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                                                                    EXHIBIT 99.3


 
LEGAL PROCEEDINGS AND REGULATORY MATTERS
 
     Asbestos Litigation.  Grace Chemicals is a defendant in property damage and
personal injury lawsuits relating to previously sold asbestos-containing
products, and anticipates that it will be named as a defendant in additional
asbestos-related lawsuits in the future. Due to the unique nature of each
property damage claim, Grace Chemicals cannot predict whether and to what extent
asbestos-related property damage lawsuits and claims will be brought against it
in the future or the expenses involved in defending against and disposing of any
such future lawsuits and claims. By contrast, Grace Chemicals believes that
there are common features with respect to personal injury claims; in the fourth
quarter of 1995, Grace Chemicals determined that it had adequate experience to
reasonably estimate the number of personal injury claims to be filed against it
through 1998 and established an accrual for such claims. Grace Chemicals'
aggregate accrual for asbestos liabilities as of March 31, 1996 was $792.4
million; this amount reflects all asbestos-related property damage and personal
injury lawsuits and claims pending at that date (except for four property damage
lawsuits as to which the liabilities are not yet estimable because Grace
Chemicals has not yet been able to obtain sufficient information as to the
relevant properties through discovery proceedings), as well as personal injury
lawsuits and claims expected to be filed through 1998.
 
     Grace Chemicals previously purchased insurance policies with respect to its
asbestos-related lawsuits and claims. Grace Chemicals has settled with and been
paid by its primary insurance carriers with respect to both property damage and
personal injury lawsuits and claims. With minor exceptions, Grace Chemicals has
also

 
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settled with its excess insurance carriers that wrote policies available for
property damage claims; those settlements involve amounts paid and to be paid to
Grace Chemicals. In addition, Grace Chemicals has settled with many excess
insurance carriers that wrote policies available for personal injury lawsuits
and claims. Grace Chemicals is currently in litigation with its remaining excess
insurance carriers whose policies Grace Chemicals believes are available for
asbestos-related personal injury lawsuits and claims. Recovery under these
policies is subject to lengthy litigation and legal uncertainties. Insurance
coverage for asbestos-related liabilities has not been commercially available
since 1985.
 
     As of March 31, 1996, Grace Chemicals had recorded a receivable of $281.5
million, which is the amount estimated to be the probable recovery from its
insurance carriers with respect to pending and projected asbestos claims. In
Grace Chemicals' opinion, it is probable that recoveries from its insurance
carriers, along with other funds, will be available to satisfy the pending
property damage and personal injury claims, and personal injury claims expected
to be filed through year-end 1998. Consequently, Grace Chemicals believes that
the resolution of its asbestos-related litigation will not have a material
adverse effect on its consolidated results of operations or financial position.
In addition to the discussion below, see Note 2 to the historical consolidated
financial statements of Grace New York and the notes thereto for the year ended
December 31, 1995, attached hereto as Annex F (the "Consolidated Financial
Statements"), and Note (b) to the unaudited historical consolidated financial
statements of Grace New York and the notes thereto for the three-month period
ended March 31, 1996, attached hereto as Annex G (the "First Quarter Financial
Statements"), for a more comprehensive discussion of these matters, including
tabular presentations of accrued liabilities and asbestos-related receivables.
 
     Grace Chemicals was a defendant in approximately 40,800 asbestos-related
lawsuits at year-end 1995 (47 involving claims for property damage and the
remainder involving approximately 92,400 claims for personal injury), as
compared to approximately 38,700 lawsuits at year-end 1994 (65 involving claims
for property damage and the remainder involving approximately 67,900 claims for
personal injury). In most of these lawsuits, Grace Chemicals is one of many
defendants.
 
     The plaintiffs in property damage lawsuits generally seek, among other
things, to have the defendants absorb the cost of removing, containing or
repairing the asbestos-containing materials in the affected buildings. Through
1995, 129 asbestos property damage cases were dismissed with respect to Grace
Chemicals without payment of any damages or settlement amounts; judgments were
entered in favor of Grace Chemicals in 10 cases (excluding cases settled
following appeals of judgments in favor of Grace Chemicals and a case in which
the plaintiff was granted a new trial on appeal); Grace Chemicals was held
liable for a total of $74.7 million in seven cases (two of which are on appeal);
and 177 property damage suits and claims were settled for a total of $421.8
million.
 
