asbestos cases and
claims, including all projected bodily injury cases as described above. In
Grace's opinion (which is not based on a formal opinion of counsel), it is
probable that recoveries from its insurance carriers, along with other sources
of funds, will be available to satisfy the property damage and bodily injury
cases and claims pending at December 31, 1999, as well as bodily injury claims
expected to be filed in the future.

         See Note 2 to the Consolidated Financial Statements and "Management's
Discussion and Analysis of Results of Operations and Financial Condition" in the
Financial Supplement for additional information.

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

         Grace (together with certain other companies) has been designated a
"potentially responsible party" ("PRP") by the U.S. Environmental Protection
Agency ("EPA") with respect to absorbing the costs of investigating and
remediating pollution at various sites. At year-end 1999, proceedings were
pending with respect to approximately 33 sites as to which Grace has been
designated a PRP. U.S. federal law provides that all PRPs may be held jointly
and severally liable for the costs of investigating and remediating a site.
Grace is also conducting investigatory and remediation activities at sites under
the jurisdiction of state and/or local authorities.

         The EPA is currently conducting an investigation of the air, water and
soil quality in and around Libby, Montana. This investigation was triggered by
newspaper reports of excessive levels of asbestos-related disease related to
Grace's former vermiculite mining activities in the area. This investigation,
which will also include a comprehensive health-screening program, is scheduled
to be completed in the third quarter of 2000. EPA is also reviewing Grace's
present and former vermiculite processing plant operations in other locations.
This investigation is not expected to result in significant sanctions or
material liability to Grace. In addition, on February 22, 2000, a class action
lawsuit was filed in U.S. District Court in Missoula, Montana (Tennison, et al.
v. W.R. Grace & Co., et al) against Grace on behalf of all owners of real
property situated within 12 miles from Libby, Montana that are improved private
properties. The action alleges that the class members have suffered harm in the
form of environmental contamination and loss of property rights resulting from
Grace's former vermiculite mining and processing operations. The complaint seeks
remediation, property damages and punitive damages. While Grace has not
completed its investigation of the claims, it has no reason to believe that its
former activities caused damage to the environment or property. At this time,
the Company is not able to assess the extent of any possible liability related
to this lawsuit.



                                       12
<PAGE>


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

         Grace has been involved in litigation with its insurance carriers,
seeking reimbursement from them for certain amounts for which Grace may be held
liable with respect to such costs. In 1998, Grace entered into a settlement
agreement with one of its carriers and received payment of $57 million. Grace is
a party to two environmental insurance coverage actions pending in the U.S.
District Court for the Southern District of New York. The first is styled
Maryland Casualty Co. v. W. R. Grace & Co. (filed June 21, 1988). Litigation
continues in this case as to a certain primary-level carrier that has not
settled with respect to claims for environmental property damage. The second
case, entitled Uniguard v. W. R. Grace, was filed on December 17, 1997. This
declaratory judgment action seeks a determination concerning the liability of
one excess carrier for bodily injury claims as a result of environmental
contamination. The outcome of these cases, as well as the amounts of any
recoveries that Grace may receive in connection therewith, is presently
uncertain.

         Grace believes that the liabilities for environmental remediation
costs, including costs relating to environmental proceedings, that have been
recorded in Grace's historical financial statements are adequate and,
irrespective of outcome of the insurance litigations referred to above, Grace
believes that the resolution of pending environmental proceedings will not have
a material adverse effect on the consolidated financial position or liquidity of
Grace. For further information, see "Environmental, Health and Safety Matters"
under Item 1 above and "Management's Discussion and Analysis of Results of
Operations and Financial Condition" in the Financial Supplement.

         U.S. Justice Department Lawsuit. The United States and the State of
California, acting through the U.S. Justice Department and the Attorney General
for California, have intervened in a qui tam lawsuit, originally filed in June
1995, pending in the U.S. District Court for the Northern District of California
(United States ex rel. Robert Costa and Ronald Thornburg, et al. v. Baker &
Taylor, Inc., et al.). The amended complaint in this lawsuit alleges that Baker
& Taylor Books, a book wholesaler sold by Grace in 1992, overcharged public
schools, libraries and federal agencies for book sales since at least 1980,
including the period during which Baker & Taylor Books was owned by Grace. Grace
and Baker & Taylor, Inc. (the entity that currently operates Baker & Taylor
Books) have been named as defendants. The lawsuit seeks unspecified actual
damages plus trebled damages under the Federal and California False Claims Acts,
other civil penalties, attorneys' fees and expenses and such other relief as the
Court may deem proper. In June 1999, Baker & Taylor, Inc. settled the claims of
the United States for $3 million. In August 1999, the Court permitted 17
additional states to intervene in this case. The case continues with claims by
the U.S. against Grace and by the states against Grace and Baker & Taylor, Inc.

                                       13
<PAGE>

         Liabilities Relating to National Medical Care. In connection with the
reorganization of a predecessor of the Company ("Grace New York") on September
27, 1996, Grace's former National Medical Care ("NMC") health care businesses
were separated from Grace's other businesses and merged with a subsidiary of
Fresenius A.G., a German corporation. The agreement governing such transactions
provides generally for certain cross-indemnities designed to place with Grace
New York (now a subsidiary of Fresenius A.G.) financial responsibility for the
liabilities of such health care businesses and to place with Grace financial
responsibility for the other liabilities of Grace New York and its other
subsidiaries.

          Under the terms of the transactions, NMC remains responsible for all
liabilities resulting from the investigation by the Office of the Inspector
General ("OIG") of the U.S. Department of Health and Human Services and certain
related matters. In July 1996, an agreement was entered into with the U.S.
government under which, among other things, Grace guaranteed under certain
circumstances the payment obligations of NMC and its affiliates to the U.S.
government arising out of the OIG investigation with respect to acts and
transactions taking place prior to September 27, 1996. In the fourth quarter of
1999, Fresenius Medical Care A.G. ("Fresenius") entered into a preliminary
agreement with the U.S. government settling the OIG and related claims. In
January, 2000 Fresenius announced that it had finalized this settlement
agreement and agreed to pay the U.S. government $486 million in full settlement
of these claims. Grace does not expect that there will be any impact on its
financial condition or results of operations as a result of this settlement.

         See Note 13 to the Consolidated Financial Statements for additional
information concerning certain litigation and proceedings involving NMC.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         This Item is inapplicable, as no matters were submitted to a vote of
the Company's security holders during the fourth quarter of 1999.

EXECUTIVE OFFICERS

The Company's current executive officers are listed below. Executive officers
are elected to serve until the following annual meeting of the Company's Board
of Directors. The next annual meeting of the Company's Board of Directors is
scheduled to be held on May 10, 2000.

     Name and Age                       Office                First Elected
     ------------                       ------                -------------

Robert J. Bettacchi (57)     Senior Vice President               04/01/97

William M. Corcoran (50)     Vice President                      05/11/99

W. Brian McGowan (50)        Senior Vice President               12/06/90*

William L. Monroe (58)       Vice President                      05/11/87*

                                       14
<PAGE>

Paul J. Norris (52)          Chairman,                           01/01/99
                             President and Chief                 11/01/98
                             Executive Officer

David B. Siegel (51)         Senior Vice President and           09/01/98*
                             General Counsel

Robert M. Tarola (49)        Senior Vice President and           05/11/99
                             Chief Financial Officer

*  Designated an Executive Officer on July 9, 1998

         Messrs. Bettacchi, McGowan, Monroe and Siegel have been actively
engaged in Grace's business for the past five years. Prior to joining Grace, Mr.
Corcoran had served as Vice President of Business and Regulatory Affairs for
AlliedSignal Incorporated's specialty chemicals business since 1997. For nine
years prior to that, he served as Vice President of Public Affairs in
AlliedSignal's engineered materials sector. Mr. Norris was a Senior Vice
President of AlliedSignal and President of its specialty chemicals business from
January 1997 until joining Grace. Mr. Norris joined AlliedSignal in 1989 as
President of its fluorine products/chemicals and catalysts businesses. Mr.
Tarola joined Grace from MedStar Health, Inc., where he had served as Senior
Vice President and Chief Financial Officer since July 1998. He previously served
in a similar capacity with Helix Health, Inc. for two years. From 1974 through
1996, Mr. Tarola was an employee of and partner in Price Waterhouse LLP.

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.

         Except as provided below, the information called for by this Item
appears in the Financial Supplement under the heading "Financial Summary"
opposite the caption "Other Statistics - Common shareholders of record" (page
F-29); under the heading "Quarterly Summary and Statistical Information -
Unaudited" opposite the caption "Market price of common stock" (page F-28); and
in Note 14 to the Consolidated Financial Statements (page F-21).

         On March 31, 1998, the Company paid a dividend, in respect of each
share of the Company's Common Stock, par value $.01 per share ("Common Stock"),
of one Preferred Stock Purchase Right ("Right"). The Rights are not and will not
become exercisable unless and until certain events occur (as described below).
Until such events occur, the Rights will automatically trade with the Common
Stock, and separate certificates for the Rights will not be distributed. The
Rights will become exercisable on the earlier to occur of (a) 10 days after a
person or group ("Acquiring Person") has acquired beneficial ownership of 20% or
more of the then outstanding shares of Common Stock or (b) 10 business days (or
such later date as may be fixed by the Company's Board of Directors) after an
Acquiring Person commences (or announces the intention to commence) a tender
offer or exchange offer that would result in such Acquiring Person becoming the
beneficial owner of 20% or more of the then outstanding shares of Common Stock.
Holders of Rights, as such, have no rights as shareholders of the Company;



                                       15
<PAGE>

consequently, such holders have no rights to vote or receive dividends, among
other things.

         When the Rights become exercisable, each Right will initially entitle
the holder to buy from the Company one hundredth of a share of the Company's
Junior Participating Preferred Stock, par value $.01 per share ("Junior
Preferred Stock"), for $100, subject to adjustment ("exercise price"). If a
person or group becomes an Acquiring Person, each Right will entitle the holder
to receive upon exercise, in lieu of shares of Junior Preferred Stock, that
number of shares of Common Stock having a market value of two times the exercise
price of the Right. If, at any time after a person or group becomes an Acquiring
Person, the Company is acquired in a merger or other business combination or 50%
or more of the Company's consolidated assets or earning power is sold, each
Right not owned by an Acquiring Person will entitle the holder to buy a number
of shares of common stock of the acquiring company having a market value equal
to twice the exercise price.

         Shares of Junior Preferred Stock that may be purchased upon exercise of
the Rights will not be redeemable. Each share of Junior Preferred Stock will be
entitled to a minimum preferential quarterly dividend payment of $1.00 per share
but will be entitled to an aggregate dividend equal to 100 times the dividend
declared per share of Common Stock whenever such dividend is declared. In the
event of liquidation, holders of Junior Preferred Stock will be entitled to a
minimum preferential liquidation payment of $100 per share but will be entitled
to an aggregate payment equal to 100 times the payment made per share of Common
Stock. Each share of Junior Preferred Stock will have 100 votes, voting together
with the Common Stock. Finally, in the event of any merger, consolidation or
other transaction in which the Common Stock is exchanged, each share of Junior
Preferred Stock will be entitled to receive an amount equal to 100 times the
amount received per share of Common Stock. These rights are protected by
customary antidilution provisions.

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

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

         At any time prior to the acquisition by a person or group of beneficial
ownership of 20% or more of the outstanding shares of Common Stock, the
Company's Board of Directors may redeem the Rights in whole, but not in part, at
a price of $.01 per Right.

         The terms of the Rights may be amended by the Company's Board of
Directors without the consent of the holders of the Rights, including an
amendment to lower (a) the threshold at which a person becomes an Acquiring
Person and (b) the percentage of Common Stock proposed


                                       16
<PAGE>

to be acquired in a tender or exchange offer that would cause the Rights to
become exercisable, to not less than the greater of (a) the sum of .001% plus
the largest percentage of the Company's outstanding Common Stock then known to
the Company to be beneficially owned by any person or group and (b) 10%, except
that, from and after such time as any person or group becomes an Acquiring
Person, no such amendment may adversely affect the interests of the holders of
the Rights.

         The Rights are currently scheduled to expire on March 31, 2008 (subject
to extension or the earlier redemption or exchange of the Rights).

         The foregoing summary of the Rights does not purport to be complete and
is qualified in its entirety by reference to the Rights Agreement, which was
filed as an Exhibit 4.1 to the Company's Form 8-K filed on April 9, 1998.

ITEM 6. SELECTED FINANCIAL DATA

         The information called for by this Item appears under the heading
"Financial Summary" (page F-29 of the Financial Supplement) and in Notes 2, 3,
10, 13 and 15 to the Consolidated Financial Statements (pages F-9, F-11, F-16,
F-19 and F-21 of the Financial Supplement) which is incorporated herein by
reference. In addition, Exhibit 12 to this Report (page F-42 of the Financial
Supplement) contains the ratio of earnings to fixed charges and combined fixed
charges and preferred stock dividends for Grace for the years 1995-1999.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
        FINANCIAL CONDITION

         The information called for by this Item appears on pages F-30 to F-40
of the Financial Supplement, which is incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The information called for by this Item appears in Notes 10 and 11 to
the Consolidated Financial Statements (pages F-16 and F-17 of the Financial
Supplement), which is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         See the Index to Consolidated Financial Statements and Financial
Statement Schedule and Exhibit on page F-1 of the Financial Supplement, which is
incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
        ACCOUNTING AND FINANCIAL DISCLOSURE

         This Item is inapplicable, as no such changes or disagreements have
occurred.

                                       17
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         Except for the information regarding the Company's executive officers
(see pages 14 and 15), the information called for by this Item is incorporated
in this Report by reference to the definitive Proxy Statement for the Company's
2000 Annual Meeting of Stockholders, except for information not deemed to be
"soliciting material" or "filed" with the Commission, information subject to
Regulation 14A or 14C under the Securities Exchange Act of 1934 ("Exchange Act")
or information subject to the liabilities of Section 18 of the Exchange Act.

ITEM 11. EXECUTIVE COMPENSATION.

         See response to Item 13 below.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         See response to Item 13 below

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information called for by Items 11, 12 and 13 is incorporated in
this Report by reference to the Definitive Proxy Statement for the Company's
2000 Annual Meeting of Stockholders, except for information not deemed to be
"soliciting material" or "filed" with the Commission, information subject to
Regulations 14A or 14C under the Exchange Act or information subject to the
liabilities of Section 18 of the Exchange Act.

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

         Financial Statements and Schedules. See the Index to Consolidated
Financial Statements and Financial Statement Schedule and Exhibit on page F-1 of
the Financial Supplement.

         Reports on Form 8-K. The Company did not file any Reports on Form 8-K
during the fourth quarter of 1999.

         Exhibits. The exhibits to this Report are listed below. Other than
exhibits that are filed herewith, all exhibits listed below are incorporated by
reference. Exhibits indicated by an asterisk (*) are the management contracts
and compensatory plans, contracts or arrangements



                                       18
<PAGE>

required to be filed as exhibits to this Report.

         For purposes of describing these exhibits, "Old Grace" means W. R.
Grace & Co., a Delaware corporation (subsequently renamed Sealed Air
Corporation), a predecessor to the Company, and "Grace New York" means W. R.
Grace & Co., a New York corporation (subsequently renamed Fresenius Medical Care
Holdings, Inc.), a predecessor to Old Grace. See Note 1 to the Consolidated
Financial Statements in the Financial Supplement for a description of the
reorganizations of the Company and its predecessors.

<TABLE>
<CAPTION>
  EXHIBIT
     NO.                       EXHIBIT                                           WHERE LOCATED
     ---                       -------                                           -------------
<S>           <C>                                                        <C>
    2.1       Form of Distribution Agreement, by and                     Annex B to the Joint Proxy
              among Old Grace, W. R. Grace & Co.-Conn.                   Statement/Prospectus dated
              and Grace Specialty Chemicals, Inc. (now                   February 13, 1998 of Old Grace
              named W. R. Grace & Co.)                                   and Sealed Air Corporation
                                                                         included in Form S-4 (filed
                                                                         2/13/98)

    3.1       Restated Certificate of Incorporation of                   Exhibit 3.1 to Form 8-K (filed
              W. R. Grace & Co.                                          4/9/98)

    3.2       Amended and Restated By-laws of W. R.                      Exhibit 3.2 to Form 10-K (filed
              Grace & Co.                                                3/29/99)

    4.1       Rights Agreement dated as of March 31,                     Exhibit 4.1 to Form 8-K (filed
              1998 between W. R. Grace & Co. and The                     4/9/98)
              Chase Manhattan Bank, as Rights Agent

    4.2       Indenture dated as of September 29, 1992                   Exhibit 4(a) to Registration
              among W. R. Grace & Co.-Conn., Grace                       Statement No. 33-43566 on
              New York and Bankers Trust Company                         Form S-3 (filed 10/29/91)

    4.3       Supplemental Indenture dated as of                         Exhibit 4.4 to Form 8-K of Old
              September 24, 1996, among W. R. Grace &                    Grace (filed 10/10/96)
              Co.-Conn., Grace New York, Old Grace and
              Bankers Trust Company, to Indenture dated
              as of September 29, 1992

    4.4       Indenture dated as of January 28, 1993                     Exhibit 4(a) to Registration
              among W. R. Grace & Co.-Conn., Grace                       Statement No. 33-55392 on
              New York and The Bank of New York                          Form S-3 (filed 12/4/92)
              (successor to NationsBank of Georgia, N.A.)

    4.5       Supplemental Indenture dated as of                         Exhibit 4.5 to Form 8-K of Old
              September 24, 1996, among W. R. Grace &                    Grace (filed 10/10/96)
              Co.-Conn., Grace New York, Old Grace, and
              The Bank of New York, to Indenture dated as
              of January 28, 1993

                                       19
<PAGE>

    4.6       Credit Agreement dated as of May 14, 1998,                 Exhibit 4.1 to Form 10-Q (filed
              among W. R. Grace & Co.-Conn., W. R.                       8/14/98)
              Grace & Co., the several banks parties
              thereto; the co-agents signatories thereto;
              The Chase Manhattan Bank, as administrative
              agent for such banks; and Chase Securities
              Inc., as arranger

    4.7       364-Day Credit Agreement, dated as of May                  Exhibit 4.1 to Form 10-Q (filed
              5, 1999, among W. R. Grace & Co.-Conn.;                    8/3/99)
              W. R. Grace & Co.; the several banks parties
              thereto; the co-agents signatories thereto;
              Bank of America National Trust and Savings
              Association, as documentation agent; The
              Chase Manhattan Bank, as administrative
              agent for such banks; and Chase Securities
              Inc., as book manager

   10.1       Form of Employee Benefits Allocation                       Exhibit 10.1 to Form 10 (filed
              Agreement, by and among Old Grace, W. R.                   3/13/98)
              Grace & Co.-Conn. and Grace Specialty
              Chemicals, Inc. (now named W. R. Grace &
              Co.)

   10.2       Form of Tax Sharing Agreement, by and                      Exhibit 10.2 to Form 10 (filed
              among Old Grace, W. R. Grace & Co.-Conn.                   3/13/98)
              and Grace Specialty Chemicals, Inc. (now
              named W. R. Grace & Co.)

   10.3       Form of W. R. Grace & Co. 1998 Stock                       Annex C to the Information
              Incentive Plan                                             Statement of Grace Specialty
                                                                         Chemicals, Inc. (now named W. R.
                                                                         Grace & Co.) dated February
                                                                         13, 1998 including the Form 10 of
                                                                         Grace filed 3/13/98 ("Information
                                                                         Statement")*

   10.4       Form of W. R. Grace & Co. 1998 Stock Plan                  Annex D to Information
              for Nonemployee Directors                                  Statement*

   10.5       W. R. Grace & Co. 1996 Stock Incentive                     Exhibit 10.4 to Form 10-Q
              Plan, as amended                                           (filed 5/15/98)*

   10.6       W. R. Grace & Co. 1996 Stock Retainer Plan                 Exhibit 10.2 for Form 8-K of Old
              for Nonemployee Directors                                  Grace (filed 10/10/96)*

                                       20
<PAGE>

   10.7       W. R. Grace & Co. Supplemental Executive                   Exhibit 10.03 to Form 10-K of Old
              Retirement Plan, as amended                                Grace (filed 3/28/97)*

   10.8       W. R. Grace & Co. Executive Salary                         Exhibit 10.04 to Form 10-K of Old
              Protection Plan, as amended                                Grace (filed 3/28/97)*

   10.9       W. R. Grace & Co. 1981 Stock Incentive                     Exhibit 10.3 to Form 8-K of Old
              Plan, as amended                                           Grace (filed 10/10/96)*

   10.10      W. R. Grace & Co. 1986 Stock Incentive                     Exhibit 10.4 to Form 8-K of Old
              Plan, as amended                                           Grace (filed 10/10/96)*

   10.11      W. R. Grace & Co. 1989 Stock Incentive                     Exhibit 10.5 to Form 8-K of Old
              Plan, as amended                                           Grace (filed 10/10/96)*

   10.12      W. R. Grace & Co. 1994 Stock Incentive                     Exhibit 10.6 to Form 8-K of Old
              Plan, as amended                                           Grace (filed 10/10/96)*

   10.13      Information concerning W. R. Grace & Co.                   Pages 7-12 and 26-36 of Proxy
              Incentive Compensation Program, Deferred                   Statement of Old Grace (filed
              Compensation Program and Long-Term                         4/7/97)*
              Incentive Program

   10.14      Form of Long-Term Incentive Program                        Exhibit 10.13 to Registration
              Award                                                      Statement on Form S-1 of Old
                                                                         Grace (filed 8/2/96)*

   10.15      Forms of Stock Option Agreements                           Exhibit 10.15 to Form 10-K
                                                                         (filed 3/29/99)*

   10.16      Form of Stock Option Agreements                            Exhibit 10.14 to Registration
                                                                         Statement on Form S-1 of Old
                                                                         Grace (filed 8/2/96)*

   10.17      Form of Stock Option Agreements                            Exhibit 10.5 to Form 10-Q
                                                                         (filed 5/15/98)*

   10.18      Form of Executive Severance Agreement                      Exhibit 10.20 to Form 10 of Grace
              between W. R. Grace & Co. and officers                     Specialty Chemicals, Inc. (now
                                                                         W. R. Grace & Co.) (filed
                                                                         3/13/98)*

   10.19      Form of Restricted Share Award Agreements                  Exhibit 10.1 in Form 10-Q (filed
              dated April 7, 1998                                        5/15/98)*

   10.20      Employment Agreement, dated October 26,                    Exhibit 10.1 in form 10-Q (filed
              1998, by and between W. R. Grace & Co.                     11/13/98)*
              and Paul J. Norris

                                       21
<PAGE>

   10.21      Employment Agreement dated May 11, 1998                    Exhibit 10.1 to Form 10-Q (filed
              between W. R. Grace & Co.-Conn. and                        8/13/99)*
              Robert M. Tarola

   10.22      Letter Agreement dated June 10, 1999                       Filed herewith*
              between Paul J. Norris, on behalf of W. R.
              Grace & Co., and David B. Siegel

   10.23      Letter Agreement dated April 1, 1999                       Filed herewith*
              between Paul J. Norris, on behalf of W. R.
              Grace & Co., and W. Brian McGowan

   10.24      Distribution Agreement by and among Grace                  Exhibit 2 to Form 8-K of Grace
              New York, W. R. Grace & Co.-Conn. and                      New York (filed 2/6/96)
              Fresenius AG dated February 4, 1996

   10.25      Form of Indemnification Agreement between                  Exhibit 10.39 to Registration
              W. R. Grace & Co. and certain directors                    Statement on Form S-1 of Old
                                                                         Grace (filed 8/2/96)*

   10.26      Form of Indemnification Agreement between                  Exhibit 10.37 to Form 10-K of Old
              W. R. Grace & Co. and certain officers and                 Grace (filed 3/28/97)*
              directors

    12        Computation of Ratio of Earnings and Fixed                 Filed herewith in Financial
              Charges and Combined Fixed Charges and                     Supplement to Grace 1999 10-K
              Preferred Stock Dividends

    21        List of Subsidiaries of W. R. Grace & Co.                  Filed herewith

    23        Consent of Independent Accountants                         Filed herewith in Financial
                                                                         Supplement to Grace 1999 10-K

    24        Powers of Attorney                                         Filed herewith

    27        Financial Data Schedules                                   [Filed Electronically Only]
</TABLE>



                                       22
<PAGE>



                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereto duly authorized.

                                W. R. GRACE & CO.

                                                By  /s/ Robert M. Tarola
                                                    ------------------------
                                                        Robert M. Tarola
                                                (Senior Vice President and
                                                Chief Financial Officer)

Dated:  March 28, 2000

         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 March 28, 2000.

Signature                                Title
---------                                -----
P. J. Norris                   President and Director
                               (Principal Executive Officer)

J. F. Akers*             }
R. C. Cambre*            }
M. A. Fox*               }     Directors
J. J. Murphy*            }
T. A. Vanderslice*       }

/s/ Robert M. Tarola           Senior Vice President and Chief Financial Officer
    (Robert M. Tarola)         (Principal Financial Officer and Principal
                               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)





                                       23



<PAGE>

                              FINANCIAL SUPPLEMENT

                                W. R. GRACE & CO.
                           ANNUAL REPORT ON FORM 10-K
                      FOR THE YEAR ENDED DECEMBER 31, 1999


<PAGE>


                              FINANCIAL SUPPLEMENT
                                       TO
         ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999

                       W. R. GRACE & CO. AND SUBSIDIARIES

                   Index to Consolidated Financial Statements
                  and Financial Statement Schedule and Exhibit

Report of Independent Accountants on Financial Statement Schedule... F-2
Consent of Independent Accountants.................................. F-2
Management's Responsibility for Financial Reporting................. F-3
Report of Independent Accountants................................... F-3
Consolidated Statement of Operations for the three years in the
     period ended December 31, 1999................................. F-4
Consolidated Statement of Cash Flows for the three years in the
     period ended December 31, 1999................................. F-5
Consolidated Balance Sheet at December 31, 1999 and 1998............ F-6
Consolidated Statement of Shareholders' Equity for the three
     years in the period ended December 31, 1999.................... F-7
Consolidated Statement of Comprehensive Income (Loss) for the three
     years in the period ended December 31, 1999.................... F-7
Notes to Consolidated Financial Statements.......................... F-8 - F-27
Quarterly Summary and Statistical Information....................... F-28
Financial Summary................................................... F-29
Management's Discussion and Analysis of Results of Operations
     and Financial Condition........................................ F-30 - F-40
Financial Statement Schedule
     Schedule II  -  Valuation and Qualifying Accounts and Reserves. F-41

Exhibit 12:  Computation of Ratio of Earnings to Fixed Charges and
     Combined Fixed Charges and Preferred Stock Dividends........... F-42

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-1
<PAGE>



REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE

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

Our audits of the consolidated financial statements referred to in our report
dated February 1, 2000 appearing on page F-3 of this 1999 Annual Report on Form
10-K of W. R. Grace & Co. also included an audit of the Financial Statement
Schedule listed on page F-1 in the Index to Consolidated Financial Statements
and Financial Statement Schedule and Exhibit of this Form 10-K. In our opinion,
this Financial Statement Schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.

PricewaterhouseCoopers LLP
Baltimore, Maryland
February 1, 2000

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-8 (Nos. 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 February 1, 2000 appearing
on page F-3 of this 1999 Annual Report on Form 10-K of W. R. Grace & Co. We also
consent to the incorporation by reference of our report on the Financial
Statement Schedule, which appears above.

PricewaterhouseCoopers LLP
Baltimore, Maryland
March 29, 2000



                                      F-2
<PAGE>


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
generally accepted accounting principles and accordingly includes certain
amounts that represent management's best estimates and judgments. Actual amounts
could differ from those estimates.

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

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

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

Paul J. Norris                                       Robert M. Tarola
Chairman, President and                              Senior Vice President and
Chief Executive Officer                              Chief Financial Officer

REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the accompanying consolidated financial statements appearing on
pages F-4 through F-27 of this report present fairly, in all material respects,
the financial position of W. R. Grace & Co. and its subsidiaries at December 31,
1999 and 1998, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

PricewaterhouseCoopers LLP
Baltimore, Maryland
February 1, 2000


                                      F-3
<PAGE>


CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

=========================================================================================================================
W. R. GRACE & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS                                                YEAR ENDED DECEMBER 31,
=========================================================================================================================
<S>                                                                          <C>             <C>              <C>
Amounts in millions, except per share amounts                                1999            1998             1997
                                                                        -------------------------------------------------


Net sales.......................................................          $  1,471.9    $  1,463.4       $  1,478.4
Other income....................................................                56.7          36.4             54.8
                                                                        -------------------------------------------------

                                                                             1,528.6       1,499.8          1,533.2
                                                                        -------------------------------------------------

Cost of goods sold, exclusive of depreciation and amortization
    shown separately below......................................               856.2         883.4            915.9
Selling, general and administrative expenses....................               321.3         321.4            376.8
Research and development expenses ..............................                42.4          47.4             42.4
Depreciation and amortization ..................................                89.2          92.1             94.8
Interest expense and related financing costs ...................                16.1          19.8             21.2
Provision for restructuring and asset impairments...............                --            21.0             47.8
Net insurance recovery on environmental remediation ............                --           (38.2)            --
Provision for asbestos-related litigation ......................                --           376.1             --
Gain on sale of businesses .....................................                --            --             (103.1)
                                                                        -------------------------------------------------
                                                                             1,325.2       1,723.0          1,395.8
                                                                        -------------------------------------------------
Income (loss) from continuing operations before income taxes....               203.4        (223.2)           137.4
(Provision for) benefit from income taxes ......................               (73.2)         74.0            (51.5)
                                                                        -------------------------------------------------
    INCOME (LOSS) FROM CONTINUING OPERATIONS....................               130.2        (149.2)            85.9
Income from discontinued operations, net of tax ................                 5.7           0.9            175.1
                                                                        -------------------------------------------------
Income (loss) before extraordinary item ........................               135.9        (148.3)           261.0
Extraordinary item - loss from early extinguishment of debt, net
    of tax......................................................                --           (35.3)            --
                                                                        -------------------------------------------------

    NET INCOME (LOSS)...........................................          $    135.9    $   (183.6)      $    261.0
=========================================================================================================================

BASIC EARNINGS PER SHARE:
    Continuing operations ......................................          $    1.84     $   (2.00)      $     1.16
    Net income (loss) ..........................................          $    1.92     $   (2.46)      $     3.53

Weighted average number of basic shares ........................               70.7          74.6             74.0

DILUTED EARNINGS PER SHARE:
    Continuing operations ......................................          $    1.76     $   (2.00)      $     1.13
    Net income (loss)...........................................          $    1.84     $   (2.46)      $     3.45

Weighted average number of diluted shares ......................               73.8          74.6             75.7
=========================================================================================================================
</TABLE>

  The Notes to Consolidated Financial Statements are an integral part of these
                                  statements.

                                      F-4
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
W. R. GRACE & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS                                                            YEAR ENDED DECEMBER 31,
====================================================================================================================================
<S>                                                                                     <C>               <C>             <C>
Dollars in millions                                                                     1999              1998            1997
                                                                                  --------------------------------------------------
OPERATING ACTIVITIES
Income (loss) from continuing operations before income taxes ....................    $    203.4      $    (223.2)    $     137.4
Reconciliation to cash  provided by (used for) operating activities:
     Depreciation and amortization ..............................................          89.2             92.1            94.8
     Provision for asbestos-related litigation...................................          --              376.1            --
     Provision for restructuring and asset impairments...........................          --               21.0            47.8
     Gain on sales of businesses.................................................          --               --            (103.1)
     Gain on disposal of assets .................................................         (13.6)            --              --
     Changes in assets and liabilities, excluding effect of businesses
         acquired/divested and foreign currency exchange:
      Decrease (increase) in notes and accounts receivable, net..................           0.5             85.7           (70.2)
      (Increase) decrease in inventories ........................................          (5.7)             0.5            (7.9)
      Decrease (increase) in subordinated interest of accounts receivable sold ..          37.0            (65.1)           --
      (Decrease) increase in accounts payable ...................................          (0.3)            15.3           (26.3)
      Increase (decrease) in accrued liabilities ................................          12.6           (157.1)          (94.8)
      Expenditures for asbestos-related litigation ..............................        (115.9)          (238.7)         (142.8)
      Proceeds from asbestos-related insurance ..................................          73.1             74.0            68.7
      Expenditures for environmental remediation ................................         (17.8)           (28.9)          (31.1)
      Expenditures for postretirement benefits ..................................         (19.6)           (21.0)          (19.7)
      Other .....................................................................         ( 8.3)            (8.1)           59.5

                                                                                  --------------------------------------------------
     NET PRE-TAX CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES
       OF CONTINUING OPERATIONS..................................................         234.6            (77.4)          (87.7)
Net pre-tax cash (used for) provided by operating activities of discontinued
     operations..................................................................         (42.9)           (66.0)          333.4

                                                                                  --------------------------------------------------
     NET PRE-TAX CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES ...............         191.7           (143.4)          245.7
Income taxes paid, net of refunds ...............................................         (54.4)            70.7            (9.3)
                                                                                  --------------------------------------------------
     NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES .......................         137.3            (72.7)          236.4
                                                                                  --------------------------------------------------

INVESTING ACTIVITIES
Capital expenditures ............................................................         (82.5)          (100.9)         (258.7)
Businesses acquired in purchase transactions, net of cash acquired ..............          (9.4)            --             (17.2)
Net investing activities of discontinued operations .............................         (54.1)           (14.3)          (70.7)
Net proceeds from divestments of businesses .....................................         184.6              3.9           695.5
Proceeds from disposals of assets ...............................................          40.6              3.1            21.2
                                                                                  --------------------------------------------------
     NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES .......................          79.2           (108.2)          370.1
                                                                                  --------------------------------------------------

FINANCING ACTIVITIES
Repayments of borrowings having original maturities in excess of three months ...          --             (698.5)         (162.3)
Borrowings having original maturities of three months or less, net of repayments           18.7           (331.3)         (142.0)
Proceeds from the exercise of stock options .....................................          26.6             52.0            60.1
Purchase of treasury stock ......................................................         (95.3)           (82.2)         (335.9)
Net financing activity of discontinued operations ...............................         (27.5)         1,256.6            --
Dividends paid ..................................................................          --               --             (41.2)
                                                                                  --------------------------------------------------
     NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES .......................         (77.5)           196.6          (621.3)
                                                                                  --------------------------------------------------

Effect of currency exchange rate changes on cash and cash equivalents ...........          (4.5)             2.0            (5.9)
                                                                                  --------------------------------------------------
     INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...........................         134.5             17.7           (20.7)
     CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ...............................          65.3             47.6            68.3
                                                                                  --------------------------------------------------
     CASH AND CASH EQUIVALENTS, END OF YEAR .....................................    $    199.8      $      65.3     $      47.6
====================================================================================================================================
</TABLE>

  The Notes to Consolidated Financial Statements are an integral part of these
                                  statements.


                                      F-5
<PAGE>

<TABLE>
<CAPTION>

===============================================================================================================================
W. R. GRACE & CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET                                                                           DECEMBER 31,
===============================================================================================================================
<S>                                                                                             <C>                <C>
Amounts in millions, except par value and shares                                                1999               1998
                                                                                         --------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents ...................................................            $         199.8    $          65.3
Notes and accounts receivable, net ..........................................                      193.6              196.9
Inventories .................................................................                      128.2              130.1
Deferred income taxes .......................................................                      111.7               81.0
Asbestos-related insurance expected to be realized within one year ..........                       75.2               66.7
Other current assets.........................................................                       71.3               85.6
                                                                                         --------------------------------------
     TOTAL CURRENT ASSETS ...................................................                      779.8              625.6

Properties and equipment, net of accumulated depreciation and
     amortization of $908.3 (1998 - $879.1) .................................                      617.3              661.4
Goodwill, less accumulated amortization of $7.2 (1998 - $9.8) ...............                       25.4               37.8
Cash value of life insurance policies, net of policy loans...................                       81.6               77.0
Deferred income taxes .......................................................                      345.8              406.9
Asbestos-related insurance expected to be realized after one year............                      296.2              376.3
Other assets ................................................................                      346.5              388.8
                                                                                         --------------------------------------
     TOTAL ASSETS ...........................................................            $       2,492.6    $       2,573.8
                                                                                         ======================================

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt .............................................................            $          13.0    $          80.6
Accounts payable ............................................................                      124.1              123.7
Income taxes payable ........................................................                      118.7              135.3
Asbestos-related liability expected to be satisfied within one year..........                      199.3               95.5
Other current liabilities ...................................................                      286.3              206.7
                                                                                         --------------------------------------
     TOTAL CURRENT LIABILITIES ..............................................                      741.4              641.8

Long-term debt ..............................................................                      123.2               32.8
Deferred income taxes .......................................................                       20.5               24.5
Asbestos-related liability expected to be satisfied after one year ..........                      884.7            1,104.4
Other liabilities ...........................................................                      566.2              682.7
                                                                                         --------------------------------------
     TOTAL LIABILITIES ......................................................                    2,336.0            2,486.2
                                                                                         --------------------------------------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY
Common stock issued, par value $.01; 300,000,000 shares authorized;
     outstanding: 1999 - 69,414,000; 1998 - 72,503,000 ......................                        0.8                0.7
Paid in capital .............................................................                      422.6              409.3
Accumulated deficit..........................................................                      (81.2)            (157.6)
Deferred compensation trust .................................................                       (0.6)              (0.8)
Treasury stock, at cost:  6,628,500 common shares (1998 - 5,149,100) ........                      (89.1)             (83.1)
Accumulated other comprehensive loss ........................................                      (95.9)             (80.9)
                                                                                         --------------------------------------
     TOTAL SHAREHOLDERS' EQUITY .............................................                      156.6               87.6
                                                                                         --------------------------------------
     TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .............................            $       2,492.6    $       2,573.8
===============================================================================================================================
</TABLE>

  The Notes to Consolidated Financial Statements are an integral part of these
                                  statements.



                                      F-6
<PAGE>

<TABLE>
<CAPTION>
=================================================================================================================================
W. R. GRACE & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
=================================================================================================================================

                                   Common Stock     Retained                                    Accumulated
                                        and         Earnings       Deferred                        Other            TOTAL
                                      Paid in     (Accumulated   Compensation     Treasury     Comprehensive     SHAREHOLDERS'
Dollars in millions                   Capital       Deficit)         Trust         Stock       Income (Loss)        EQUITY
---------------------------------------------------------------------------------------------------------------=================
<S>                                <C>           <C>            <C>             <C>          <C>               <C>
BALANCE, DECEMBER 31, 1996         $    524.9    $     172.6    $      --       $    (0.5)   $          (64.6) $       632.4
Net income ...................           --            261.0           --            --                  --            261.0
Dividends paid................           --            (41.2)          --            --                  --            (41.2)
Purchase of common stock .....           --             --             --          (335.9)               --           (335.9)
Shares issued under stock plans          86.8           --             (5.7)          4.7                --             85.8
Retirement of treasury stock..          (47.6)        (284.1)          --           331.7                --             --
Other comprehensive (loss)....           --             --             --            --                (134.2)        (134.2)
                                   ---------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997....     $    564.1    $     108.3    $      (5.7)    $    --      $         (198.8) $       467.9
                                   =============================================================================================

Net loss .....................           --           (183.6)          --            --                  --           (183.6)
Separation of Packaging Business
                                       (233.8)         (82.3)           0.5          --                 119.2         (196.4)
Reclassification of assets in
   deferred compensation trust           --             --              4.2          --                  --              4.2
Purchase of common stock .....           --             --             --           (83.1)               --            (83.1)
Shares issued under stock plans          79.7           --              0.2          --                  --             79.9
Other comprehensive (loss) ...           --             --             --            --                  (1.3)          (1.3)
                                   ---------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998....     $    410.0    $    (157.6)   $      (0.8)    $   (83.1)   $          (80.9) $        87.6
                                   =============================================================================================


Net income ...................           --            135.9           --            --                  --            135.9
Purchase of common stock .....           --             --             --           (94.4)               --            (94.4)
Shares issued under stock plans          42.3           --              0.2          --                  --             42.5
Retirement of treasury stock..          (28.9)         (59.5)          --            88.4                --             --
Other comprehensive (loss)....           --             --             --            --                 (15.0)         (15.0)
                                   ---------------------------------------------------------------------------------------------

BALANCE, DECEMBER 31, 1999....     $    423.4    $     (81.2)   $      (0.6)    $   (89.1)   $          (95.9) $       156.6
================================================================================================================================
</TABLE>

<TABLE>
<CAPTION>
================================================================================================================================
W. R. GRACE & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)                                 YEAR ENDED DECEMBER 31,
================================================================================================================================
Dollars in millions                                                        1999                 1998                1997
                                                                     ------------------------------------------------------------
<S>                                                                    <C>                 <C>                  <C>
Net income (loss)................................................      $  135.9            $  (183.6)           $  261.0
                                                                     ------------------------------------------------------------
Other comprehensive income (loss):
Foreign currency translation adjustments.........................         (19.3)                (7.2)             (134.2)
Net unrealized gains on investments..............................           1.5                 16.5                --
Minimum pension liability adjustments............................           2.8                (10.6)               --
                                                                     ------------------- -------------------- ===================
Total other comprehensive (loss).................................         (15.0)                (1.3)             (134.2)
                                                                     ------------------- -------------------- ===================
Comprehensive income (loss)......................................      $  120.9            $  (184.9)           $  126.8
================================================================================================================================
</TABLE>


      The Notes to Consolidated Financial Statements are an integral part
                              of these statements.




                                      F-7
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions unless otherwise stated)

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

W. R. Grace & Co., through its subsidiaries, is primarily engaged in specialty
chemicals and specialty materials businesses on a worldwide basis. These
businesses consist of catalysts and silica products (Davison Chemicals) and
construction chemicals, building materials and container products (Performance
Chemicals).

W. R. Grace & Co. conducts substantially all of its business through a direct,
wholly owned subsidiary, W. R. Grace & Co.-Conn. (Grace-Conn.). Grace-Conn. owns
substantially all of the assets, properties and rights of W. R. Grace & Co.,
either directly or through subsidiaries. On a consolidated basis, Grace-Conn.'s
statement of operations, statement of cash flows and balance sheet are
substantially the same as those of W. R. Grace & Co.'s as reflected in the
consolidated financial statements included herein.

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.

PACKAGING BUSINESS TRANSACTION: On March 31, 1998, a predecessor of the Company
(Old Grace) completed a transaction in which its flexible packaging business
(Packaging Business) was combined with Sealed Air Corporation (Sealed Air). Old
Grace effected this transaction by transferring its specialty chemicals
businesses along with certain other businesses and assets to the Company (then
named Grace Specialty Chemicals, Inc.), distributing the shares of the Company's
common stock to Old Grace's shareholders on a one-for-one basis (Spin-off) and
merging a subsidiary of Old Grace with Sealed Air (Merger). Immediately
following the Spin-off and Merger, the Company changed its name to "W. R. Grace
& Co." and Old Grace changed its name to "Sealed Air Corporation" (New Sealed
Air). As a result of the transaction, the Packaging Business was classified as a
discontinued operation as of December 31, 1997.

For further information, see Old Grace's Joint Proxy Statement/Prospectus dated
February 13, 1998, the Company's Information Statement dated February 13, 1998
and Note 3.

PRINCIPLES OF CONSOLIDATION: The Consolidated Financial Statements include the
accounts of the Company and majority-owned companies as to which the Company
exercises control over operating and financial policies. Intercompany
transactions and balances are eliminated in consolidation. Investments in
affiliated companies as to which the Company does not exercise control over
operating and financial policies are accounted for under the equity method.

RECLASSIFICATIONS: Certain amounts in prior years' Consolidated Financial
Statements have been reclassified to conform to the 1999 presentation and as
required with respect to discontinued operations.

USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires that management make estimates
and assumptions affecting the assets and liabilities (including contingent
assets and liabilities) reported at the date of the Consolidated Financial
Statements and the revenues and expenses reported for the periods presented.
Actual amounts could differ from those estimates.

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

SALE OF ACCOUNTS RECEIVABLE: Grace enters into transactions to sell certain of
its trade accounts receivable and retains a subordinated interest and servicing
rights. Net losses on the sale of receivables are based on the carrying value of
the assets sold, allocated in proportion to their fair value. Retained interests
are carried at fair value and are included in other current assets in the
Consolidated Balance Sheet. Grace generally estimates fair value based on the
present value of expected future cash flows less management's best estimates of
uncollectible accounts receivable. Grace maintains an allowance for doubtful
accounts receivable based upon the expected collectibility of all trade
receivables, including receivables sold. The allowance is reviewed regularly and
adjusted for accounts deemed uncollectible by management. Expenses and losses
associated with the program are recognized as a component of interest expense
and related financing costs.