     Included in the asbestos property damage lawsuits pending against Grace
Chemicals and others at year-end 1995 were the following class actions: (i) a
Pennsylvania state court action (Prince George Center, Inc. v. U.S. Gypsum
Company, et al., Court of Common Pleas of Philadelphia County), certified in
1992, covering all commercial buildings in the U.S. leased, in whole or in part,
to the U.S. government on or after May 30, 1986; (ii) an action, conditionally
certified by the U.S. Court of Appeals for the Fourth Circuit in 1993 and
pending in the U.S. District Court for the District of South Carolina, covering
all public and private colleges and universities in the U.S. whose buildings
contain asbestos materials (Central Wesleyan College, et al. v. W. R. Grace, et
al.); and (iii) 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 entities that own, in whole or
in part, any building containing asbestos materials manufactured by Grace
Chemicals or one of the other named defendants, other than buildings subject to
the class action lawsuits described above and any building owned by the federal
or any state government. In December 1995, Grace Chemicals entered into an
agreement to settle the claims under Prince George Center, Inc. v. U.S. Gypsum
Company, et al. The terms of the settlement agreement (which is subject to
judicial review and approval after class members have an opportunity to be
heard) are not expected to have a significant effect on Grace Chemicals'
consolidated results of operations or financial position. 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
 
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with respect to buildings located outside the state. The plaintiffs have
requested that the court reconsider its decision. In August 1994, Grace
Chemicals entered into an agreement to settle In re: Asbestos School Litigation,
a nationwide class action brought in 1983 in the U.S. District Court for the
Eastern District of Pennsylvania on behalf of all public and private elementary
and secondary schools in the U.S. that contain friable asbestos materials (other
than schools that "opted out" of the class). The terms of the settlement
agreement (which were approved by the U.S. District Court for the Eastern
District of Pennsylvania in September 1995) are not expected to have a
significant effect on Grace Chemicals' consolidated results of operations or
financial position.
 
     The remaining asbestos lawsuits pending at year-end 1995 involved claims
for personal injury. Through year-end 1995, approximately 10,100 personal injury
lawsuits involving 24,500 claims were dismissed with respect to Grace Chemicals
without payment of any damages or settlement amounts (primarily on the basis
that Grace Chemicals products were not involved), and approximately 23,700 such
suits involving 29,600 claims were disposed of for a total of $109 million (see
"-- Insurance Litigation" below). However, as a result of various trends
(including the insolvency of other former asbestos producers and cross-claims by
co-defendants in asbestos personal injury lawsuits), the costs incurred in
disposing of such lawsuits in the past may not be indicative of the costs of
disposing of such lawsuits in the future.
 
     In 1991, the Judicial Panel on Multi-District Litigation consolidated in
the U.S. District Court for the Eastern District of Pennsylvania, for pre-trial
purposes, all asbestos personal injury cases pending in the U.S. federal courts,
including approximately 7,000 cases then pending against Grace Chemicals; 3,600
new cases involving 7,200 claims against Grace Chemicals have subsequently been
added to the consolidated cases. To date, no action has been taken by the court
handling the consolidated cases that would indicate whether the consolidation
will affect Grace's cost of disposing of these cases or its defense costs.
 
     Grace Chemicals' ultimate exposure with respect to its asbestos-related
lawsuits and claims will depend on the extent to which its insurance will cover
damages for which it may be held liable, amounts paid in settlement and
litigation costs. A May 1994 decision of the U.S. Court of Appeals for the
Second Circuit limited the amount of insurance coverage available with respect
to property damage lawsuits and claims. Because Grace Chemicals' insurance
covers both property damage and personal injury lawsuits and claims, the May
1994 decision has had the concomitant effect of reducing the insurance coverage
available with respect to Grace Chemicals' asbestos personal injury lawsuits and
claims. However, in Grace Chemicals' opinion (which is not based on a formal
opinion of counsel), it is probable that recoveries from its insurance carriers,
along with other funds, will be available to satisfy the property damage and
personal injury lawsuits and claims pending at year-end 1995, as well as
personal injury lawsuits and claims expected to be filed in the future.
Consequently, Grace Chemicals believes that the resolution of its
asbestos-related litigation will not have a material adverse effect on its
consolidated results of operations or financial position. See "-- Insurance
Litigation" below and Note 2 to the Consolidated Financial Statements attached
hereto for additional information.
 