                                      F-8
<PAGE>

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

PROPERTIES AND EQUIPMENT: Properties and equipment are stated at cost.
Depreciation of properties and equipment is generally computed using the
straight-line method over the estimated useful life of the asset. Estimated
useful lives range from 20 to 40 years for buildings, 3 to 7 years for
information technology equipment, 3 to 10 years for machinery and equipment and
5 to 10 years for furniture and fixtures. Interest is capitalized in connection
with major project expenditures. Fully depreciated assets are retained in
properties and equipment and related accumulated depreciation accounts until
they are removed from service. In the case of disposals, assets and related
accumulated depreciation are removed from the accounts and the net amount, less
any proceeds from disposal, is charged or credited to income. Grace reviews
long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be fully recoverable.

GOODWILL: Goodwill arises from certain purchase business combinations and is
amortized using the straight-line method over appropriate periods not exceeding
40 years. Grace reviews its goodwill for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be fully recoverable.

REVENUE RECOGNITION: Grace generally recognizes revenue upon shipment of goods
to customers or upon performance of services.

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

CONSOLIDATED STATEMENT OF CASH FLOWS: Balance sheet information relating to a
discontinued business is not restated for periods prior to the date of
classification of a business as a discontinued operation. Accordingly, "Net
pre-tax cash used for operating activities of discontinued operations" excludes
the effects of changes in working capital of discontinued operations prior to
their classification as such. The net investing and financing activities of
discontinued operations represent cash flows of discontinued operations
subsequent to the respective dates of such classifications.

INCOME TAXES: Grace recognizes deferred tax assets and liabilities with respect
to the expected future tax consequences of events that have been recorded in the
Consolidated Financial Statements and tax returns. If it is more likely than not
that all or a portion of deferred tax assets will not be realized, a valuation
allowance is provided against such deferred tax assets.

FOREIGN CURRENCY TRANSLATION: Assets and liabilities of foreign subsidiaries
(other than those located in countries with highly inflationary economies) are
translated into U.S. dollars at current exchange rates, while their revenues,
costs and expenses are translated at average exchange rates during each
reporting period; resulting translation adjustments are included in the
accumulated other comprehensive income (loss) section of the Consolidated
Balance Sheet. The financial statements of subsidiaries located in countries
with highly inflationary economies are remeasured as if the functional currency
were the U.S. dollar; the remeasurement creates translation adjustments that are
reflected in net income.

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

--------------------------------------------------------------------------------
2.   ASBESTOS-RELATED LITIGATION
================================================================================

Grace is a defendant in property damage and bodily injury lawsuits relating to
previously sold asbestos-containing products and expects that it will be named
as a defendant in additional asbestos-related lawsuits in the future. Grace was
a defendant in 50,342 asbestos-related lawsuits at December 31, 1999 (11
involving claims for property damage and the remainder involving 105,670 claims
for bodily injury), as compared to 45,086 lawsuits at December 31, 1998 (14
involving claims for property damage and the remainder involving 97,017 claims
for bodily injury).


PROPERTY DAMAGE LITIGATION

The plaintiffs in property damage lawsuits generally seek to have the defendants
absorb the cost of removing, containing or repairing the asbestos-containing
materials in the affected buildings. Each property damage case is unique in that
the age, type, size and use of the building, and the difficulty of asbestos
abatement, if necessary, vary from structure to structure. Thus, the amounts
involved in prior dispositions of property damage cases are not necessarily
indicative of the amounts that may be required to dispose of cases in the
future. Information regarding product identification, the amount of product in
the building, the age, type,



                                      F-9
<PAGE>

size and use of the building, the jurisdictional history of prior cases and the
court in which the case is pending provide meaningful guidance as to the range
of potential costs. Grace has recorded an accrual for all existing property
damage cases for which sufficient information is available to form a reasonable
estimate of such exposure.


Through December 31, 1999, 140 asbestos property damage cases were dismissed
without payment of any damages or settlement amounts; judgments were entered in
favor of Grace in nine cases (excluding cases settled following appeals of
judgments in favor of Grace); judgments were entered in favor of the plaintiffs
in seven cases for a total of $60.3 million; and 203 property damage cases were
settled for a total of $603.8 million.


================================== ============= =============
PROPERTY DAMAGE CASE ACTIVITY          1999          1998
================================== ============= =============
Cases  outstanding,  beginning of
year .........................          14              18
New cases filed ..............          --               2
Settlements ..................          (3)             (5)
Dismissals ...................          --              (1)
Judgments ....................          --              --
                                   ------------- -------------
  Cases outstanding, end of year        11              14
================================== ============= =============

BODILY INJURY LITIGATION

Bodily injury claims are generally similar to each other (differing primarily in
the type of asbestos-related illness allegedly suffered by the plaintiff).
However, Grace's estimated liability for such claims is influenced by numerous
variables, including the solvency of other former asbestos producers,
cross-claims by co-defendants, the rate at which new claims are filed, the
jurisdiction in which the filings are made, and the defense and disposition
costs associated with these claims. Grace's bodily injury liability reflects
management's estimate of the number and ultimate cost of present and future
bodily injury claims expected to be asserted against Grace given demographic
assumptions of possible exposure to asbestos products manufactured by Grace.


Through December 31, 1999, approximately 14,700 asbestos bodily injury lawsuits
involving approximately 32,800 claims were dismissed without payment of any
damages or settlement amounts (primarily on the basis that Grace products were
not involved), and approximately 48,200 lawsuits involving approximately 124,900
claims were disposed of (through settlement and judgments) for a total of $410.3
million. Bodily injury claim activity for 1999 and 1998 was as follows:


================================== ============ ============
BODILY INJURY CLAIM ACTIVITY          1999         1998
================================== ============ ============

Claims outstanding, beginning of
  year .......................        97,017      96,933
New claims ...................        26,941      20,993
Settlements ..................       (16,174)    (19,503)
Dismissals ..................         (2,109)     (1,399)
Judgments ....................            (5)         (7)
                                   ------------- -------------
  Claims outstanding, end of year    105,670      97,017
================================== ============ ============

ASBESTOS-RELATED LIABILITY

Grace estimates its property damage and bodily injury liabilities based on its
experience with, and recent trends in, asbestos litigation. These estimates
include property damage and bodily injury indemnity as well as defense costs.
Grace regularly evaluates its financial exposure to asbestos-related lawsuits
and the adequacy of related recorded liabilities. The amounts recorded at each
balance sheet date reflect Grace's best estimate of probable and estimable
liabilities in all material respects. However, changes to estimates of probable
liabilities may occur as actual experience is gained over time. In the fourth
quarter of 1998, a change in the accrual period for asbestos-related bodily
injury litigation resulted in a noncash net pre-tax charge of $376.1 million
($244.4 million after-tax). The provision consisted of an addition of $576.9
million to the asbestos liability primarily for bodily injury indemnity and
defense costs, partially offset by expected recoveries from insurance carriers
of $200.8 million ($130.5 million after-tax).

======================================== ========= =========
ESTIMATED LIABILITY FOR ASBESTOS-RELATED
  LITIGATION (Dollars in millions)          1999      1998
======================================== ========= =========

Asbestos-related liability expected to
  be satisfied within one year......     $   199.3 $  95.5
Asbestos-related liability  expected
  to be satisfied after one year....         884.7 1,104.4
                                         --------- ---------
Total asbestos-related liability ...      $1,084.0 $1,199.9
======================================== ========= =========

The current portion of Grace's asbestos-related liability is based on
management's estimate of indemnity payments and defense costs expected to be
paid within one year.

ASBESTOS-RELATED INSURANCE

Grace previously purchased insurance policies with respect to its
asbestos-related lawsuits and claims. Activity in Grace's notes receivable from
insurance carriers and asbestos-related insurance receivable during 1999 and
1998 was as follows:

                                      F-10
<PAGE>

======================================== ========= =========
ESTIMATED INSURANCE RECOVERY ON
ASBESTOS-RELATED LIABILITIES
   (Dollars in millions)                   1999      1998
======================================== ========= =========
NOTES RECEIVABLE
Notes receivable from insurance
  carriers, beginning of year, net of
  discount of $2.3 (1998 - $4.8)  ..     $   18.0  $   31.3
Proceeds received under
  asbestos-related insurance                (14.2)    (15.8)
  settlements ......................
Current year amortization of discount         1.5       2.5
---------------------------------------- --------- ---------
  Notes receivable from insurance
  carriers, end of year, net of
  discount of $0.8
    (1998 - $2.3) ..................          5.3       18.0

---------------------------------------- --------- ---------
INSURANCE RECEIVABLE
Asbestos-related insurance receivable,
  beginning of  year ...............        425.0     282.4
Proceeds received under
  asbestos-related insurance                (58.9)    (58.2)
  settlements ......................
Increase in asbestos-related insurance
  receivable .......................         --       200.8
---------------------------------------- --------- ---------
 Asbestos-related insurance
  receivable, end of  year .........        366.1     425.0
---------------------------------------- --------- ---------
  Total amounts due from insurance
  carriers .........................        371.4     443.0
  Expected to be realized within one
  year .............................        (75.2)   (66.7)
---------------------------------------- --------- ---------
  Expected to be realized after one
  year .............................     $  296.2  $  376.3
======================================== ========= =========

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

The asbestos-related insurance asset represents amounts expected to be received
from carriers under settlement agreements for defense and disposition costs to
be paid by Grace. Estimated insurance reimbursements relate to property damage
and bodily injury cases and claims pending at year-end 1999 and bodily injury
claims expected to be filed in the future.

Notes receivable from insurance carriers do not bear stated interest rates and,
therefore, have been discounted using a weighted average interest rate of 6.7%.
Installments due in 2000 are classified as "current" in the Consolidated Balance
Sheet. Payments under these notes will be received through 2001.

Grace's ultimate exposure with respect to its asbestos-related cases and claims
partly depends on the extent to which its insurance will cover damages for which
it may be held liable, amounts paid in settlement and litigation costs. In
Grace's opinion, it is probable that recoveries from its insurance carriers
(including amounts reflected as an asset discussed above), along with other
funds, will be available to satisfy the property damage and bodily injury cases
and claims pending at December 31, 1999, as well as bodily injury claims
expected to be filed in the future.

--------------------------------------------------------------------------------
3.   DISCONTINUED OPERATIONS
================================================================================

PACKAGING BUSINESS TRANSACTION

As discussed in Note 1, the Spin-off and the Merger were completed on March 31,
1998. Prior to the Spin-off and the Merger, Old Grace and a Packaging Business
subsidiary borrowed $1,258.8 million (inclusive of $2.2 million of bank fees)
and made a cash transfer of $1,256.6 million to Grace, which used the
transferred funds to repay substantially all of Grace's debt (see Note 10). The
borrowed funds are shown as a net financing activity of discontinued operations
in the Consolidated Statement of Cash Flows for 1998. In the Merger and a
related recapitalization, for each Old Grace common share outstanding at the
close of trading on March 31, 1998, each shareholder received .536 shares of New
Sealed Air common stock and .475 shares of New Sealed Air convertible preferred
stock. Upon the completion of the Spin-off and the Merger, the shareholders of
Old Grace owned (a) 100% of the specialty chemicals businesses (through their
ownership of 100% of the Company's outstanding shares) and (b) approximately 63%
of New Sealed Air, on a fully diluted basis.

The Packaging Business transaction resulted in an adjustment to shareholders'
equity of $196.4 million, representing Grace's net investment in the Packaging
Business.

During 1998, Grace made certain amendments to one of its domestic pension plans
which included offering a lump sum settlement option to former Grace employees
not currently receiving benefits. During 1999, a significant number of the lump
sum offers were settled and in accordance with Statement of Financial Accounting
Standards (SFAS) No. 88, "Employers' Accounting for Settlements and Curtailments
of Defined Benefit Plans and for Termination Benefits," the Company recognized a
pre-tax loss of $11.0 million in connection with these settlements. A pre-tax
noncash charge of $9.1 million ($5.7 million after-tax) is included in "Income
from



                                      F-11
<PAGE>

discontinued operations, net of tax" in the Consolidated Statement of Operations
as it relates to settlements with former Packaging Business employees. A pre-tax
noncash charge of $1.9 million is included in selling, general and
administrative expenses in the Consolidated Statement of Operations for
settlements relating to former Grace employees not associated with the former
Packaging Business.

The Packaging Business transaction also required the Company to split certain
pension plans and recognize a net curtailment loss for other plans. In
accordance with SFAS No. 88, the Company recognized a net pre-tax loss of $8.4
million ($5.5 million after-tax) in 1998, in connection with these plans. This
net pre-tax loss is included in "Income from discontinued operations, net of
tax" in the Consolidated Statement of Operations.

CROSS COUNTRY STAFFING

In July 1999, the Company completed the sale of substantially all of its
interest in Cross Country Staffing (CCS), a provider of temporary nursing and
other healthcare services for total cash proceeds of $184.6 million. The
Company's investment in CCS had been accounted for under the equity method. The
sale resulted in a net pre-tax gain of $76.3 million ($32.1 million after-tax)
including the cost of the Company's purchase of the interests held by third
parties in CCS and the amount payable under CCS's phantom equity plan prior to
closing under the sale transaction. The gain and the operations of CCS prior to
the sale are included in "Income from discontinued operations, net of tax" in
the Consolidated Statement of Operations. Certain contingent liabilities,
primarily related to tax matters of CCS, are being retained by the Company and
are included in other current liabilities in the Consolidated Balance Sheet.

COCOA

In February 1997, Grace sold its cocoa business to Archer-Daniels-Midland
Company (ADM) for total proceeds of $477.6 million (including debt assumed by
the buyer), subject to adjustment. The pre-tax and after-tax effects of the
divestment were consistent with prior estimates and were charged against
previously established reserves. In October 1997, ADM paid Grace an additional
$7.9 million (including $0.4 million of interest income) in settlement of the
purchase price adjustment. In anticipation of this settlement, in the third
quarter of 1997 Grace reversed previously recorded provisions of $19.0 million
($12.4 million after-tax) in discontinued operations.

OTHER

In August 1997, Grace sold TEC Systems to Sequa Corporation for total proceeds
of $16.1 million. The loss on this sale was consistent with prior estimates and
was charged against previously established reserves.

RETAINED OBLIGATIONS

Under certain divestiture agreements, the Company has retained contingent
obligations that could develop into situations where accruals for estimated
costs of defense or loss would be recorded in a period subsequent to divestiture
under generally accepted accounting principles. The Company assesses its
retained risks quarterly and accrues amounts estimated to be payable related to
these obligations when probable and estimable.

During the third quarter of 1999, the Company revised its estimate of the
outcome of certain of these retained contingent obligations based on current
circumstances and, as a result, recorded an additional charge of $25.7 million
($16.7 million after-tax). This charge is included in "Income from discontinued
operations, net of tax" in the Consolidated Statement of Operations.



                                      F-12
<PAGE>


 ============================================================
 RESULTS OF DISCONTINUED
 OPERATIONS (Dollars in millions) 1999      1998     1997
 ============================================================
 Net sales .................   $  --       $431.2  $1,833.1
                               ------------------------------
 (Loss) income from
   operations before taxes..     (17.7)      14.7     264.6
 Income tax provision ......       8.0      (13.8)   (101.9)
                               ------------------------------
 (Loss) income from
   discontinued operations .      (9.7)       0.9     162.7
 Net gains on dispositions of
   businesses ..............      76.3         --      19.0
 Provision for income taxes
   on dispositions of
    businesses .............     (44.2)        --      (6.6)
 Other charges, net of tax..     (16.7)        --        --
                               ------------------------------
 TOTAL INCOME FROM
   DISCONTINUED OPERATIONS..   $   5.7    $    0.9 $ 175.1
                               ==============================
 BASIC EARNINGS PER SHARE
   FROM DISCONTINUED
   OPERATIONS...............   $   0.08   $   0.01 $   2.37
 DILUTED EARNINGS PER SHARE
   FROM DISCONTINUED
   OPERATIONS...............   $   0.08   $   0.01 $   2.32
 ============================================================


--------------------------------------------------------------------------------
4.  INCOME TAXES
================================================================================

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

============================ ========== ========= ==========
INCOME TAXES - CONTINUING
  OPERATIONS
  (Dollars in millions)        1999       1998      1997
============================ ========== ========= ==========
Income (loss) from
  continuing operations
  before income taxes:
  Domestic.................   $ 135.9    $(275.8) $   58.9
  Foreign..................      67.5       52.6      78.5
                             ---------- --------- ----------
                              $ 203.4    $(223.2)  $ 137.4
                             ========== ========= ==========
(Provision for) benefit
  from income taxes:
  Federal - current........  $  (21.2)   $  79.2   $  12.3
  Federal - deferred.......     (26.4)      24.5     (30.7)
  State and local - current      (3.5)      (1.3)     (1.0)
  Foreign - current........     (23.1)     (21.9)    (34.5)
  Foreign - deferred.......       1.0       (6.5)      2.4
                             ---------- --------- ----------
                             $  (73.2)   $  74.0  $  (51.5)
============================ ========== ========= ==========

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

============================ ========== ========= ==========
INCOME TAXES -
  CONSOLIDATED OPERATIONS
  (Dollars in millions)        1999       1998      1997
============================ ========== ========= ==========
Income (loss) from
  consolidated operations
  before income taxes:
  Domestic.................    $168.9   $(342.0)   $ 196.0
  Foreign..................      67.5       77.1     225.1
                             ---------- --------- ----------
                               $236.4    $(264.9)  $ 421.1
                             ========== ========= ==========
(Provision for) benefit from
  income taxes:
  Federal - current........   $ (40.7)   $  91.1  $  (18.2)
  Federal - deferred.......     (29.9)      31.2     (47.7)
  State and local - current      (7.8)      (3.6)    (10.4)
  Foreign - current........     (23.1)     (36.4)    (75.9)
  Foreign - deferred.......       1.0       (1.0)     (7.9)
                             ---------- --------- ----------
                             $ (100.5)   $  81.3  $ (160.1)
============================ ========== ========= ==========

<PAGE>

At December 31, 1999 and 1998, net deferred tax assets consisted of the
following items:


====================================== ========== ==========
DEFERRED TAX ANALYSIS
    (Dollars in millions)                1999       1998
====================================== ========== ==========
Liability for asbestos-related
  litigation......................       $ 379.4   $ 419.7
Net operating loss/tax credit carry
  forwards........................          90.6      41.6
Deferred state taxes..............          90.2     106.8
Liability for environmental                 75.4      83.3
  remediation.....................
Other post-retirement benefits....          70.5      74.5
Deferred charges..................          58.6      53.9
Reserves and allowances...........          56.5      73.7
Research and development..........          31.7      35.7
Pension benefit...................          19.8      19.9
Foreign loss/credit carry forwards           8.7       6.0
Other.............................          11.5      15.9
-------------------------------------- ---------- ----------
Total deferred tax assets.........         892.9     931.0
-------------------------------------- ---------- ----------
Asbestos-related insurance receivable     (121.7)   (147.9)
Pension assets....................         (68.2)    (59.1)
Properties and equipment..........         (58.4)    (65.4)
Other.............................         (72.5)    (55.7)
-------------------------------------- ---------- ----------
Total deferred tax liabilities....        (320.8)   (328.1)
-------------------------------------- ---------- ----------
Valuation allowance ..............        (135.7)   (137.2)
-------------------------------------- ---------- ----------
Net deferred tax assets...........       $ 436.4   $ 465.7
====================================== ========== ==========

The valuation allowance shown above arises from uncertainty as to the
realization of certain deferred tax assets, primarily foreign tax credit
carryforwards and state and local net operating loss carryforwards. Based upon
anticipated future results, Grace has concluded that it is more likely than not
that the remaining balance of the net deferred tax assets, after consideration
of the valuation allowance, will be realized.


At December 31, 1999, there were $27.0 million of net operating loss
carryforwards, representing deferred tax assets of $9.5 million, with expiration
dates through 2014, $39.9 million of foreign tax credit carryforwards with
expiration dates through 2005,



                                      F-13
<PAGE>

$6.6 million of general business credit carryforwards with expiration dates
through 2013, and $34.6 million of alternative minimum tax credit carryforwards.

The federal corporate (tax) benefit rate reconciles to the effective (tax)
benefit rate for continuing operations as follows:

========================= =========== =========== ===========
EFFECTIVE TAX RATE
   ANALYSIS                  1999        1998        1997
========================= =========== =========== ===========
Federal corporate (tax)
  benefit rate..........     (35.0)%      35.0%       (35.0)%
Change in tax rate
  resulting from:
Nontaxable
  income/non-deductible       (0.1)        2.4          3.4
  expenses..............
State and local income
  taxes, net of federal
  income tax benefit....      (0.9)       (0.4)        (0.5)
Federal and foreign
  taxes on foreign             0.2       (14.9)        25.5
  operations............
Valuation allowance for
  deferred tax assets...      --          11.1        (30.9)
Other, net..............      (0.2)       --           --
------------------------- ----------- ----------- -----------
Effective (tax) benefit
  rate..................     (36.0%)      33.2%       (37.5)%
========================= =========== =========== ===========

Federal, state, local and foreign taxes have not been provided on approximately
$108.1 million of undistributed earnings of certain foreign subsidiaries, as
such earnings are expected to be retained indefinitely by such subsidiaries for
reinvestment. The distribution of these earnings would result in additional
foreign withholding taxes of approximately $10.4 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 DIVESTMENTS
================================================================================

ACQUISITIONS

On December 22, 1999 Grace acquired Sociedad Petreos S.A.'s "Polchem" concrete
admixture and construction chemicals business from Cemento Polpaico S.A./Chile,
an affiliate of Holderbank of Switzerland. On January 31, 2000 Grace acquired
Crosfield Group's hydroprocessing catalyst business from Imperial Chemical
Industries PLC. These acquisitions have been accounted for as purchase business
combinations, and accordingly, the results of operations of the acquired
businesses have been or will be included in the Consolidated Statement of
Operations from the date of acquisition. Grace does not consider the effects of
either of these acquisitions significant for pro forma disclosure purposes.

During 1997, Grace acquired a manufacturer of flexible food packaging and two
construction chemicals manufacturing businesses. The Packaging Business
acquisitions were subsequently separated from Grace in the March 31, 1998
Packaging Business transaction described in Notes 1 and 3.

DIVESTMENTS

In 1997, Grace realized gross proceeds of $878.9 million from divestments,
including debt assumed by the buyers and payments received in connection with
divestments completed in prior years. In addition to the sale of TEC Systems and
the Grace Cocoa Business (see Note 3), Grace sold its specialty polymers
business to National Starch and Chemical Company (National Starch) for $146.1
million. The sales and revenues of this business from January 1 through May 1,
1997 (the date of sale) were $24.9 million; its financial position and results
of operations were not significant to Grace. The sale of this business resulted
in a pre-tax gain of $103.1 million ($63.0 million after-tax) in continuing
operations.
<PAGE>

--------------------------------------------------------------------------------
6.   OTHER INCOME
================================================================================

Components of other income are as follows:

========================= =========== =========== ===========
OTHER INCOME
 (Dollars in millions)       1999        1998        1997
========================= =========== =========== ===========
Net gain on settlement
  of notes receivable...     $18.5      $ --         $ 15.0
Investment income.......      11.9         8.0          4.0
Net gains on
  dispositions of assets       9.0         3.1          7.2
Tolling revenue.........      --          11.7         14.4
Interest income.........       4.2         4.9          9.2
Other miscellaneous
  income ...............      13.1         8.7          5.0
------------------------- ----------- ----------- -----------
     Total                   $56.7       $36.4        $54.8
========================= =========== =========== ===========


                                      F-14
<PAGE>


--------------------------------------------------------------------------------
7.   OTHER BALANCE SHEET ACCOUNTS
================================================================================

===================================== ========== ===========
(Dollars in millions)                    1999      1998
===================================== ========== ===========
NOTES AND ACCOUNTS RECEIVABLE, NET
Trade receivables, less allowance
  of $3.8 (1998 - $5.4)..........       $ 165.7   $ 162.8
Other receivables, less allowances
  of $0.3 (1998 - $0.1)..........          27.9      34.1
                                      ---------- -----------
                                        $ 193.6   $ 196.9
===================================== ========== ===========
INVENTORIES (1)
Raw materials ...................      $   38.0  $   43.2
In process ......................          10.1      11.3
Finished products ...............          87.1      77.9
General merchandise .............          20.2      23.3
Less:  Adjustment of certain
  inventories to a
  last-in/first-out (LIFO) basis          (27.2)    (25.6)
                                      ---------- -----------
                                        $ 128.2   $ 130.1
===================================== ========== ===========
(1)   Inventories valued at LIFO cost comprised 45.5% of total inventories at
      December 31, 1999 and 42.6% at December 31, 1998.

============================================================
OTHER ASSETS
Plan assets in excess of defined
  benefit pension obligation.....       $ 298.9  $   122.0
Unamortized costs of overfunded
  pension plans .................         (27.6)    134.1
Deferred charges ................          52.4      59.2
Long-term receivables, less
  allowances of $0.8 (1998 - $17.1)         2.6      23.5
Long-term investments ...........          --        24.1
Patents, licenses and other
  intangible assets .............          20.2      25.9
                                      ---------- -----------
                                        $ 346.5   $ 388.8
===================================== ========== ===========
OTHER CURRENT LIABILITIES
Retained obligations of divested
  businesses ....................      $   85.1  $   30.0
Accrued compensation ............          36.9      30.6
Costs of business restructurings           13.6      33.3
Environmental remediation .......          43.9      37.5
Accrued interest ................           5.7       5.4
Other accrued liabilities .......         101.1      69.9
                                      ---------- -----------
                                        $ 286.3   $ 206.7
===================================== ========== ===========
OTHER LIABILITIES
Other postretirement benefits ...       $ 201.4   $ 211.3
Environmental remediation .......         171.6     203.0
Defined benefit obligations in
  excess of pension plan assets .         161.8     186.2
Unamortized costs of underfunded
  pension plans .................         (33.1)    (44.3)
Deferred compensation ...........          32.1      42.9
Long-term self insurance reserve            7.8      21.4
Retained obligations of divested
  businesses ....................          14.0      46.4
Other accrued liabilities .......          10.6      15.8
===================================== ========== ===========
                                        $ 566.2   $ 682.7
===================================== ========== ===========


--------------------------------------------------------------------------------
8.  PROPERTIES AND EQUIPMENT
================================================================================

===================================== ========== ===========
PROPERTIES AND EQUIPMENT

   (Dollars in millions)                 1999      1998
===================================== ========== ===========
Land.............................     $    18.7  $   22.8
Buildings........................         330.9     335.2
Information technology equipment.          63.2      56.4
Machinery, equipment and other...       1,061.0   1,068.0
Projects under construction......          51.8      58.1
------------------------------------- ---------- -----------
Properties and equipment, gross..       1,525.6   1,540.5
Accumulated depreciation and
  amortization...................        (908.3)   (879.1)
------------------------------------- ---------- -----------
Properties and equipment, net....     $   617.3  $  661.4
===================================== ========== ===========


Interest costs are incurred in connection with the financing of certain assets
prior to placing them in service. The Company capitalized interest costs for
continuing operations of $0.8 million in 1999, $2.8 million in 1998 and $1.7
million in 1997. Depreciation and lease amortization expense relating to
properties and equipment amounted to $86.6 million in 1999, $89.6 million in
1998 and $91.9 million in 1997. Grace's rental expense for operating leases
amounted to $15.6 million in 1999, $15.7 million in 1998 and $11.7 million in
1997. See Note 13 for information regarding contingent rentals.


At December 31, 1999, minimum future payments for operating leases were (dollars
in millions):

===================================================
MINIMUM FUTURE PAYMENTS UNDER OPERATING LEASES

===================================================
2000...............................      $  12.2
2001...............................          6.5
2002...............................          3.3
2003...............................          6.8
2004...............................          2.4
Later years........................          1.0
                                        -----------
Total minimum lease payments.......      $  32.2
======================================= ===========

The above minimum lease payments are net of anticipated sublease income of $15.3
million in 2000, $14.1 million in 2001, $14.1 million in 2002 and $6.0 million
in 2003.


                                      F-15
<PAGE>



--------------------------------------------------------------------------------
9. LIFE INSURANCE
================================================================================

Grace is the beneficiary of life insurance policies on current and former
employees with benefits in force of approximately $2,309 million and net cash
surrender value of $81.6 million at December 31, 1999. 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
the next 40-plus years. The following table summarizes activity in these
policies for 1999 and 1998:

====================================== ========== ===========
ACTIVITY SUMMARY -
 LIFE INSURANCE
(Dollars in millions)                    1999        1998
====================================== ========== ===========
Earnings on policy assets............  $  31.6    $  33.8
Interest on policy loans.............    (29.5)     (30.8)
Policy loan repayments...............      4.0        1.6
Annual premiums......................      2.4        3.8
Other activity.......................     (3.9)       0.4
                                       ---------- -----------
   Change in net cash value..........  $   4.6    $   8.8
====================================== ========== ===========
Gross cash value.....................  $ 432.4    $ 431.8
Policy loans.........................   (350.8)    (354.8)
                                       ---------- -----------
Net cash value.......................  $  81.6    $  77.0
====================================== ========== ===========
Insurance benefits in force..........  $ 2,309    $ 2,325
====================================== ========== ===========
Tax-free proceeds received...........  $  15.3    $   4.6
====================================== ========== ===========

Policy loans bore interest at an average of 8.4% for 1999. Policy assets are
invested primarily in general accounts of the insurance carriers and earned
returns at an average of 7.3% for 1999 and 7.8% for 1998.

The Company's financial statements display income statement activity and balance
sheet amounts on a net basis, reflecting the contractual interdependency of
policy assets and liabilities.

--------------------------------------------------------------------------------
10.  DEBT AND EXTRAORDINARY ITEM
================================================================================

===================================== =========== ===========
COMPONENTS OF DEBT
(Dollars in millions)                    1999        1998
===================================== =========== ===========
SHORT-TERM DEBT
Bank borrowings....................   $   --      $   75.0
Other short-term borrowings (2)....       13.0         5.6
                                      ----------- -----------
                                        $ 13.0    $   80.6
                                      =========== ===========
LONG-TERM DEBT
Bank borrowings (5.5% and 5.6%
  weighted average interest rates
  at December 31, 1999 and 1998,
  respectively) (1)................   $   89.7    $   --
8.0% Notes Due 2004 (3)............        5.7         5.7
7.4% Notes Due 2000 (3)............       24.7        24.7
7.75% Notes Due 2002 (3)...........        2.0         2.0
Sundry indebtedness with various
  maturities through 2004..........        1.1         0.4
                                      ----------- -----------
                                      $  123.2    $   32.8
                                      =========== ===========
Full-year weighted average interest
  rates on total debt (4)..........        6.3%        6.7%
===================================== =========== ===========


(1)  Under bank revolving credit agreements in effect at December 31, 1999,
     Grace may borrow up to $500.0 million at interest rates based upon the
     prevailing prime, federal funds and/or Eurodollar rates. Of that amount,
     $250.0 million is available under short-term facilities expiring in May
     2000, unless extended, and $250.0 million is available under a long-term
     facility expiring in May 2003. These agreements also support the issuance
     of commercial paper and bank borrowings, of which $89.7 million was
     outstanding at December 31, 1999. The aggregate amount of net unused and
     unreserved borrowings under short-term and long-term facilities at December
     31, 1999 was $410.3 million. Grace's ability to borrow under its existing
     facilities is subject to compliance with various covenants, including
     covenants requiring maintenance of debt and interest coverage ratios.


(2)  Represents borrowings under various lines of credit and other miscellaneous
     borrowings, primarily of non-U.S. subsidiaries.

(3)  During 1994, Grace sold $300.0 million of 8.0% Notes Due 2004 at an initial
     public offering price of 99.794% of par, to yield 8.0%; during 1993, Grace
     sold at par $300.0 million of 7.4% Notes Due 2000; and during 1992, Grace
     sold at par $150.0 million of 7.75% Notes Due 2002. Interest on these notes
     is payable semiannually, and the notes may not be redeemed prior to
     maturity; however, Grace has repurchased notes from time to time in
     response to unsolicited offers.

 (4) Computation includes interest expense allocated to discontinued operations
     (primarily packaging business) and excludes interest expense and related
     financing costs related to the Company's receivables financing program.


The bank borrowings and the 7.4% Notes Due 2000 have been classified as
long-term at December 31, 1999 as it is management's current intent to refinance
these obligations using the long-term credit facility expiring May 2003.
Scheduled maturities of long-term debt outstanding at December 31, 1999 are:
2002 - $2.0 million; 2003 - $114.4 million; and 2004 - $6.8 million. Payment of
a majority of Grace's borrowings may be accelerated, and its principal borrowing
agreements terminated, upon the occurrence of default under other Grace
borrowings.

Total interest expense and related financing costs, including amounts allocated
to discontinued


                                      F-16
<PAGE>

operations, were $16.1 million in 1999, $33.1 million in 1998 and $80.6 million
for 1997. The amounts of interest expense allocated to discontinued operations
(primarily Packaging Business) were $13.3 million in 1998 and $59.4 million in
1997. Interest payments amounted to $8.2 million in 1999, $47.1 million in 1998
and $82.0 million in 1997, including amounts allocated to discontinued
operations.


As discussed in Notes 1 and 3 above, Grace received a cash transfer of $1,256.6
million in connection with the Spin-off and Merger. Grace used the transferred
funds to repay substantially all of its debt. On March 31, 1998, Grace used
$600.0 million of the cash transfer to repay bank borrowings. On April 1, 1998,
Grace repaid $611.3 million principal amount of 8.0% Notes Due 2004, 7.4% Notes
Due 2000 and 7.75% Notes Due 2002 (collectively, Notes), pursuant to a tender
offer that expired on March 27, 1998. On April 1, 1998 Grace also repaid $3.5
million principal amount of the Medium-Term Notes, Series A (MTNs) and $6.0
million of sundry indebtedness.

As a result of this early extinguishment of debt, Grace incurred a pre-tax
charge of $56.4 million ($35.3 million after-tax, or a basic and diluted loss
per share of $0.47) for premiums paid in excess of the Notes' principal amounts
and other costs incurred in connection with the purchase of the Notes and MTNs
(including the costs of settling related interest rate swap agreements). These
costs are presented as an extraordinary item in the Consolidated Statement of
Operations.

--------------------------------------------------------------------------------
11. FINANCIAL INSTRUMENTS
================================================================================

DEBT AND INTEREST RATE SWAP AGREEMENTS

In conjunction with the Packaging Business transaction (see Notes 1 and 3),
Grace settled substantially all of its debt and accordingly, also terminated all
outstanding interest rate swap agreements. In addition, deferred gains on
interest rate agreements associated with the debt retired were also recognized.
The cost of terminating the interest rate swap positions was $22.8 million and
the deferred gains recognized were $15.1 million and are included in the
extraordinary loss from early extinguishment of debt found in the Consolidated
Statement of Operations. Grace does not use derivative financial instruments
(interest rate or foreign currency) for trading purposes and is not a party to
leveraged instruments. There were no interest rate swap agreements outstanding
at December 31, 1999.

Grace realized negative cash flows from swap agreements of $2.8 million in 1998
(excluding the effect of the terminations noted above) and $5.0 million in 1997.
The amortization of deferred gains on swap agreements reduced interest expense
$0.4 million in 1999, $1.7 million in 1998 and $5.4 million in 1997. Unamortized
net gains as of December 31, 1999 and 1998 were $0.2 million and $0.6 million,
respectively.

FAIR VALUE OF DEBT AND OTHER FINANCIAL INSTRUMENTS

At December 31, 1999 and 1998, the fair values of Grace's long-term debt
approximated the recorded values of $123.2 million and $32.8 million,
respectively. Fair value is determined based on expected future cash flows
(discounted at market interest rates), quotes from financial institutions and
other appropriate valuation methodologies. The estimates of fair value are not
necessarily indicative of the costs of the offer to purchase the Notes and the
purchase of the MTNs. At December 31, 1999 and 1998, the recorded values of
other financial instruments such as cash, short-term investments, trade
receivables and payables and short-term debt approximated their fair values,
based on the short-term maturities and floating rate characteristics of these
instruments.

SALE OF ACCOUNTS RECEIVABLE

Grace sells, on an ongoing basis, an approximate $100 million pool of its
eligible trade accounts receivable to a multi-seller receivables company (the
"conduit") through a wholly owned bankruptcy-remote special purpose subsidiary
(the "SPS"). Upon sale of the receivables, the SPS holds a subordinated retained
interest in the receivables. The estimated fair value of the subordinated
interest, excluding allowance for doubtful accounts, was $28.1 million at
December 31, 1999 and $65.1 million at December 31, 1998, and is included in
other current assets. Under the terms of the agreement, new receivables are
added to the pool as collections reduce previously sold receivables. Grace
services, administers and collects the receivables on behalf of the SPS and the
conduit. Cash proceeds, net of remittances to the conduit for collections,
received during 1999 were $36.3 million and through December 31, 1999 aggregated
$73.3 million since program inception. The proceeds were used for the reduction
of other short-term obligations and are reflected as operating cash flows in the




                                      F-17
<PAGE>

Consolidated Statement of Cash Flows. Grace has recorded a net loss from the
corresponding sale to the conduit of $3.9 million in 1999 and $0.5 million in
1998.

CREDIT RISK

Trade receivables potentially subject the Company to credit risk, given
concentrations in the petroleum and construction industries. Grace's credit
evaluation policies, relatively short collection terms and minimal credit losses
mitigate credit risk exposures. The Company does not require collateral for its
trade accounts receivable.

--------------------------------------------------------------------------------
12.  RESTRUCTURING COSTS AND ASSET
     IMPAIRMENTS
================================================================================

RESTRUCTURING COSTS

During 1999, Grace recorded a net restructuring charge of $2.6 million ($1.7
million after-tax) in continuing operations. In the first quarter a
restructuring charge of $4.3 million ($2.8 million after-tax) was recorded for
additional severance cost directly related to the productivity effectiveness
program implemented in the fourth quarter of 1998. The restructuring charge is
offset by the reversal of $1.7 million of prior period restructuring charges
primarily related to the execution of a sublease agreement for previously
reserved lease termination costs. Such amounts are reported as "Selling, general
and administrative expenses" in the Consolidated Statement of Operations.

In the fourth quarter of 1998, Grace recorded a net restructuring charge of
$19.8 million ($13.3 million after-tax) in continuing operations related to the
implementation of a productivity effectiveness program. This program is designed
to increase Grace's overall administrative and operating effectiveness, thereby
reducing costs. These charges consist primarily of severance costs associated
with the reduction of approximately 350 salaried employees and approximately 70
hourly employees at the business units and within the corporate organization.
During 1999, it was determined that the actual number of employees to receive
severance costs would be 418. Of this 418, 394 employees received either full or
partial cash payments in 1999. Also included in this charge is a provision for
lease termination costs for the Boca Raton, Florida office, as Grace relocated
its headquarters to the Davison Chemicals offices in Columbia, Maryland, and a
provision for the severance costs of approximately 60 employees and lease
termination costs due to the divestiture of Grace's Circe Biomedical operations.
The restructuring charge is offset by the reversal of $5.9 million of prior
period restructuring charges related primarily to the decision not to close
certain office facilities that will now be used by the relocated headquarters
and to management's reevaluation of plans to close certain other facilities
subsequent to the Spin-off and Merger (see Notes 1 and 3).

In the second and fourth quarters of 1997, Grace recorded restructuring charges
of $4.0 million and $20.3 million, respectively ($2.6 million and $13.0 million
after-tax, respectively) in continuing operations. The second quarter charge
primarily consists of corporate costs resulting from the restructuring of the
Packaging Business from a group of regional units into an integrated global
organization and was primarily comprised of the cost of employee terminations,
completed in 1998, and asset write-downs for certain corporate research
facilities. The fourth quarter charge reflects employee termination costs
resulting from the Spin-off and Merger (see Notes 1 and 3). The staff reductions
were completed in 1999. The employee termination costs represent severance pay
and other employee benefits, including amounts paid over time.

The components of the restructuring charges recorded in 1999, 1998 and 1997
(including amounts recorded in discontinued operations), spending and other
activity during those years, and the remaining reserve balances included in
"Other current liabilities" and "Other liabilities" at December 31, 1999 and
1998, were as follows:


                                      F-18
<PAGE>


=================== ========== ========= ======== =========
RESTRUCTURING        Employee
CHARGES (Dollars      Termi-     Plant/
in millions)          nation    Office    Other
                      Costs    Closures   Costs    Total
=================== ========== ========= ======== =========
1997
Restructuring
  reserve at
  December 31,
  1996.............   $ 72.8    $ 15.4   $  2.9   $ 91.1
Provisions
  recorded in
  continuing
  operations.......     17.0       4.5      2.8     24.3
Provisions
  recorded in
  discontinued
  operations.......      3.2      (1.4)     1.3      3.1
Cash payments......    (63.3)     (0.8)    (4.2)   (68.3)
Noncash activity...      --        --      (2.8)    (2.8)
Reclassification
  of Packaging
  Business
  reserves to net
  assets of
  discontinued
  operations.......     (9.0)     (2.8)     --     (11.8)
------------------- ---------- --------- -------- ---------
Restructuring
  reserve at
  December 31,
  1997.............   $ 20.7    $ 14.9   $  --    $ 35.6
=================== ========== ========= ======== =========
1998
Provisions
  recorded in
  continuing
  operations.......   $ 20.4    $  5.3   $  --    $ 25.7
Reversal of prior
  period
  restructuring
  reserves.........      --       (5.9)     --      (5.9)
Cash payments......    (17.3)     (4.8)     --     (22.1)
------------------- ---------- --------- -------- ---------
Restructuring
  reserve at
  December 31,
  1998.............   $ 23.8    $  9.5   $  --    $ 33.3
=================== ========== ========= ======== =========
1999
Provisions
  recorded in
  continuing
  operations.......   $  4.3    $  --    $  --    $  4.3
Reversal of prior
  period
  restructuring
  reserves.........     --        (1.7)     --      (1.7)
Cash payments......    (19.0)     (2.1)     --     (21.1)
------------------- ---------- --------- -------- ---------
RESTRUCTURING
  RESERVE AT
  DECEMBER 31,
  1999.............   $  9.1     $ 5.7   $  --    $ 14.8
=================== ========== ========= ======== =========

ASSET IMPAIRMENTS

During 1998 and 1997 Grace determined that, due to various events and changes in
circumstances, certain long-lived assets were impaired. As a result, in the
fourth quarter of 1998 and 1997, Grace recorded noncash charges of $1.2 million
and $23.5 million, respectively ($0.7 million and $15.0 million after-tax,
respectively). The primary components of the 1998 charge were properties and
equipment and goodwill, offset by a reversal of a previous reserve. The
components of the 1997 charge primarily related to capitalized software and
systems costs. Grace determined the amounts of the asset impairment charges
based on various valuation techniques, including discounted cash flow,
replacement cost and net realizable value for assets to be disposed.

--------------------------------------------------------------------------------
13. COMMITMENTS AND CONTINGENT
     LIABILITIES
================================================================================

ASBESTOS

In February 2000, a class action lawsuit was filed in U.S. District Court in
Boston, Massachusetts against the Company on behalf of all owners of homes
containing Zonolite(R) attic fill insulation, a product previously sold by Grace
that may contain trace amounts of asbestos. The action seeks damages and
equitable relief, including the removal, replacement and/or disposal of all
such insulation. While Grace has not completed its investigation of the claims
described in this lawsuit, and therefore is not able to assess the extent of any
possible liability related to this matter, it believes that this product is safe
for its intended purpose and poses little or no threat to human health.

ENVIRONMENTAL


Grace is subject to loss contingencies resulting from extensive and evolving
federal, state, local and foreign environmental laws and regulations relating to
the generation, storage, handling, discharge and disposition of hazardous wastes
and other materials. Grace accrues for anticipated costs associated with
investigatory and remediation efforts where an assessment has indicated that a
liability has been incurred and the amount of loss can be reasonably estimated.
These accruals do not take into account any discounting for the time value of
money. At December 31, 1999, Grace's liability for environmental investigatory
and remediation costs related to continuing and discontinued operations totaled
$215.5 million, as compared to $240.5 million at December 31, 1998. In the
fourth quarter of 1998, Grace entered into a settlement with one of its
insurance carriers which provided for a $57.6 million ($37.4 million after-tax)
lump-sum cash payment to Grace for previously incurred costs related to
environmental remediation. Also during the fourth quarter of 1998, Grace
recorded a $19.4 million ($12.6 million after-tax) charge to reflect a change in
the environmental remediation strategy for a particular site. The 1998 activity
reflects a net pre-tax benefit of $38.2 million ($24.8 million after-tax)
related to environmental issues.



                                      F-19
<PAGE>

Grace's environmental liabilities are reassessed whenever circumstances become
better defined or remediation efforts and their costs can be better estimated.
These liabilities are evaluated quarterly, based on currently available
information, including the progress of remedial investigation at each site, the
current status of discussions with regulatory authorities regarding the method
and extent of remediation at each site, existing technology, prior experience in
contaminated site remediation and the apportionment of costs among potentially
responsible parties. As some of these issues are decided (the outcomes of which
are subject to uncertainties) or new sites are assessed and costs can be
reasonably estimated, Grace will continue to review and analyze the need for
adjustments to the recorded accruals. However, Grace believes that it is
adequately reserved for all probable and estimable environmental exposures.
Grace's classification of its environmental reserves between current and
noncurrent liabilities is based on expected future cash outlays.


Grace is in litigation with two excess insurance carriers regarding the
applicability of the carriers' policies to Grace's environmental remediation
costs. The outcome of such litigation, as well as the amounts of any recoveries
that Grace may receive, is presently uncertain. Accordingly, Grace has not
recorded a receivable with respect to such insurance coverage.


Grace made cash payments of $25.0 million in 1999, $36.9 million in 1998 and
$37.3 million in 1997 to remediate environmentally impaired sites. These amounts
have been charged against previously established reserves.


In February 2000, a class action lawsuit was filed in U.S. District Court in
Missoula, Montana against Grace on behalf of all owners of real property
situated within 12 miles from Libby, Montana that are improved private
properties. The action alleges that the class members have suffered harm in the
form of environmental contamination and loss of property rights resulting from
Grace's former vermiculite mining and processing operations. The complaint seeks
remediation, property damages and punitive damages. While Grace has not
completed its investigation of the claims, and therefore is not able to assess
the extent of any possible liability related to this lawsuit, it has no reason
to believe that its former activities caused damage to the environment or
property.

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 $140.0 million, and
are fully offset by anticipated future minimum rental income from existing
tenants and subtenants. In addition, Grace is liable for other expenses
(primarily property taxes) relating to the above leases; these expenses are paid
by tenants and subtenants. Certain of the rental income and other expenses are
payable by tenants and subtenants that have filed for bankruptcy protection or
are otherwise experiencing financial difficulties. Grace believes that the risk
of significant loss from these lease obligations is remote.

INCOME TAXES

Grace has received notification from the Internal Revenue Service (IRS) on two
matters. As a result of recent tax legislation, beginning in 1998, interest
costs on policy loans for corporate-owned life insurance are not deductible for
tax purposes. Furthermore, the IRS has asserted that Grace's past interest
deductions are not allowable. The Company is contesting the IRS's position on
the grounds that these insurance policies and related loans had, and continue to
have, an important and valid business purpose to fund current and future
obligations of Grace.

In the other matter, 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 related to CCHP, Inc., a
subsidiary of Grace, that formerly held Grace's interest in Cross County
Staffing. The assessments were made in connection with a meal and incidental
expense per diem plan for travelling nurses. In July of 1999, Grace sold the
business and assets of CCHP but retained the potential tax liability. The matter
is currently in the U.S. Court of Claims, where both CCHP and the Department of
Justice are conducting discovery.

Grace has received notification from a foreign taxing authority assessing tax
deficiencies plus interest relating to the purchase and sale of foreign bonds in
1989 and 1990. This assessment is related to the Bekaert Group which Grace sold
in 1991 but retained liability for tax deficiencies attributable to tax periods
prior to the sale. The matter is currently before the foreign tax authorities
where protests have been filed but no decision has been rendered.



                                      F-20
<PAGE>

NATIONAL MEDICAL CARE

A predecessor to Old Grace completed the distribution of Old Grace's common
stock and the combination of National Medical Care (NMC) with the worldwide
dialysis business of Fresenius AG (Fresenius) in September 1996.

Under the terms of the transactions, NMC remains responsible for all
liabilities, if any, resulting from the previously reported investigation by the
Office of the Inspector General (OIG) of the U.S. Department of Health and Human
Services and certain related matters. Under a July 1996 agreement with the U.S.
government, Grace guaranteed the obligations of Fresenius and NMC with respect
to acts and transactions related principally to the OIG investigation that took
place prior to the consummation of the transaction.

Fresenius entered into a preliminary agreement with the U.S. government in the
fourth quarter of 1999 settling the OIG claim and finalized this settlement
subsequent to December 31, 1999. Based on the terms of the settlement, it is not
expected to have any financial impact on the financial condition or results of
operations of Grace.

ACCOUNTING FOR CONTINGENCIES

Although the outcome of each of the matters discussed above cannot be predicted
with certainty, Grace has assessed its risk and has made accounting estimates as
required under generally accepted accounting principles.

--------------------------------------------------------------------------------
14.  SHAREHOLDERS' EQUITY
================================================================================

Under its Certificate of Incorporation, the Company is authorized to issue
300,000,000 shares of common stock, $.01 par value. Of the common stock unissued
at December 31, 1999, approximately 12,636,000 shares were reserved for issuance
pursuant to stock options and other stock incentives. The Certificate of
Incorporation also authorizes 53,000,000 shares of preferred stock, $.01 par
value, none of which has been issued. 3,000,000 of such shares have been
designated as Series A Junior Participating Preferred Stock and are reserved for
issuance in connection with the Company's Preferred Stock Purchase Rights
(Rights). A Right trades together with each outstanding share of common stock
and entitles the holder to purchase one hundredth of a share of Series A Junior
Participating Preferred Stock under certain circumstances and subject to certain
conditions. The Rights are not and will not become exercisable unless and until
certain events occur, and at no time will the Rights have any voting power.

In April 1998, the Company's Board of Directors approved a program to repurchase
up to 20% of the Company's outstanding shares in the open market (approximately
15,165,000 shares). Through December 31, 1999, the Company had acquired
12,105,300 shares of common stock for $177.5 million under the program (at an
average price per share of $14.67). During the year ended December 31, 1999, the
Company acquired 6,956,200 shares of common stock for $94.4 million under the
program (at an average price per share of $13.57). In January 1999, Grace
retired 5,476,800 shares of treasury stock with a cost basis of $88.4 million.

In 1997, Grace substantially completed a share repurchase program initiated in
1996 by acquiring 6,306,300 shares of common stock for $335.9 million, or an
average price of $53.26 per share. Prior to year-end 1997, Grace retired
substantially all of the treasury stock acquired in those years using the cost
method.

Average prices per share for shares repurchased in 1997 are not comparable to
1999 and 1998 due to the Packaging Business transaction (see Notes 1 and 3).

--------------------------------------------------------------------------------
15.  EARNINGS PER SHARE
================================================================================

The following table shows a reconciliation of the numerators and denominators
used in calculating basic and diluted earnings (loss) per share from continuing
operations.


                                      F-21
<PAGE>



========================= =========== ========= =========
EARNINGS PER SHARE
(Amounts in millions,
except per share
amounts)                     1999       1998      1997
========================= =========== ========= =========
NUMERATORS
Income (loss) from
  continuing operations.   $ 130.2    $(149.2)     $ 85.9
                          =========== ========= =========
DENOMINATORS
Weighted average common
  shares - basic
  calculation...........      70.7        74.6      74.0
Effect of dilutive
  securities employee
  compensation-related
  shares................
                               3.1        --         1.7
                          ----------- --------- ---------
Weighted average common
  shares - diluted
  calculation...........      73.8        74.6      75.7
                          =========== ========= =========
BASIC EARNINGS (LOSS)
  PER SHARE.............  $    1.84   $   (2.00)   $ 1.16
                          =========== ========= =========
DILUTED EARNINGS (LOSS)
  PER SHARE.............  $    1.76   $   (2.00)   $ 1.13
========================= =========== ========= =========

As a result of the 1998 loss from continuing operations, 3,470,600 employee
compensation-related shares, primarily stock options, were excluded from the
diluted loss per share calculation because their effect would be antidilutive.
Additionally, stock options that could potentially dilute basic earnings per
share in the future that were excluded from the computation of diluted loss per
share, because their exercise prices were greater than the average market price
of the common shares, averaged 3,079,739 in 1999 and 2,195,200 in 1998.

--------------------------------------------------------------------------------
16.  STOCK INCENTIVE PLANS
================================================================================

Each stock option granted under the Company's stock incentive plans has an
exercise price equal to the fair market value of the Company's common stock on
the date of grant. Options become exercisable at the time or times determined by
a committee of the Company's Board of Directors and may have terms of up to ten
years and one month. In connection with the Packaging Business transaction
described in Notes 1 and 3, the number of shares covered by outstanding options
and the exercise prices of such options were adjusted to preserve their economic
value. The following table sets forth information relating to such options, as
so adjusted during 1999, 1998 and 1997:

------------------------------------- =======================
STOCK OPTION ACTIVITY                          1997
------------------------------------- =======================
                                                    Average
                                        Number     Exercise
                                       of Shares     Price
                                      ------------ ----------
Balance at beginning of year.......   27,598,862    $  6.88
Options granted....................    2,963,844      12.04
Options exercised..................   (10,163,969)     5.89
Options terminated or canceled.....     (131,810)      9.63
                                      ------------
Balance at end of year.............   20,266,927       8.11
===================================== =======================
                                               1998
===================================== =======================
Balance at beginning of year.......   20,266,927    $  8.11
Options granted....................    3,316,826      19.12
Options exercised..................   (7,351,329)      6.95
Options terminated or canceled.....   (1,942,554)     11.00
                                      ------------
Balance at end of year.............   14,289,870      10.87
===================================== =======================
                                               1999
===================================== =======================
Balance at beginning of year.......   14,289,870     $10.87
Options granted....................    2,332,290      13.21
Options exercised..................   (3,811,493)      7.30
Options terminated or canceled.....     (280,380)     16.21
                                      ============
Balance at end of year.............   12,530,287      12.27
===================================== ============ ==========

At December 31, 1999, options covering 9,212,495 shares (1998 - 8,880,196; 1997
- 13,772,618) were exercisable and 350,884 shares were available for additional
grants. Currently outstanding options expire on various dates through November
2009.
<PAGE>

Following is a summary of stock options outstanding at December 31, 1999:

=========================================================================
STOCK OPTIONS OUTSTANDING
                         Weighted
                         Average      Weighted       Number     Weighted
EXERCISE     Number      Remaining    Average      Exercisable  Average
PRICE       Outstanding  Contractual  Exercise        at        Exercise
RANGE       at 12/31/99    Life        Price       12/31/99      Price
----------- ----------   ---------    ---------    ---------     --------
$3 - $8     3,155,233        5.01        $6.13     3,155,233      $6.13
$8 - $13    6,057,262        8.15        11.83     6,057,262      11.83
$13 - $18     642,526        9.32        16.58       --           --
$18 - $20   2,675,266        9.01        19.46       --           --
            ----------                             ---------
           12,530,287        7.61       $12.27     9,212,495      $9.88
=========================================================================

Concurrent with the Packaging Business transaction (see Notes 1 and 3),
outstanding options to purchase Old Grace common stock that were held by
employees of the Packaging Business were converted into options to purchase
common stock of New Sealed Air. All other options were converted into options to
purchase common stock of the Company. The number of shares covered by the
options and the exercise prices of such options were adjusted to preserve their
economic value.

                                      F-22
<PAGE>

In 1999 and 1998, the Company granted a total of 45,000 shares and 246,933
shares, respectively, of the Company's common stock to certain executives,
subject to various restrictions. Such shares are subject to forfeiture if
certain employment conditions are not met. For more information, see the Form of
Restricted Share Award Agreements filed with the Company's Form 10-Q for the
quarter ended March 31, 1998. At December 31, 1999, restrictions on the stock,
net of forfeitures, lapse as follows: 2000 - 56,911 shares; 2001 - 102,211
shares; and 2002 - 45,000 shares. The fair value of the restricted shares at the
date of grant is amortized to expense ratably over the restriction period.

SFAS No. 123, "Accounting for Stock-Based Compensation" permits the Company to
follow the measurement provisions of APB Opinion No. 25, "Accounting for Stock
Issued to Employees," and not recognize compensation expense for its stock-based
incentive plans. Had compensation cost for the Company's stock-based incentive
compensation plans been determined based on the fair value at the grant dates of
awards under those plans, consistent with the methodology prescribed by SFAS No.
123, the Company's net income (loss) and related basic earnings (loss) per share
for 1999, 1998 and 1997 would have been reduced to the pro forma amounts
indicated below:

========================= ============ ========== ==========
PROFORMA EARNINGS
UNDER SFAS NO. 123
(Amounts in millions,
except per share
amounts)                     1999        1998       1997
========================= ============ ========== ==========
Net income (loss):
As reported.............    $135.9     $(183.6)   $ 261.0
Pro forma (1)...........     128.0      (191.1)     254.0
Basic earnings (loss)
  per share:
As reported.............    $ 1.92     $ (2.46)   $  3.53
Pro forma (1)...........      1.81       (2.56)      3.43
========================= ============ ========== ==========
(1) These pro forma amounts may not be indicative of future income (loss) and
earnings (loss) per share.

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
1999, 1998 and 1997:

========================= =========== =========== ===========
OPTION VALUE
ASSUMPTIONS                  1999        1998        1997
========================= =========== =========== ===========
Dividend yield..........      --%         --%          1%
Expected volatility.....      39%         30%         29%
Risk-free interest rate.       5%          5%          6%
Expected life (in years)       4           4           4
========================= =========== =========== ===========

Based upon the above assumptions, the weighted average fair value of each option
granted was $5.05 per share for 1999, $6.15 per share for 1998 and $3.64 per
share for 1997.

--------------------------------------------------------------------------------
17. PENSION PLANS AND OTHER
    POSTRETIREMENT BENEFIT PLANS
================================================================================

Grace maintains defined benefit pension plans covering employees of certain
units who meet age and service requirements. Benefits are generally based on
final average salary and years of service. Grace funds its U.S. pension plans in
accordance with U.S. federal laws and regulations. Non-U.S. pension plans are
funded under a variety of methods, as required under differing local laws and
customs, and therefore cannot be summarized.

During 1998, Grace made certain amendments to one of its domestic pension plans
which included a lump sum settlement option to former Grace employees not
currently receiving benefits. During the second quarter of 1999, a significant
number of the lump sum offers were settled. In accordance with SFAS No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit Plans
and for Termination Benefits," the Company recognized a pre-tax loss of $11.0
million, in connection with these settlements. A pre-tax noncash charge of $9.1
million ($5.7 million after-tax) is included in "Income from discontinued
operations, net of tax" in the Consolidated Statement of Operations as it
relates to settlements with former Packaging Business employees. A pre-tax
noncash charge of $1.9 million is included in "Selling, general and
administrative expenses" in the Consolidated Statement of Operations for
settlements relating to former Grace employees not associated with the former
Packaging Business.

The Packaging Business transaction also required the Company to split certain
pension plans and recognize a net curtailment loss for other plans. In
accordance with SFAS No. 88, the Company recognized a pre-tax loss of $8.4
million ($5.5 million after-tax) in 1998, in connection with these plans. This
net pre-tax loss is included in "Income from discontinued operations, net of
tax" in the Consolidated Statement of Operations.

Grace provides certain other postretirement health care and life insurance
benefits for retired employees of specified U.S. units. The retiree medical
insurance


                                      F-23
<PAGE>


plans provide various levels of benefits to employees (depending on their dates
of hire) who retire from Grace after age 55 with at least 10 years of service.
These plans are unfunded, and Grace pays the costs of benefits under these plans
as they are incurred. Grace applies SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," which requires that the future
costs of postretirement health care and life insurance benefits be accrued over
the employees' years of service.

During 1998, Grace's Board approved changes to the postretirement medical plan.
These changes include "caps" for pre-65 retirees and post-65 retirees, changes
in the method used to coordinate with Medicare, and changes in deductible and
coinsurance levels.

The following summarizes the changes in benefit obligation and fair value of
plan assets during the period:


                                      F-24
<PAGE>

<TABLE>
<CAPTION>
=========================================== ================================================================== =====================
                                                                         PENSION
                                            ------------------------------------------------------------------
                                                                                                                    OTHER POST-
CHANGE IN FINANCIAL STATUS OF RETIREMENT           U.S.                NON-U.S.                 TOTAL            RETIREMENT PLANS
  PLANS                                     ------------------- ------------------------ --------------------- ---------------------
(Dollars in millions)                         1999      1998       1999        1998        1999       1998       1999        1998
=========================================== ========= ========= =========== ============ ========== ========== ========== ==========
<S>                                          <C>       <C>       <C>         <C>         <C>        <C>         <C>        <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year...   $ 918.7   $ 834.3   $ 235.9     $ 204.4      $1,154.6  $ 1,038.7   $ 193.9   $  231.0
Service cost..............................       7.3       7.1       5.2         6.5         12.5       13.6        0.8        0.9
Interest cost.............................      57.7      55.7      11.6        12.6         69.3       68.3       12.8       16.6
Plan participants' contributions..........      --        --         0.7         0.7          0.7        0.7       --         --
Amendments................................      --        (1.2)     --          --           --         (1.2)      --        (48.8)
Curtailments/settlements recognized gains.      --        --        (3.7)       --           (3.7)      --         --         --
Special termination benefits..............      --        11.7      --          --           --         11.7       --         --
Actuarial (gain) loss.....................     (42.7)    125.3     (22.2)       38.9        (64.9)     164.2       (5.2)      14.1
(Divestitures)/acquisitions...............      --       (13.0)     --         (23.6)        --        (36.6)      --          1.1
Benefits paid.............................    (175.3)   (101.2)    (13.1)       (8.8)      (188.4)    (110.0)     (19.6)     (21.0)
Currency exchange translation adjustment..      --        --       (17.5)        5.2        (17.5)       5.2       --         --
=========================================== ========= ========= =========== ============ ========== ========== ========== ==========
Benefit obligation at end of year            $ 765.7   $ 918.7   $ 196.9     $ 235.9      $ 962.6   $ 1,154.6   $ 182.7     $193.9
=========================================== ========= ========= =========== ============ ========== ========== ========== ==========
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning
  of year.................................   $ 912.1   $ 881.3   $ 211.8     $ 206.8      $1,123.9  $ 1,088.1   $  --     $    --
Curtailments settlements recognized.......      --        --        --          --           --         --         --         --
Actual return on plan assets..............     156.0     129.7      28.9        45.8        184.9      175.5       --         --
Employer contribution.....................       7.1       7.1       4.7         3.2         11.8       10.3       19.6       21.0
Plan participants' contribution...........      --        --         0.7         0.7          0.7        0.7       --         --
Divestitures..............................      --        (4.8)     --         (31.6)        --        (36.4)      --         --
Benefits paid.............................    (175.3)   (101.2)    (13.9)      (12.4)      (189.2)    (113.6)     (19.6)     (21.0)
Currency exchange translation adjustment..      --        --        (8.1)       (0.7)        (8.1)      (0.7)      --         --
=========================================== ========= ========= =========== ============ ========== ========== ========== ==========
Fair value of plan assets at end of year..   $ 899.9   $ 912.1   $ 224.1     $ 211.8      $1,124.0  $ 1,123.9   $  --     $    --
=========================================== ========= ========= =========== ============ ========== ========== ========== ==========
Funded status.............................   $ 134.2   $  (6.6)  $  27.2     $ (24.1)     $ 161.4   $  (30.7)   $(182.7)  $ (193.9)
Unrecognized transition (asset)/obligation     (19.3)    (33.7)      0.8         0.7        (18.5)     (33.0)      --         --
Unrecognized actuarial loss (gain)........       9.4     150.0     (20.1)       23.5        (10.7)     173.5       42.1       50.1
Unrecognized prior service cost/(benefit).      28.9      35.7       5.6         2.2         34.5       37.9      (60.8)     (67.5)
=========================================== ========= ========= =========== ============ ========== ========== ========== ==========
Net amount recognized.....................   $ 153.2   $ 145.4   $  13.5     $   2.3      $ 166.7   $  147.7    $(201.4)  $ (211.3)
=========================================== ========= ========= =========== ============ ========== ========== ========== ==========
Amounts recognized in the Consolidated
Balance Sheet consist of:
  Assets in excess of pension obligation..   $ 198.5    $ 58.1   $ 100.4     $  63.9      $ 298.9   $  122.0    $  --     $   --
  Unamortized costs of overfunded plans...      (5.0)    124.5     (22.6)        9.7        (27.6)     134.2       --         --
  Deferred pension costs..................     (87.6)    (91.5)    (74.2)      (94.7)      (161.8)    (186.2)    (182.7)    (193.9)
  Unamortized costs of underfunded plans..      24.0      27.6       9.1        16.7         33.1       44.3      (18.7)     (17.4)
  Intangible asset........................       8.1      11.3       0.4         2.1          8.5       13.4       NM         NM
  Accumulated other comprehensive loss....      15.2      15.4       0.4         4.6         15.6       20.0       NM         NM
------------------------------------------- --------- --------- ----------- ------------ ---------- ---------- ---------- ==========
Net amount recognized.....................   $ 153.2   $ 145.4   $  13.5     $   2.3      $ 166.7   $  147.7    $(201.4)  $ (211.3)
=========================================== ========= ========= =========== ============ ========== ========== ========== ==========
WEIGHTED AVERAGE ASSUMPTIONS AS OF
DECEMBER 31
Discount rate.............................       8.0%      6.8% 2.3-15.0%    2.3-15.0%       NM         NM          8.0%     6.8%
Expected return on plan assets............       9.0       9.0  5.0-15.0     5.0-15.0        NM         NM         NM         NM
Rate of compensation increase.............       4.5       4.5  2.0-14.0     2.0-14.0        NM         NM         NM         NM
=========================================== ========= ========= =========== ============ ========== ========== ========== ==========
</TABLE>

<TABLE>
<CAPTION>
============================================== ======== ======== ======== ======= ======== ========== ========= ========= ==========
                                                         1999                        1998                         1997
                                               -------------------------- --------------------------- ------------------------------
COMPONENTS OF NET PERIODIC BENEFIT (INCOME)
COST                                                      NON-                      Non-                          Non-
(Dollars in millions)                           U.S.      U.S.     OTHER    U.S.    U.S.      Other      U.S      U.S.      Other
============================================== ======== ======== ======== ======= ======== ========== ========= ========= ==========
<S>                                             <C>      <C>      <C>     <C>     <C>      <C>         <C>      <C>        <C>
Service cost.................................   $ 7.3    $ 5.2    $ 0.8   $  7.1  $  6.5   $  0.9      $13.9    $  5.5     $ 1.1
Interest cost................................    57.7     11.8     12.8     55.7    12.6     16.6       57.3      12.6      17.5
Expected return on plan assets...............   (76.0)   (17.1)    --      (72.4)  (19.3)    --        (72.3)    (18.6)     --
Amortization of transition asset.............   (11.5)    (0.2)    --      (11.5)   (0.2)    --        (11.5)     (0.4)     --
Amortization of prior service cost (benefit).     7.0      0.6     (6.7)     7.2     0.3     (2.8)       6.6       0.4      (2.6)
Amortization of unrecognized actuarial loss..     3.9      0.3      2.7      1.4     0.3      1.1        0.5      --         0.6
Net curtailment and settlement loss..........    11.0      0.2     --        8.4     1.3     --         --         3.7      --
---------------------------------------------- -------- -------- -------- ------- -------- ---------- --------- --------- ==========
Net periodic benefit (income) cost...........  $ (0.6)   $ 0.8    $ 9.6   $ (4.1) $  1.5    $15.8     $ (5.5)    $ 3.2     $16.6
============================================== ======== ======== ======== ======= ======== ========== ========= ========= ==========

NM = Not meaningful.

</TABLE>

<PAGE>

<TABLE>
<CAPTION>
========================================================= ======================= ====================== ===========================
PENSION PLANS WHERE ACCUMULATED BENEFIT                                                                         OTHER POST-
OBLIGATIONS EXCEED PLAN ASSETS                                      U.S.                 NON-U.S.              RETIREMENT PLANS
                                                          ----------------------- ---------------------- ---------------------------
 (Dollars in millions)                                       1999        1998       1999        1998         1999          1998
========================================================= =========== =========== ========== =========== ============= =============
<S>                                                         <C>         <C>        <C>         <C>       <C>            <C>
Projected benefit obligation............................    $ 64.3      $ 64.7     $  77.6     $ 94.8       N/A           N/A
Accumulated benefit obligation..........................      63.6        63.8        66.8       82.2     $ 182.7        $193.9
Fair value of plan assets...............................      --          --           4.0        6.4        --            --
========================================================= =========== =========== ========== =========== ============= =============
</TABLE>


                                      F-25
<PAGE>


For measurement purposes, a 6.5% rate of increase in the per capita cost of
covered health care benefits was assumed for 2000. The rate was assumed to
decrease gradually to 5.0% through 2003 and remain at that level thereafter.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plan. A one-percentage-point increase (decrease) in
assumed health care cost trend rates would increase (decrease) total service and
interest cost components by $0.1 million and $(0.1) million, respectively, and
increase (decrease) postretirement benefit obligations by $1.0 million and
$(1.2) million, respectively.

--------------------------------------------------------------------------------
18.  COMPREHENSIVE INCOME (LOSS)
================================================================================

The tables below present the pre-tax, tax and after-tax components of the
Company's other comprehensive income (loss) for the years ended December 31,
1999 and 1998:

=========================== ========== =========== ==========
                                           Tax       After
Year Ended                   Pre-tax    (Expense)     Tax
December 31, 1999            Amount      Benefit     Amount
=========================== ========== =========== ==========
Unrealized gains on
security:
Change in unrealized
  appreciation during year    $ 11.5    $  (4.0)    $   7.5
Reclassification
  adjustment for gains
  realized in net income..      (9.3)       3.3        (6.0)
                            ---------- ----------- ----------
Net unrealized gains......       2.2       (0.7)        1.5
Minimum pension liability
  adjustments.............       4.4       (1.6)        2.8
Foreign currency
  translation adjustments.     (19.3)      --         (19.3)
                            ---------- ----------- ----------
Other comprehensive loss..    $(12.7)   $  (2.3)    $ (15.0)
=========================== ========== =========== ==========


=========================== ========== =========== ==========
                                           Tax       After
Year Ended                   Pre-tax    (Expense)     Tax
December 31, 1998            Amount      Benefit     Amount
=========================== ========== =========== ==========
Unrealized gains on
security:
Change in unrealized
  appreciation during year    $ 29.5    $ (10.3)    $  19.2
Reclassification
  adjustment for gains
  realized in net income..      (4.1)       1.4        (2.7)
                            ---------- ----------- ----------
Net unrealized gains......      25.4       (8.9)       16.5
Minimum pension liability
  adjustments.............     (20.0)       9.4       (10.6)
Foreign currency
  translation adjustments.      (7.2)      --          (7.2)
                            ---------- ----------- ----------
Other comprehensive loss..    $ (1.8)   $   0.5     $  (1.3)
=========================== ========== =========== ==========


--------------------------------------------------------------------------------
19.  BUSINESS SEGMENT INFORMATION
================================================================================

Grace is a global producer of specialty chemicals and materials. It generates
revenues from two business segments: Davison Chemicals and Performance
Chemicals. Performance Chemicals was formed in 1999 by combining the previously
separate business segments of Grace Construction Products and Darex Container
Products. These businesses were consolidated under one management team to
capitalize on infrastructure synergies from co-location of headquarters and
production facilities around the world. Davison Chemicals produces a variety of
catalysts and silica products. Performance Chemicals produces specialty
construction chemicals, building materials and container protection products.
Intersegment sales, eliminated in consolidation, are not material. The table
below presents information related to Grace's business segments for 1999, 1998
and 1997; in connection with the adoption of SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information," only those corporate
expenses directly related to the segment are allocated for reporting purposes.
All remaining corporate items are reported separately and labeled as such.
<PAGE>

========================== =========== ============ ===========
BUSINESS SEGMENT DATA
(Dollars in millions)         1999        1998         1997
========================== =========== ============ ===========
NET SALES
Davison Chemicals........   $   724.3  $   730.8    $   711.6
Performance Chemicals....       747.6      732.6        741.9
                           ----------- ------------ -----------
Total....................   $ 1,471.9  $ 1,463.4    $ 1,453.5
                           =========== ============ ===========
PRE-TAX OPERATING INCOME
Davison Chemicals........   $   124.3  $   107.5    $   100.1
Performance Chemicals....       105.8       78.1         69.1
                           ----------- ------------ -----------
Total....................   $   230.1  $   185.6    $   169.2
                           =========== ============ ===========
DEPRECIATION AND
  AMORTIZATION
Davison Chemicals........   $    59.2  $    61.3    $    60.1
Performance Chemicals....        28.8       28.3         29.5
                           ----------- ------------ -----------
Total....................   $    88.0  $    89.6    $    89.6
                           =========== ============ ===========
CAPITAL EXPENDITURES
Davison Chemicals........   $    48.0  $    60.5    $    59.3
Performance Chemicals....        30.7       39.5         45.2
                           ----------- ------------ -----------
Total....................   $    78.7  $   100.0    $   104.5
                           =========== ============ ===========

TOTAL ASSETS
Davison Chemicals........   $   590.3  $   638.4    $   587.6
Performance Chemicals....       478.3      470.0        445.3
                           ----------- ------------ -----------
Total....................   $ 1,068.6  $ 1,108.4    $ 1,032.9
========================== =========== ============ ===========



                                      F-26
<PAGE>



The table below presents information related to the geographic areas in which
Grace operated in 1999, 1998 and 1997.

============================= =========== ========== ==========
GEOGRAPHIC AREA DATA
(Dollars in millions)            1999        1998       1997
============================= =========== ========== ==========
NET SALES
United States...............  $   737.6   $   741.0  $   741.6
Canada and Puerto Rico......       32.7        34.4       35.7
Germany.....................      276.9       251.1      226.9
Europe, other than Germany..      144.4       148.7      175.5
Asia/Pacific................      199.4       199.9      206.7
Latin America...............       80.9        88.3       67.1
                              ----------- ---------- ----------
Total.......................  $ 1,471.9   $ 1,463.4  $ 1,453.5
============================= =========== ========== ==========
PROPERTIES AND EQUIPMENT,
  NET
United States...............  $   399.0   $   423.3  $   408.9
Canada and Puerto Rico......       20.8        20.1       37.9
Germany.....................       71.3        84.7      114.3
Europe, other than Germany..       46.8        53.9       26.4
Asia/Pacific................       61.9        58.6       53.8
Latin America...............       17.5        20.8       22.0
                              ----------- ---------- ----------
Total.......................  $   617.3   $   661.4  $   663.3
============================= =========== ========== ==========


Net sales, 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
(Dollars in millions)             1999       1998       1997
============================== ========== ========== ===========
Net Sales - operating
  segments...................  $ 1,471.9  $ 1,463.4  $ 1,453.5
Net Sales - divested
  businesses.................       --         --         24.9
                               ---------- ---------- -----------
Total sales and revenues.....  $ 1,471.9  $ 1,463.4  $ 1,478.4
============================== ========== ========== ===========
Pre-tax operating income -
  operating segments.........  $   230.1  $   185.6  $   169.2
Corporate restructuring
  costs and asset impairments       (1.6)      (7.2)     (42.3)
Gain on note receivable......       18.5       --         --
Gain on disposal of assets...       13.6       --         --
Provision for environmental
  charges, net...............       --         38.2       --
Provisions relating to
  asbestos-related
  liabilities and insurance         --       (376.1)      --
  coverage...................
Gain on sale of businesses...       --         --        103.1
Interest expense and related
  financing costs............      (16.1)     (19.8)     (21.2)
Corporate operating costs....      (52.0)     (53.8)     (89.3)
Other, net...................       10.9        9.9       17.9
                               ---------- ---------- -----------
Income (loss) from
  continuing operations
  before income taxes........  $   203.4  $  (223.2) $   137.4
 ============================= ========== ========== ===========
Depreciation and
  amortization - operating
  segments...................  $    88.0  $    89.6  $    89.6
Depreciation and
  amortization - divested           --         --          0.7
  businesses.................
Depreciation and
  amortization - corporate...        1.2        2.5        4.5
                               ---------- ---------- -----------
Total depreciation and
  amortization ..............  $    89.2  $    92.1  $    94.8
============================== ========== ========== ===========
Capital expenditures -
  operating segments.........  $    78.7  $   100.0  $   104.5
Capital expenditures -
  corporate..................        3.8        0.9       31.9
Capital expenditures -
  discontinued operations (1)       --         --        122.2
Capital expenditures -
  divested businesses........       --         --          0.1
                               ---------- ---------- -----------
Total capital expenditures...  $    82.5  $   100.9  $   258.7
============================== ========== ========== ===========

<PAGE>

Total assets - operating
  segments...................  $ 1,068.6  $ 1,108.4  $ 1,032.9
Total assets - corporate.....                 526.2      551.1
                                   595.9
Asbestos-related receivables.      371.4      443.0      313.7
Deferred tax assets..........                 487.9      447.7
                                   457.5
Net assets of discontinued
  operations.................       (0.8)       8.3    1,424.0
------------------------------ ---------- ---------- -----------
Total assets.................  $ 2,492.6  $ 2,573.8  $ 3,769.4
============================== ========== ========== ===========

(1) Represents capital expenditures of discontinued operations prior to their
    classification as such.


                                      F-27
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================================================

QUARTERLY SUMMARY AND STATISTICAL INFORMATION (1) (Unaudited)
(Dollars in millions, except per share)
==================================================================================================================================
                                                           March 31           June 30          September 30       December 31
------------------------------------------------------ ------------------ ------------------ ------------------ ------------------
1999
<S>                                                          <C>                <C>                <C>               <C>
Net sales ...........................................        $ 345.4            $ 373.0            $ 372.2           $  381.3
Cost of goods sold...................................          208.3              214.1              213.2              220.6
Income from continuing operations....................           18.8               30.4               32.8               48.2
Net income...........................................           20.0               25.7               42.0               48.2

Net income per share: (2)
   Basic earnings per share:
    Continuing operations............................        $   0.26           $   0.45           $   0.46          $   0.68
    Net income.......................................            0.28               0.37               0.59              0.68
   Diluted earnings per share:
    Continuing operations............................            0.25               0.43               0.44              0.66
    Net income.......................................            0.27               0.35               0.56              0.66

Market price of common stock: (3)
    High.............................................        $16 11/16            $19 1/4            $21             $17 9/16
    Low..............................................         11 13/16             12                 15 3/4          12 13/16
    Close............................................         12 1/8               19                 16 3/8          14  1/8

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

1998
Net sales............................................        $ 340.8            $ 369.9            $ 380.3           $  372.4
Cost of goods sold...................................          209.2              223.9              228.3              222.0
Income (loss) from continuing operations.............           12.0               23.6               25.3             (210.1)
Net (loss) income....................................          (24.8)              24.3               26.3             (209.4)

Net (loss) income per share: (2)
   Basic earnings per share:
    Continuing operations............................        $   0.16           $   0.31           $   0.34          $  (2.88)
    Net (loss) income................................           (0.33)              0.32               0.35             (2.87)
   Diluted earnings per share:
    Continuing operations............................            0.15               0.30               0.32             (2.88)
    Net (loss) income................................           (0.30)              0.30               0.33             (2.87)

Market price of common stock: (3)(4)
    High.............................................        $  19 13/16        $  21 11/16        $  18 7/16        $ 17 1/16
    Low..............................................           15 13/16           15 3/4             12               10
    Close............................................           18 5/8             17 1/16            12 7/16          15 11/16
====================================================== ================== ================== ================== =================
</TABLE>
(1)  The quarterly summary and statistical information presented above have been
     restated to reflect the classification of the Packaging Business and CCS as
     described in Notes 1 and 3 of the Consolidated Financial Statements as
     discontinued operations.

(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.

(4)  The stock prices for the first quarter of 1998 have been adjusted so that
     they are on a basis comparable to the stock prices following the
     disposition of the Packaging Business as described in Notes 1 and 3 of the
     Consolidated Financial Statements.

                                      F-28
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================

FINANCIAL SUMMARY (1) (Dollars in millions, except per share amounts)
===================================================================================================================================
                                                                 1999          1998          1997            1996          1995
------------------------------------------------------------ ------------- ------------- ------------- -------------- -------------
<S>                                                               <C>           <C>          <C>            <C>         <C>
STATEMENT OF OPERATIONS
Net sales ..................................................      $1,471.9     $ 1,463.4     $ 1,478.4       $1,716.4    $ 1,860.5
Cost of goods sold..........................................         856.2         883.4         915.9        1,002.0      1,048.6
Depreciation and amortization...............................          89.2          92.1          94.8           97.3        115.2
Interest expense and related financing costs................          16.1          19.8          21.2           30.5         30.6
Research and development expenses...........................          42.4          47.4          42.4           55.4         73.2
Income (loss) from continuing operations before income taxes         203.4        (223.2)        137.4          183.3       (517.2)
Income (loss) from continuing operations....................         130.2        (149.2)         85.9          112.9       (324.8)
Income (loss) from discontinued operations (2)..............           5.7           0.9         175.1        2,744.8         (1.1)
Net income (loss) ..........................................         135.9        (183.6)        261.0        2,857.7       (325.9)
------------------------------------------------------------ ------------- ------------- ------------- -------------- -------------
FINANCIAL POSITION
Current assets..............................................      $  779.8     $   625.6     $ 2,175.5       $1,774.9    $ 1,681.3
Current liabilities.........................................         741.4         641.8       1,357.7        1,487.1      2,214.2
Properties and equipment, net...............................         617.3         661.4         663.3        1,871.3      1,736.1
Total assets................................................       2,492.6       2,573.8       3,769.4        4,945.8      6,360.6
Total debt..................................................         136.2         113.4       1,072.3        1,388.2      1,933.8
Shareholders' equity - common...............................         156.6          87.6         467.9          632.4      1,224.4
------------------------------------------------------------ ------------- ------------- ------------- -------------- -------------
CASH FLOW
Operating activities........................................      $  137.3     $   (72.7)    $   236.4       $  223.3    $   107.0
Investing activities........................................          79.2        (108.2)        370.1        2,072.9       (801.6)
Financing activities........................................         (77.5)        196.6        (621.3)      (2,267.8)       655.7
Net cash flow...............................................         134.5          17.7         (20.7)          27.7        (37.7)
------------------------------------------------------------ ------------- ------------- ------------- -------------- -------------
DATA PER COMMON SHARE
Income (loss) from continuing operations....................      $   1.84     $   (2.00)    $    1.16       $   1.22    $   (3.39)
Net income (loss) ..........................................          1.92         (2.46)         3.53          31.06        (3.40)
Dividends...................................................          --            --             .56            .50        1.175
Average common shares outstanding (thousands)...............        70,749        74,559        73,993         91,976       95,822
------------------------------------------------------------ ------------- ------------- ------------- -------------- -------------
OTHER STATISTICS
Dividends paid on common stock..............................      $   --       $    --       $    41.2       $   45.6    $   112.1
Capital expenditures........................................          82.5         100.9         258.7          456.6        537.6
Common stock price range (3)................................ 21 - 11 13/16   21 11/16-10 18 1/16-9 7/8   12 1/2-7 3/8 10 1/4-5 1/2
Common shareholders of record...............................        13,215        14,438        15,945         17,415       19,496
Number of employees - continuing operations.................         6,300         6,600         6,700          7,100       10,400
============================================================ ============= ============= ============= ============== =============
</TABLE>

(1)  Certain prior-year amounts have been reclassified to conform to the 1999
     presentation.

(2)  See Note 3 to the Consolidated Financial Statements for additional
     information.

(3)  Stock prices have been adjusted so that they are on a basis comparable to
     the stock prices following the disposition of the Packaging Business and
     NMC as described in Notes 1 and 3 to the Consolidated Financial Statements.




                                      F-29
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION

--------------------------------------------------------------------------------
CONTINUING OPERATIONS
================================================================================

Grace is engaged in specialty chemicals and specialty materials businesses on a
global basis. The principal business segments are Davison Chemicals, which
produces catalysts and silica products, and Performance Chemicals, which
produces construction chemicals, building materials and container products. Set
forth below is a chart that lists key operating statistics and percentage
changes for the years ended December 31, 1999, 1998 and 1997, which should be
referenced when reading management's discussion and analysis of the results of
continuing operations. The chart below, as well as the financial information
presented throughout this discussion, divides Grace's financial results between
"core operations" and "noncore activities." Core operations comprise the
financial results of Davison Chemicals, Performance Chemicals and the costs of
corporate activities that directly or indirectly support business operations. In
contrast, noncore activities comprise all other events and transactions that are
not directly related to the generation of customer revenue or the support of
core operations. The Company's financial strategy is to maximize returns and
cash flows from core operations to fund business growth and to provide resources
to satisfy its obligations that remain from past businesses, products and
events.

<TABLE>
<CAPTION>
============================================================ =============== =========== ============== ============ ==============

ANALYSIS OF CONTINUING OPERATIONS                                                          % Change                    % Change
 (Dollars in millions)                                             1999         1998      Fav(Unfav)       1997       Fav(Unfav)
============================================================ =============== =========== ============== ============ ==============
<S>                                                              <C>            <C>         <C>             <C>          <C>
NET SALES
    DAVISON CHEMICALS
    Refining catalysts......................................   $  406.3       $  422.5      (3.8%)        $  397.5       6.3%
    Chemical catalysts......................................      112.1          104.5       7.2%            101.5       3.0%
    Silica products.........................................      205.9          203.8       1.1%            212.6      (4.1%)
                                                             --------------- ----------- -------------- ------------ --------------
  TOTAL DAVISON CHEMICALS...................................      724.3          730.8      (0.9%)           711.6       2.7%
                                                             --------------- ----------- -------------- ------------ --------------
    PERFORMANCE CHEMICALS
    Construction chemicals..................................      302.7          282.6       7.1%            279.3       1.2%
    Building materials......................................      210.5          209.1       0.7%            198.5       5.3%
    Container products......................................      234.4          240.9      (2.7%)           264.1      (8.8%)
                                                             --------------- ----------- -------------- ------------ --------------
  TOTAL PERFORMANCE CHEMICALS...............................      747.6          732.6       2.0%            741.9      (1.2%)
                                                             --------------- ----------- -------------- ------------ --------------
TOTAL GRACE SALES - CORE OPERATIONS                            $1,471.9       $1,463.4       0.6%         $1,453.5       0.7%
                                                             =============== =========== ============== ============ ==============
PRE-TAX OPERATING INCOME:
    Davison Chemicals.......................................   $  124.3       $  107.5      15.6%         $  100.1       7.4%
    Performance Chemicals...................................      105.8           78.1      35.5%             69.1      13.0%
    Corporate operating costs...............................      (52.0)         (53.8)      3.3%            (89.3)     39.7%
                                                             --------------- ----------- -------------- ------------ --------------
PRE-TAX INCOME FROM CORE OPERATIONS.........................      178.1          131.8a     35.1%             79.9b     65.0%
                                                             --------------- ----------- -------------- ------------ --------------
PRE-TAX INCOME (EXPENSE) FROM NONCORE ACTIVITIES............       37.2         (340.1)      NM               69.5        NM
Interest expense............................................      (16.1)         (19.8)     18.7%            (21.2)      6.6%
Interest income.............................................        4.2            4.9     (14.3%)             9.2     (46.7%)
                                                             --------------- ----------- -------------- ------------ --------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
    INCOME TAXES............................................      203.4         (223.2)      NM              137.4        NM
(Provision for) benefit from income taxes...................      (73.2)          74.0       NM              (51.5)       NM
                                                             --------------- ----------- -------------- ------------ --------------
INCOME (LOSS) FROM CONTINUING OPERATIONS....................   $  130.2       $ (149.2)      NM           $   85.9        NM
                                                             =============== =========== ============== ============ ==============
KEY FINANCIAL MEASURES:
   Pre-tax income from core operations as a
       percentage of sales..................................       12.1%           9.0%     3.1 pts            5.5%      3.5 pts
   Pre-tax income from core operations before
       restructuring and asset impairment charges...........   $  178.1       $  147.9       20.4%        $  116.7      26.7%
       As a percentage of sales.............................       12.1%          10.1%     2.0 pts            8.0%      2.1 pts
   Pre-tax income from core operations before
       depreciation and amortization........................   $  267.3       $  223.9       19.4%        $  174.7      28.2%
       As a percentage of sales.............................       18.2%          15.3%     2.9 pts           12.0%      3.3 pts
============================================================ =============== =========== ============== ============ ==============
</TABLE>

NM = Not meaningful. a = Includes $16.1 million restructuring charge.
b = Includes $36.8 million restructuring charge.


                                      F-30
<PAGE>

NET SALES

The following table identifies the year-over-year increase or decrease in sales
attributable to changes in product volumes, product prices and/or mix, and the
impact of foreign currency translation.
================================================================
NET SALES                       1999 AS A PERCENTAGE
VARIANCE ANALYSIS          INCREASE (DECREASE) FROM 1998
================================================================
                      VOLUME   PRICE/MIX   TRANSLATION   TOTAL
                     --------- ----------- ------------ --------
Davison Chemicals..     1.1%     (0.7%)       (1.3%)    (0.9%)
Performance
  Chemicals .......     2.0%      1.5%        (1.5%)     2.0%
Net sales..........     1.6%      0.4%        (1.4%)     0.6%
-------------------- --------- ----------- ------------ --------
By Region:
  North America        (1.7%)     1.1%         0.0%     (0.6%)
  Europe                9.3%      0.5%        (4.5%)     5.3%
  Latin America        (3.6%)     7.9%       (12.5%)    (8.2%)
  Asia/Pacific          1.1%     (5.6%)        4.3%     (0.2%)
================================================================
                                1998 AS A PERCENTAGE
                           INCREASE (DECREASE) FROM 1997
================================================================
Davison Chemicals..     5.7%      0.2%        (3.2%)     2.7%
Performance
  Chemicals........     1.9%      1.3%        (4.4%)    (1.2%)
Net sales..........     3.7%      0.8%        (3.8%)     0.7%
-------------------- --------- ----------- ------------ --------
By Region:
  North America         3.8%      1.0%        (0.3%)     4.5%
  Europe                5.9%     (3.6%)       (3.0%)    (0.7%)
  Latin America         0.1%      0.6%        (5.3%)    (4.6%)
  Asia/Pacific          1.8%      7.4%       (16.7%)    (7.5%)
================================================================


Grace's net sales increased 0.6% in 1999 and 0.7% in 1998. In both 1999 and
1998, volume gains were largely offset by the negative translation impacts of
sales denominated in foreign currencies that had weakened against the U.S.
dollar. Price changes were modest in both years with product mix accounting for
most of the year-over-year change.

In 1999, all product groups, except for refining catalysts and container
sealants, experienced volume growth. A downturn in demand for refining catalysts
in North America and softness of the Latin American market for container
sealants were the primary causes for declines. The most significant volume
increases were experienced in silica products (5.3%) in all regions except North
America, and in construction chemicals (6.5%) in all regions with Asia/Pacific
experiencing the highest growth rate.

In 1998, the catalysts, construction chemicals and building materials product
groups experienced volume growth. This growth was offset by volume declines of
silica and container products. The volume growth was driven by strong
construction activity and product penetration in North America combined with
growth in demand for refining catalysts. The decline in container products was
attributable to the divestment of a niche segment of the coatings business in
Europe (September 1997) and the can forming lubricants business in North America
(May 1998).

In 1999, unfavorable foreign currency effects were experienced primarily in
Europe and Latin America as the dollar strengthened against major regional
currencies. In 1998, unfavorable foreign currency effects were primarily seen in
Asia/Pacific.

PRE-TAX INCOME FROM CORE OPERATIONS

Pre-tax income from core operations was $178.1 million for the year ended
December 31, 1999, compared to $131.8 million for the year ended December 31,
1998 (results in 1998 include a $16.1 million restructuring charge). Excluding
the prior year restructuring charge, 1999 pre-tax income from core operations
increased 20.4% from $147.9 million for the year ended December 31, 1998. In
1997, there was a $36.8 million restructuring charge related to core operations.
Excluding the restructuring charge for both 1998 and 1997, the pre-tax income
from core operations for the year ended December 31, 1998 increased 26.7% from
1997.

Operating income of Davison Chemicals for 1999 was $124.3 million, up 12.0%
versus 1998 (excluding a $3.5 million restructuring charge in 1998), and its
operating margin of 17.2% was 2.0 percentage points better than the prior year.
Operating income of Performance Chemicals for 1999 was $105.8 million, up 19.7%
from 1998 (excluding a $10.3 million restructuring charge in 1998) with an
operating margin of 14.1%, up 2.0 percentage points from 1998. These
improvements are due in large part to the Company's focus on productivity
improvement, which produced a 4.4% reduction in unit costs on a constant dollar
basis with 1998. Most of the cost reduction was attributable to improvements in
manufacturing processes, material science applications and infrastructure
integration.
<PAGE>

The following table provides the productivity index for each business segment
and Grace's core operations in total. The index is calculated using 1998 as the
base year (index 1.000) and carving out selling price changes, currency movement
and cost inflation in every year since the base year. The resulting change in
cost per dollar of sales is Grace's productivity measure. Changes in product
volume and mix remain in the productivity equation. Grace is targeting a 5%
annual improvement in its productivity index for 2000.



                                      F-31
<PAGE>

========================= ============ =========== ===========
PRODUCTIVITY INDEX           1999         1998      % Change
========================= ============ =========== ===========

COST PER $ OF SALES ON
 A CONSTANT $ BASIS
 WITH 1998 AS BASE
 YEAR:
Davison Chemicals ......       $0.828       $0.865     (4.3%)
Performance Chemicals...        0.859        0.897     (4.2%)
Corporate Operating Cost        0.034        0.036     (5.5%)
------------------------- ------------ ----------- -----------
Total Core Operations...       $0.877       $0.917     (4.4%)
------------------------- ------------ ----------- -----------
PRODUCTIVITY INDEX......        1.044        1.000      0.044
========================= ============ =========== ===========

Corporate operating costs include expenses incurred by corporate headquarters
functions in support of core operations. During 1999, many of these functions
were relocated from Boca Raton, Florida to the Davison Chemicals Headquarters in
Columbia, Maryland. The 1999 cost structure includes incremental relocation
costs, employee separation costs and duplicative salaries that occurred during
the transition. These expenses are not expected to reoccur. A normalized annual
corporate cost structure is expected to be approximately $40 million in 2000 as
compared to $52 million in 1999.

PRE-TAX INCOME (EXPENSE) FROM NONCORE ACTIVITIES

Income from noncore activities totaled $37.2 million for 1999 compared to a net
expense of $(340.1) million for 1998 and net income of $69.5 million for 1997.
The 1999 income included: (1) an $18.5 million gain on the settlement of notes
received as partial consideration when Grace sold its printing products business
in 1994 - these notes were paid in full in 1999 as a condition of sale of this
business to a new owner; (2) a $9.3 million gain from the sales of marketable
securities; (3) a $4.8 million gain from sales of noncore real estate; and (4) a
$4.4 million gain from the sale of a corporate aircraft. The net expense in 1998
was primarily due to a net charge of $(376.1) million for asbestos-related
litigation offset by $38.2 million net insurance recovery related to
environmental remediation. The 1997 income was comprised primarily of the gain
on the sale of Grace's specialty polymers business ($103.1 million pre-tax)
partially offset by accelerated vesting of payments under long-term incentive
compensation programs ($26.6 million).

Other major income and expense items included in noncore activities are tolling
revenue (fees for services both to and from third parties relating to previously
divested businesses), pension credits that will diminish over the next few
years, expenses that relate to retirees of divested businesses and corporate
litigation costs. These items effectively offset in 1999 and 1998. For the year
2000, Grace projects income from noncore activities to be in the $12 million to
$16 million range.

INTEREST AND INCOME TAXES

Net interest expense for 1999 was $11.9 million, a decrease of 20.1% from net
interest expense of $14.9 million in 1998. This decrease is attributable to a
reduced average debt level on the revolving credit agreements during 1999 after
the Packaging Business transaction. Net interest expense increased 24.2% in 1998
over the 1997 net interest expense of $12.0 million.

The Company's effective tax rate was 36.0% for 1999, as compared to 33.2% for
1998 and 37.5% for 1997. The 1998 effective tax rate includes a negative
adjustment to the tax asset valuation allowance, lowering the effective tax
benefit on Grace's 1998 pre-tax loss. The decrease in the 1999 effective tax
rate was due to a reorganization of certain of the Company's foreign operations
resulting in anticipated lower foreign taxes.

DAVISON CHEMICALS

Sales

Davison Chemicals is a leading global supplier of catalysts and silica products.
Refining catalysts, which represent approximately 28% of 1999 total Grace sales
(29% - 1998; 27% - 1997), include fluid cracking catalysts (FCC) used by
petroleum refiners to convert distilled crude oil into transportation fuels and
other petroleum-based products, hydroprocessing catalysts which upgrade heavy
oils and remove certain impurities, and chemical additives for treatment of
feedstock impurities. Chemical catalysts, which represent 7% of 1999, 1998 and
1997 total Grace sales, include polyolefin catalysts which are essential
components in the manufacturing of polyethylene resins used in products such as
plastic film, high performance plastic pipe and plastic household containers.
Silica products, which represent 14% of 1999 total Grace sales (14% - 1998; 15%
- 1997), are used in a wide variety of industrial and consumer applications such
as coatings, food processing, plastics, adsorbents and personal care products.

In 1999, refining catalyst sales were 3.8% lower than 1998 as a result of volume
declines in North America and Asia/Pacific due largely to an overall reduction
in global demand, partially offset by volume gains in


                                      F-32
<PAGE>

Europe. Over the course of 1999, volume improved from a low in the first
quarter, where sales were off 8.1% from 1998 to volume gains in the fourth
quarter of 7.6%. This positive trend is expected to continue into 2000 as
overall demand for refining catalysts is expected to be favorably impacted by
changing environmental regulations in the United States, particularly
reformulated gasoline, recently finalized EPA rules that require a substantially
reduced level of sulfur, and the potential requirement for removal of MTBE from
gasoline.

Chemical catalyst sales increased 7.2% in 1999 reflecting better than 10% volume
growth in North America and Europe, offset by a sales decline in Asia/Pacific on
a small base. As with refining catalysts, market fundamentals for 2000 are
favorable with the segments served by Grace (high density and linear low density
polyethylene) growing at better than the average rate for other polyethylene
products.

Silica products sales were up 1.1% with all regions showing favorable volume
comparisons to prior year except for North America. Volume increases ranged
between 6.4% and 9.4% in other major regions. The adsorbents segment was down in
1999 in North America due to pricing pressures in molecular sieve applications.
This situation is expected to continue into 2000.

In 1998, refining catalyst sales increased 6.3% over 1997 as a result of record
volume growth in Asia/Pacific, combined with favorable price/mix variances,
primarily due to new refinery business in China, Taiwan and Indonesia. Chemical
catalyst sales increased 3.0% due to volume growth in North America and
Asia/Pacific, as a result of Davison Chemicals' strength in resin manufacturing
technology. Silica products sales were down 4.1% due to lower sales of silicas
for dentifrice (where consumer preferences favored toothpaste brands that did
not contain Davison silicas), and pricing pressures for insulated glass
molecular sieves, especially in Europe.

Operating Earnings

Pre-tax operating income of $124.3 million was 15.6% better than 1998. Operating
margins improved 2.5 percentage points to 17.2% despite lower sales, as a result
of raw material cost reductions and manufacturing efficiencies derived from
Grace's productivity improvement program.

Pre-tax operating income of $107.5 million in 1998 improved 7.4% over $100.1
million in 1997. Gross margin improved $15.7 million due to higher sales and
increased manufacturing productivity. A reduction in general and administrative
expenses, as a result of changes to employee incentive compensation programs,
was more than offset by increased factory administration and depreciation
expenses resulting from new manufacturing facilities brought on-line in 1998,
and higher research and development costs. Restructuring costs of $3.5 million
were recorded in the fourth quarter of 1998 for the severance of approximately
60 people. In the fourth quarter of 1997, restructuring costs of $3.9 million
were included in operating results for the termination of leases.


PERFORMANCE CHEMICALS

Sales

Performance Chemicals was formed in 1999 by combining the previously separate
business segments of Grace Construction Products and Darex Container Products.
These businesses were consolidated under one management team to capitalize on
infrastructure synergies from co-location of headquarters and production
facilities around the world. The major product groups of this business segment
include specialty construction chemicals and specialty building materials used
primarily by the nonresidential construction industry; and container sealants
and coatings for food and beverage packaging, and other related products.
Construction chemicals, which represent 21% of 1999 total Grace sales (19% -
1998 and 1997) add strength, control corrosion, and enhance the handling and
application of concrete. Building materials, which represent 14% of 1999, 1998
and 1997 total Grace sales, prevent water damage to structures and protect
structural steel against collapse due to fire. Container products, which
represent 16% of 1999 total Grace sales (17% - 1998; 18% - 1997), seal beverage
and food cans, and glass and plastic bottles, and protect metal packaging from
corrosion and the contents from the influences of metal.

Net sales of Performance Chemicals products increased 2.0% compared to 1998
despite the effect of currency weakness in Europe and Latin America compared to
the U.S. dollar which adversely impacted sales by $17.1 million for 1999.
Excluding the impact of this currency translation, sales increased 4.4%.

In 1999, sales of construction chemicals were up 7.1% over 1998 driven by volume
growth worldwide and favorable price/mix in all regions except Asia/Pacific.
This reflects share gains and the penetration of value-added products in North
America and Europe and the


                                      F-33
<PAGE>

consolidation of a joint venture in Japan (GCK) following Grace's increase in
ownership from 45% to 81% in January 1999. In 2000, this product group is
expected to continue to achieve sales increases above the growth rate of the
general construction market.

Sales of building materials increased 0.7% compared to 1998, reflecting
increases in North American volume and price/mix. These increases were largely
offset by volume decreases in Europe, primarily related to products sold to the
oil industry which had low construction activity, and volume and price/mix
decreases in Asia/Pacific as Grace continued to experience depressed project
activity in that region.

Sales of container products declined 2.7% in 1999. Volume decreases, reflecting
unfavorable economic conditions in Latin America and worldwide customer
consolidations in can sealants, were offset by favorable price/mix in Europe and
Latin America. Currency translation had a 4.0% negative impact year-over-year.


In 1998, Performance Chemicals sales decreased 1.2% as compared to 1997 as sales
increases in construction chemicals and building materials were more than offset
by a sales decrease in container products. Sales of construction chemicals were
up 1.2% in 1998 (6.7% excluding the impact of currency translations) driven by
strong volumes in every region except Asia/Pacific and favorable price/mix
worldwide. Sales of building materials were up 5.3% in 1998 as this product line
also experienced strong volumes in every region except Asia/Pacific. Container
products sales decreased 8.8% in 1998 as compared to 1997. Contributing to the
sales decline from 1997 to 1998 were the divestments of a niche segment of the
coatings business in Europe and the can forming lubricants business in North
America discussed above.


Operating Earnings

Pre-tax operating income increased 35.5% from $78.1 million in 1998 to $105.8
million in 1999 (1998 included a $10.3 million restructuring charge taken to
cover headcount reduction and a worldwide site rationalization). Excluding the
restructuring charge, the increase was 19.7%.


This increase in pre-tax operating income was driven by a $20.0 million
improvement in margin, reflecting sales increases, value-added product
penetration and substitution and manufacturing cost reductions. An increase in
operating expenses due to the consolidation of GCK was offset by continued
productivity initiatives, principally restructuring and consolidation of
infrastructure, resulting in reduced operating, selling and research and
development expenses.


Pre-tax operating income of $78.1 million in 1998 was up 13% compared to pre-tax
operating income of $69.1 million in 1997. This increase was achieved, despite a
decrease in sales, largely as a result of benefits realized from the cost
reduction programs. In the fourth quarter of 1998, Performance Chemicals
recorded a restructuring charge of $10.3 million comprised primarily of
headcount reductions and rationalization of facilities in container products. In
the fourth quarter of 1997, a charge in the amount of $5.7 million was recorded
to reduce the carrying value of certain equipment held for customer use.

Recent Acquisitions

On December 22, 1999 Grace acquired Sociedad Petreos S.A.'s "Polchem" concrete
admixture and construction chemicals business, which had 1999 sales of
approximately $5 million, from Cemento Polpaico S.A./Chile, an affiliate of
Holderbank of Switzerland. On January 31, 2000 Grace acquired Crosfield Group's
hydroprocessing catalyst business, which had 1999 sales of approximately $30
million, from Imperial Chemical Industries PLC. These acquisitions have been
accounted for as a purchase business combination, and accordingly, the results
of operations of the acquired businesses have been or will be included in the
consolidated statement of operations from the date of acquisition. Grace does
not consider the effects of either of these acquisitions significant for pro
forma disclosure purposes.

--------------------------------------------------------------------------------
DISCONTINUED OPERATIONS
================================================================================

PACKAGING BUSINESS

As discussed in Notes 1 and 3 to the Consolidated Financial Statements, the
Spin-off and Merger were completed on March 31, 1998. The 1998 loss from
discontinued operations includes $32.6 million ($28.3 million after-tax) of
costs related to the Packaging Business transaction and $8.4 million ($5.5
million after-tax) for a related pension plan curtailment loss.

CROSS COUNTRY STAFFING

In July 1999, the Company completed the sale of substantially all of its
interest in Cross Country Staffing (CCS), a provider of temporary nursing and
other healthcare services for total cash proceeds of


                                      F-34
<PAGE>

$184.6 million. The Company's investment in CCS had been accounted for under the
equity method. The sale resulted in a net pre-tax gain of $76.3 million ($32.1
million after-tax) including the cost of the Company's purchase of the interests
held by third parties in CCS and the amount payable under CCS's phantom equity
plan. The gain and the operations of CCS prior to the sale are included in
"Income from discontinued operations, net of tax" in the Consolidated Statement
of Operations. Certain contingent liabilities, primarily related to tax matters
of CCS, are being retained by the Company.

RETAINED OBLIGATIONS

Under certain divestiture agreements, the Company has retained contingent
obligations that could develop into situations where accruals for estimated
costs of defense or loss would be recorded in a period subsequent to divestiture
under generally accepted accounting principles. The Company assesses its
retained risks quarterly and accrues amounts to be payable related to these
obligations when probable and estimable.

During the third quarter of 1999, the Company revised its estimate of the
outcome of certain of these retained contingent obligations based on current
circumstances and, as a result, recorded an additional charge of $25.7 million
($16.7 million after-tax). This charge is included in "Income from discontinued
operations, net of tax" in the Consolidated Statement of Operations.

--------------------------------------------------------------------------------
FINANCIAL CONDITION
================================================================================

The charts below are intended to enhance the readers' understanding of the
Company's overall financial position by separately showing assets, liabilities
and cash flows related to core operations from those related to noncore
activities. The Company's management structure and activities are tailored to
the separate focus and accountability of core operations and noncore activities.

=============================================================
CORE OPERATIONS
(Dollars in millions)                  1999         1998
=============================================================
BOOK VALUE OF INVESTED CAPITAL

Receivables .......................    $181.9   $   176.9
Inventory .........................     128.2       130.1
Properties and equipment, net .....     611.2       631.7
Intangible assets and other........     345.9       370.9
                                    ---------- ------------
ASSETS SUPPORTING CORE OPERATIONS..   1,267.2     1,309.6
Accounts payable and accruals......    (358.1)     (361.0)
                                    ---------- ------------
CAPITAL INVESTED IN CORE OPERATIONS    $909.1      $948.6
After-tax return on avg invested
     capital.......................      12.5%        8.6%
                                    ---------- ------------
CASH FLOWS:
Pre-tax operating income ..........    $178.1      $131.8
Depreciation and amortization .....      89.2        92.1
                                    ---------- ------------
PRE-TAX EARNINGS BEFORE
 DEPREC./AMORT. ...................     267.3       223.9
Capital expenditures ..............     (82.5)     (100.9)
Businesses acquired ...............      (9.4)       --
Other changes .....................     (20.6)      (14.9)
                                    ---------- ------------
NET CASH FLOW FROM CORE OPERATIONS.    $154.8      $108.1
=============================================================

The Company's financial strategy is to maximize returns and cash flows from core
operations to fund business growth and to provide resources to satisfy noncore
obligations.

The Company has a net asset position supporting its core operations of $909.1
million at December 31, 1999 compared to $948.6 million at December 31, 1998
including the cumulative translation account reflected in Shareholders' Equity
of $106.1 million for 1999 and $86.8 million for 1998. The change in the net
asset position is primarily due to cash received in the redemption of
subordinated interests in receivables sold of $37.0 million. After-tax return on
capital invested in core operations improved by 3.9 percentage points reflecting
the 35.1% increase in core operating earnings year-over-year coupled with
reduced overall invested capital. Cash flows from core operations improved from
enhanced earnings and lower capital expenditures.

Grace is targeting pre-tax income and returns on capital invested in core
operations in 2000 to improve by approximately 12% to 15% over 1999. This
improvement is projected to be attributable to cost structure reductions secured
in 1999 coupled with revenue growth from market penetration of current products
and recently acquired businesses, and further gains from Grace's productivity
initiatives.

The Company has a number of financial exposures originating from past
businesses, products and events. These obligations arose from transactions
and/or business practices that date back to when Grace was a much larger
company, when it produced


                                      F-35
<PAGE>

products or operated businesses that are no longer part of its revenue base, and
when government regulations and scientific knowledge were much less advanced
than today. Grace's current core operations, together with other available
assets, are being managed to generate sufficient cash flow to fund these
obligations over time.

=============================================================
NONCORE ACTIVITIES
(Dollars in millions)                    1999        1998
=============================================================
BOOK VALUE OF ASSETS AVAILABLE
TO FUND NONCORE OBLIGATIONS:
Cash and other financial assets ....  $  345.8    $   257.4
Properties and investments .........       8.8         32.4
Asbestos-related insurance
receivable .........................     371.4        443.0
Tax assets, net.....................     363.8        334.5
-------------------------------------------------------------
ASSETS AVAILABLE TO FUND NONCORE
   OBLIGATIONS 1....................   1,089.8      1,067.3
-------------------------------------------------------------
Noncore liabilities:
Asbestos-related litigation.........  (1,084.0)    (1,199.9)
Environmental remediation...........    (215.5)      (240.5)
Postretirement benefits.............    (201.4)      (211.3)
Retained obligations and other......     (99.1)       (76.4)
-------------------------------------------------------------
TOTAL NONCORE LIABILITIES...........  (1,600.0)    (1,728.1)
-------------------------------------------------------------
NET NONCORE LIABILITY............... $  (510.2)   $  (660.8)
-------------------------------------------------------------
CASH FLOWS:
Pre-tax income (expense) from
     noncore activities............. $    37.2    $  (340.1)
Proceeds from noncore asset sales 2.     171.1         (7.3)
Other changes.......................      12.5        275.1
Cash spending for:
  Asbestos-related litigation, net
     of insurance recovery..........     (42.8)      (164.7)
  Environmental remediation.........     (25.0)       (36.9)
  Postretirement benefits...........     (19.6)       (21.0)
  Retained obligations and other....     (71.7)         5.9
-------------------------------------------------------------
NET CASH FLOW FROM NONCORE
     ACTIVITIES .................... $    61.7    $  (289.0)
=============================================================

1    The Company also has committed, unused credit facilities of $410 million at
     December 31,1999.

2    Includes investing activities of discontinued operations.

The table above displays the 1999 and 1998 book value of Grace's noncore
liabilities and the assets available to fund required payments. Each liability
has different characteristics, risks and expected liquidation profile. Taken
together, these liabilities represent $1,600.0 million of Grace's total
liabilities as reflected on its balance sheet at December 31, 1999. Assets
available to fund noncore liabilities consist of cash and cash equivalents, net
cash value of life insurance where Grace is the beneficiary, property and
investments not used in core operations, insurance coverage for asbestos-related
litigation and net tax assets related to noncore liabilities. These assets, in
the aggregate, total $1,089.8 million at December 31, 1999. The net liability
position of $510.2 million at December 31, 1999 reflects a $150.6 million, or
22.8% reduction from December 31, 1998.

ASBESTOS-RELATED MATTERS

Grace is a defendant in lawsuits relating to previously sold asbestos-containing
products. In 1999, Grace paid $42.8 million for the defense and disposition of
asbestos-related property damage and bodily injury litigation, net of amounts
received under settlements with insurance carriers. At December 31, 1999 Grace's
balance sheet reflects a net liability after insurance and after recorded tax
benefits of $454.9 million, which represents management's best estimate (in
conformity with generally accepted accounting principles) of the undiscounted
net cash outflows in satisfaction of Grace's current and expected
asbestos-related litigation. The net present value of such net liability (based
on cash flow projections that are inherently imprecise but represent
management's best current estimate) is approximately $350 million (discounted at
5.2% - estimated after-tax investment rate) at December 31, 1999.

During the fourth quarter of 1998, Grace recorded a noncash pre-tax charge of
$576.9 million ($375.0 million after-tax), primarily to reflect the estimated
costs of defending against and disposing of total bodily injury claims expected
to be filed against Grace. The charge to the litigation reserve was offset by an
adjustment for expected recoveries from insurance carriers of $200.8 million
($130.5 million after-tax) and recorded tax assets of $131.6 million for the
future tax benefit arising from asbestos-related payments.

The Consolidated Balance Sheet at December 31, 1999 includes total amounts due
from insurance carriers of $371.4 million pursuant to settlement agreements with
insurance carriers and net tax assets of $257.7 million related to future net
tax deductions for asbestos-related matters.

Grace expects that the net expenditures over the next three years will range
from $40.0 to $80.0 million annually (after tax benefits) to defend against and
dispose of such claims. The amount of spending in 2000 is expected to be higher
than 1999 due to the timing and adjudication of certain cases. Such amounts are
estimates of the probable cost of defending against and disposing of
asbestos-related claims and probable recoveries from insurance - the ultimate
outcome of such matters cannot be predicted with certainty and estimates may
change as experience evolves over time.

                                      F-36
<PAGE>

See Note 2 to the Consolidated Financial Statements for further information
concerning asbestos-related lawsuits and claims.

ENVIRONMENTAL MATTERS

Grace is subject to loss contingencies resulting from extensive and evolving
federal, state, local and foreign environmental laws and regulations relating to
the generation, storage, handling, discharge and disposition of hazardous wastes
and other materials. Expenses of continuing operations related to the operation
and maintenance of environmental facilities and the disposal of hazardous and
nonhazardous wastes totaled $31.1 million in 1999, $38.2 million in 1998 and
$35.8 million in 1997. Such costs are estimated to be between $33 and $38
million in each of 2000 and 2001. In addition, capital expenditures for
continuing operations relating to environmental protection totaled $5.7 million
in 1999, compared to $6.3 million in 1998 and $7.2 million in 1997. Capital
expenditures to comply with environmental initiatives in future years are
estimated to be approximately $7 million in each of 2000 and 2001. Grace also
has incurred costs to remediate environmentally impaired sites. These costs were
$25.0 million in 1999, $36.9 million in 1998 and $37.3 million in 1997. These
amounts have been charged against previously established reserves. At December
31, 1999, Grace's liability for environmental investigatory and remediation
costs related to continuing and discontinued operations totaled $215.5 million,
as compared to $240.5 million at December 31, 1998. Future pre-tax cash outlays
for remediation costs are expected to average between $38 and $43 million over
the next few years.

In the fourth quarter of 1998, Grace recorded a net pre-tax gain of $38.2
million ($24.8 million after-tax) related to environmental issues. Grace entered
into a settlement with one of its insurance carriers which provided for a $57.6
million lump-sum cash payment to Grace for previously incurred costs related to
environmental remediation. Netted against this gain is a $19.4 million ($12.6
million after-tax) charge to reflect a change in the environmental remediation
strategy for a particular site.

Grace is in litigation with two excess insurance carriers regarding the
applicability of the carriers' policies to 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.

See Note 13 to the Consolidated Financial Statements for further information
concerning environmental matters.

POSTRETIREMENT BENEFITS

Grace provides certain postretirement health care and life insurance benefits
for retired employees, a large majority of which pertains to retirees of
previously divested businesses. These plans are unfunded, and Grace pays the
costs of benefits under these plans as they are incurred.

During 1998, Grace's Board approved changes to the postretirement medical plan.
These changes include "caps" for pre-65 retirees and post-65 retirees, changes
in the method used to coordinate with Medicare, and changes in deductible and
coinsurance levels.

Spending under this program is expected to be approximately $20 million per year
over the next few years. Grace's recorded liability of $201.4 million is stated
at net present value discounted at 8%.

RETAINED OBLIGATIONS OF DIVESTED BUSINESSES

The principal retained obligations of divested businesses relate to contractual
indemnification and to contingent liabilities not passed on to the new owner. At
December 31, 1999, Grace had recorded $99.1 million to satisfy such obligations.
Of this total, $18.4 million will be paid over periods ranging from 2 to 10
years. The remainder represents estimates of probable cost to satisfy specific
contingencies expected to be resolved over the next few years.

--------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
================================================================================

Grace's net cash flow from core operations was $154.8 million in 1999 compared
to $108.1 million in 1998. The increase of $46.7 million during 1999 was
principally the result of the improved pre-tax income from core operations and
lower capital expenditures.

The pre-tax cash inflow of noncore activities was $61.7 million in 1999 compared
to an outflow of $289.0 million in 1998. In 1999, Grace realized $225.2 million
in proceeds from sales of noncore assets, principally the divestment of Cross
Country Staffing. In addition, asbestos related spending was favorable by $121.9
million and environmental spending was favorable by $11.9 million. The timing



                                      F-37
<PAGE>

of these expenditures is impacted in part by Grace's legal and cash management
strategies. Postretirement benefit payments were consistent with the prior year
as these payments are based on comparable year-over-year benefit programs. The
payments for retained obligations of divested businesses and other were higher
in 1999 as Grace made payments to limit the interest on past tax adjustments.
This element of noncore activities will continue to decrease as open issues
related to these divested businesses are resolved.


Disbursements under Grace's long-term incentive compensation program, which is
classified as an operating activity on the Consolidated Statement of Cash Flows,
decreased approximately $99.8 million during 1999 compared to 1998. The
long-term incentive compensation programs have been discontinued going forward,
and remaining disbursements for existing plans of less than $3.0 million will be
made in 2000.

Cash flows provided by investing activities in 1999 were $79.2 million, compared
to cash used of $108.2 million in 1998, and cash provided of $370.1 million in
1997. Net cash inflows were impacted by proceeds from divestment of businesses
totaling $184.6 million in 1999 related to Cross Country Staffing and $695.5
million in 1997 primarily related to the sale of Grace's cocoa business.
Proceeds from disposals of assets in 1999 included the sale of the corporate
aircraft for $20.4 million and sale of certain real properties for a total of
$17.1 million.

Total Grace capital expenditures for 1999 and 1998 were $82.5 million and $100.9
million, respectively, substantially all of which was directed toward its
business segments. In 1997, Grace made capital expenditures of $258.7 million,
of which nearly half related to the divested Packaging Business.

Net cash used for financing activities in 1999 was $77.5 million, principally
representing $95.3 million used to purchase approximately 7 million of the
Company's shares as part of the 1998 share repurchase program, partially offset
by proceeds from the exercise of stock options of $26.6 million. Net cash
provided by financing activities in 1998 primarily related to the Packaging
Spin-off and Merger described in Notes 1 and 3. In connection with the Packaging
Business transaction, Grace received $1,256.6 million in cash, which was used to
repay substantially all of its debt. On March 31, 1998, Grace used $600.0
million of the cash transfer to repay bank borrowings. On April 1, 1998, Grace
repaid $611.3 million principal amount of Notes pursuant to a tender offer, $3.5
million principal amount of MTNs and $6.0 million of sundry indebtedness. As a
result of this early extinguishment of debt, Grace incurred an after-tax charge
of $35.3 million for premiums paid in excess of the Notes' principal amounts and
other costs related to the purchase of the Notes and MTNs (including the costs
of settling related interest rate swap agreements). These costs are presented as
an extraordinary item in the Consolidated Statement of Operations. Net cash used
for financing activities in 1997 was $621.3 million, primarily relating to
reductions of debt, the repurchase of approximately 6 million shares of stock,
and the payment of dividends, partially offset by proceeds from the exercise of
stock options.

At December 31, 1999, Grace had committed borrowing facilities totaling $500.0
million, consisting of $250.0 million expiring in May 2000 and $250.0 million
under a long-term facility expiring in May 2003. These facilities support the
issuance of commercial paper and bank borrowings, of which $89.7 million was
outstanding at December 31, 1999. The aggregate amount of net unused and
unreserved borrowings under short-term and long-term facilities at December 31,
1999 was $410.3 million. Total debt was $136.2 million at December 31, 1999, an
increase of $22.8 million from December 31, 1998.

Grace is the beneficiary of life insurance policies on current and former
employees with benefits in force of approximately $2,309 million and net cash
surrender value of $81.6 million at December 31, 1999, comprised of $432.4
million in policy gross cash value offset by $350.8 million of policy loans. The
policies were acquired to fund various employee benefit programs and other
long-term liabilities and are structured to provide cash flows (primarily
tax-free) over the next 40-plus years.


The Company intends to utilize policy cash flows, which are actuarially
projected to range from $15 million to $45 million annually over the policy
terms, to fund (partially or fully) noncore liabilities and to earmark gross
policy cash value as a source of funding for noncore obligations. The Company
also intends to explore structuring options for the policies and policy loans to
enhance returns on assets, to reduce policy expenses and to better match policy
cash flows with payments of noncore liabilities.

In April 1998, the Company's Board of Directors approved a program to repurchase
up to 20% of the Company's outstanding shares in the open market


                                      F-38
<PAGE>

(approximately 15,165,000 shares). Through December 31, 1999, the Company had
acquired 12,105,300 shares of common stock for $177.5 million under the program
(an average price per share of $14.67). Through February 2000, the Company
acquired an additional 1,357,500 shares for $15.7 million (an average price per
share of $11.58). In 1997, Grace substantially completed a share repurchase
program initiated in 1996 by acquiring 6,306,300 shares of common stock for
$335.9 million, or an average price of $53.26 per share. Average prices per
share for shares repurchased in 1997 are not comparable to 1999 and 1998 due to
the Packaging Business transaction (see Notes 1 and 3).

Grace believes that its current cash position together with cash flow generated
from core operations, assets available to fund noncore obligations and committed
borrowing facilities will be sufficient to meet its cash requirements and fund
business growth for the foreseeable future.

--------------------------------------------------------------------------------
INFLATION
================================================================================

The financial statements are presented on a historical cost basis and do not
fully reflect the impact of prior years' inflation. While the US inflation rate
has been modest for several years, the Company operates in international areas
with both inflation and currency issues. The ability to pass on inflation costs
is an uncertainty due to general economic conditions and competitive situations.
It is estimated that the cost of replacing the Company's property and equipment
today is greater than its historical cost. Accordingly, depreciation expense
would be greater if the expense were stated on a current cost basis.

--------------------------------------------------------------------------------
YEAR 2000 COMPUTER SYSTEMS COMPLIANCE
================================================================================

As of November 30, 1999, all information technology (IT) and non-IT systems and
items were reported to be Year 2000 compliant. Through December 31, 1999, 94% of
key vendors and 81% of key customers had returned or made available to Grace
information on their compliance status.

Grace achieved the rollover to the new millenium without experiencing any
significant Year 2000 related issues. Essentially all IT and non-IT systems
Grace- wide have functioned normally since January 1, 2000. Only a few minor
isolated Year 2000 issues occurred, and these were all remedied promptly without
any impact to operations. At the present time, Grace is not aware of any
significant unresolved Year 2000 issues with any vendor or customer.

The total cost of the Grace Year 2000 effort was $3.9 million. This cost
excludes the cost of implementing SAP software since, despite being a critical
component of the Grace Year 2000 remediation effort, this was a project that was
already planned and was not accelerated due to Year 2000 issues. This amount
also excludes internal costs, principally the payroll costs, of IT personnel
solely devoted to the Year 2000 remediation effort. No material IT or non-IT
projects were delayed due to the Grace Year 2000 remediation effort.

--------------------------------------------------------------------------------
THE EURO
================================================================================

Effective January 1, 1999, eleven of the fifteen member countries of the
European Union adopted one common currency known as the euro. Grace has
operations in 9 of the 11 countries which have adopted the euro and is well
positioned to comply with the legislation applicable to its introduction. The
Company anticipates that the euro conversion will not have a material adverse
impact on its financial condition or results of operations.

--------------------------------------------------------------------------------
ACCOUNTING PRONOUNCEMENTS
================================================================================

In June 1999, the Financial Accounting Standards Board (FASB) issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of SFAS No. 133." This statement defers the effective date of
SFAS 133 for one year. SFAS No. 133 requires an entity to recognize all
derivatives as either assets or liabilities and measure those instruments at
fair value. At December 31, 1999, the Company did not hold or issue any
derivative financial instruments for trading purposes; therefore, this standard
would not have impacted the Company's financial statements.

--------------------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
================================================================================

The forward-looking statements contained in this document are based on current
expectations regarding important risk factors. Actual results may differ
materially from those expressed. In addition to the uncertainties referred to in
Management's Discussion of Results of Operations and Financial Condition, other
uncertainties include the impact of worldwide



                                      F-39
<PAGE>

economic conditions; pricing of both the Company's products and raw materials;
customer outages and customer demand; factors resulting from fluctuations in
interest rates and foreign currencies; the impact of competitive products and
pricing; success of Grace's process improvement initiatives; and the impact of
tax and legislation and other regulations in the jurisdictions in which the
Company operates. Also, see "Introduction and Overview - Projections and Other
Forward-Looking Information" in Item 1 of Grace's 1999 Annual Report on Form
10-K.


                                      F-40
<PAGE>



                                                                     Schedule II

                       W. R. GRACE & CO. AND SUBSIDIARIES
                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                                  (in millions)

                                FOR THE YEAR 1999
<TABLE>
<CAPTION>
========================================================================================================================

                                                                               Additions/(deductions)
                                                                --------------------------------------------------------
                                                                                 Charged/
                                                                 Balance at     (credited)                   Balance
                                                                  beginning         to          Other         at end
                         Description                              of period     costs and       net *       of period
                                                                                 expenses
========================================================================================================================
<S>                                                             <C>             <C>           <C>           <C>
VALUATION AND QUALIFYING ACCOUNTS DEDUCTED FROM ASSETS:
     Allowances for notes and accounts receivable...........    $    5.5          $  (1.4)    $   --        $    4.1
     Allowances for long-term receivables...................        17.1            (16.3)        --             0.8
     Valuation allowance for deferred tax assets............       137.2             (1.5)        --           135.7

RESERVES:
     Reserves for divested businesses.......................    $   76.4          $  25.7     $   (3.0)     $   99.1
========================================================================================================================


                                                 FOR THE YEAR 1998
========================================================================================================================

                                                                               Additions/(deductions)
                                                                --------------------------------------------------------
                                                                                 Charged/
                                                                 Balance at     (credited)                   Balance
                                                                  Beginning         to          Other         at end
                         Description                              of period     costs and       net *       of period
                                                                                 expenses
========================================================================================================================
VALUATION AND QUALIFYING ACCOUNTS DEDUCTED FROM ASSETS:

     Allowances for notes and accounts receivable...........    $    4.6          $   2.8     $   (1.9)     $    5.5
     Allowances for long-term receivables...................        16.1              0.2          0.8          17.1
     Valuation allowance for deferred tax assets............       138.2             (1.0)        --           137.2

RESERVES:

     Reserves for divested businesses.......................    $  123.5          $ (44.6)    $   (2.5)     $   76.4
========================================================================================================================


                                                 FOR THE YEAR 1997
========================================================================================================================

                                                                               Additions/(deductions)
                                                                --------------------------------------------------------
                                                                                 Charged/
                                                                 Balance at     (credited)                   Balance
                                                                  Beginning         to          Other         at end
                         Description                              of period     costs and       net *       of period
                                                                                 expenses
========================================================================================================================
VALUATION AND QUALIFYING ACCOUNTS DEDUCTED FROM ASSETS:
     Allowances for notes and accounts receivable...........    $   11.5          $   1.4     $   (8.3)     $    4.6
     Allowances for long-term receivables...................        42.7            (22.9)        (3.7)         16.1
     Securities of divested businesses......................         3.9             (3.9)        --            --
     Valuation allowance for deferred tax assets............        72.4             42.6         23.2         138.2

RESERVES:
     Reserves for divested businesses.......................    $  212.9          $ (73.6)    $  (15.8)     $  123.5
========================================================================================================================
</TABLE>
*    Consists of additions and deductions applicable to businesses acquired,
     disposals of businesses, bad debt write-offs, foreign currency translation,
     reclassifications (including the deconsolidation of amounts relating to
     discontinued operations) and miscellaneous other adjustments.

                                      F-41
<PAGE>


                                                                      EXHIBIT 12

                       W. R. GRACE & CO. AND SUBSIDIARIES
              COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
            COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (a)
                          (in millions, except ratios)
                                   (Unaudited)

<TABLE>
<CAPTION>
============================================================================================================================
                                                                                   Years Ended December 31, (c)
                                                          ------------------------------------------------------------------
                                                             1999        1998 (d)     1997 (e)     1996 (f)      1995 (g)
============================================================================================================================
<S>                                                            <C>          <C>           <C>         <C>          <C>
Net income (loss) from continuing operations............     $  130.2      $ (149.2)      $ 85.9      $112.9       $(324.8)
Add (deduct):
Provision for (benefit from) income taxes...............         73.2         (74.0)        51.5        70.4        (192.4)

Equity in unremitted (earnings) losses of less than
50%-owned companies.....................................         (0.2)         (1.2)        (1.0)       (0.4)          0.8

Interest expense and related financing costs, including
amortization of capitalized interest....................         18.8          37.5         89.6       169.8         183.5

Estimated amount of rental expense deemed to represent
the interest factor.....................................          5.2           5.2          6.9         8.4           8.5
                                                          ------------------------------------------------------------------

Income (loss) as adjusted...............................       $227.2       $(181.7)      $232.9      $361.1       $(324.4)
                                                          =================================================================

Combined fixed charges and preferred stock dividends:
Interest expense and related financing costs, including
capitalized interest....................................     $   17.0      $   37.4       $ 94.4      $186.1       $ 199.2

Estimated amount of rental expense deemed to represent
the interest factor.....................................          5.2           5.2          6.9         8.4           8.5
                                                          ------------------------------------------------------------------

Fixed charges...........................................         22.2          42.6        101.3       194.5         207.7

Preferred stock dividend requirements (b)...............         --            --          --             0.6          0.5
                                                          ------------------------------------------------------------------

Combined fixed charges and preferred stock dividends....
                                                             $   22.2      $   42.6       $101.3      $195.1       $ 208.2
                                                          =================================================================

Ratio of earnings to fixed charges......................         10.23        (h)            2.30        1.86        (h)
                                                          =================================================================

Ratio of earnings to combined fixed charges and
preferred stock dividends...............................         10.23        (h)            2.30        1.85        (h)
============================================================================================================================
</TABLE>

(a)  Grace's preferred stocks were retired in 1996.

(b)  For each period with an income tax provision, the preferred stock dividend
     requirements have been increased to an amount representing the pre-tax
     earnings required to cover such requirements based on Grace's effective tax
     rate.

(c) Certain amounts have been restated to conform to the 1999 presentation.

(d)  Includes a pre-tax provision of $376.1 for asbestos-related liabilities and
     insurance coverage; $21.0 relating to restructuring costs and asset
     impairments, offset by a pre-tax gain of $38.2 for the receipt of insurance
     proceeds related to environmental matters, partially offset by a charge to
     reflect a change in the environmental remediation strategy for a particular
     site.

(e)  Includes a pre-tax gain of $103.1 on sales of businesses, offset by a
     pre-tax provision of $47.8 for restructuring costs and asset impairments.

(f)  Includes a pre-tax gain of $326.4 on sales of businesses, offset by pre-tax
     provisions of $229.1 for asbestos-related liabilities and insurance
     coverage and $34.7 for restructuring costs and asset impairments.

(g)  Includes pre-tax provisions of $275.0 for asbestos-related liabilities and
     insurance coverage; $151.3 relating to restructuring costs, asset
     impairments and other activities; $77.0 for environmental liabilities at
     former manufacturing sites; and $30.0 for corporate governance activities.

(h)  As a result of the losses incurred for the years ended December 31, 1998
     and 1995, Grace was unable to fully cover the indicated fixed charges.

                                      F-42