     Environmental Proceedings.  Manufacturers of specialty chemical products,
including Grace Chemicals, are subject to stringent regulations under numerous
federal, state and local environmental, health and safety laws and regulations
relating to the generation, storage, handling, discharge and disposition of
hazardous wastes and other materials. Grace Chemicals has expended substantial
funds in order to comply with such laws and regulations and expects to continue
to do so in the future. See "-- Environmental, Health and Safety Matters." There
can be no assurance that additional material environmental costs will not arise
as a result of future legislation or other developments. Grace Chemicals
believes that neither its operations, its financial condition nor its
competitive position will be materially adversely affected by compliance with
environmental requirements or by the impact of environmental considerations on
the marketability of its products. However, there can be no assurance that Grace
Chemicals will not incur material liability in connection with future actions of
governmental agencies and/or private parties relating to past or future
practices of Grace Chemicals with respect to the generation, storage, handling,
discharge or disposition of hazardous wastes and other materials.
 
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     The following is a description of the material environmental proceedings in
which Grace Chemicals is involved:
 
     Grace Chemicals (together with certain other companies) has been designated
a "potentially responsible party" ("PRP") by the U.S. Environmental Protection
Agency ("EPA") with respect to absorbing the costs of investigating and
remediating pollution at various sites. At year-end 1995, proceedings were
pending with respect to approximately 30 sites as to which Grace has been
designated a PRP. Federal law provides that all PRPs may be held jointly and
severally liable for the costs of investigating and remediating a site. Grace
Chemicals is also conducting investigatory and remediation activities at sites
under the jurisdiction of state and/or local authorities.
 
     In addition, in 1989, Hatco Corporation ("Hatco"), which purchased the
assets of a Grace Chemicals business in 1978, instituted a lawsuit against Grace
Chemicals in the U.S. District Court for the District of New Jersey (Hatco
Corporation v. W. R. Grace & Co.-Conn.) seeking recovery of cleanup costs for
waste allegedly generated at a New Jersey facility during the period of Grace
Chemicals' ownership. Grace Chemicals subsequently filed a lawsuit against its
insurance carriers seeking indemnity against any damages assessed against Grace
Chemicals in the underlying lawsuit, as well as defense costs. In decisions
rendered during 1993, the U.S. District Court for the District of New Jersey
ruled that Grace Chemicals is responsible for a substantial portion of Hatco's
costs. In July 1995, the U.S. Court of Appeals for the Third Circuit reversed
the decisions of the U.S. District Court for the District of New Jersey and
remanded the lawsuit to the U.S. District Court for the District of New Jersey
for further proceedings. Specifically, the Court of Appeals (i) reversed the
U.S. District Court for the District of New Jersey ruling that Grace Chemicals
is responsible for a substantial portion of Hatco's costs and (ii) ruled that in
the remand proceeding the burden of proof would be on Hatco to establish that it
had not released Grace Chemicals from the asserted liabilities. In an earlier
decision, the U.S. District Court for the District of New Jersey had resolved,
in a manner favorable to Grace Chemicals, certain legal issues regarding Grace
Chemicals' right to insurance coverage; however, the ultimate liability of Grace
Chemicals' insurance carriers will be determined at trial, should a trial be
necessary after the remand proceedings described above. Remediation costs, and
Grace Chemicals' share, if any, of such costs, will be determined once ongoing
site investigations are completed, a remediation plan is approved by the State
of New Jersey (which is expected by year-end 1997) and the litigation is fully
resolved. Grace Chemicals estimates that any amounts that it may be required to
pay in connection with this litigation (which amounts are expected to be
partially offset by recoveries from insurance carriers) will not exceed its
established reserves. See "-- Insurance Litigation" below.
 
     In November 1995, Grace Chemicals received a letter from the U.S.
Department of Energy ("DOE") inquiring as to Grace Chemicals' willingness to
contribute to the continued cleanup of a former Grace Chemicals property located
in Wayne, New Jersey. The letter asserted that Grace Chemicals has a legal duty
to pay for the site's cleanup and that the total cost of cleanup may exceed $100
million. The operations conducted by Grace Chemicals at the Wayne site (from
1955 to 1970) included work done on radioactive materials under contract with
the U.S. government for the "Manhattan Project" and with the U.S. Atomic Energy
Commission. In 1975, the U.S. Nuclear Regulatory Commission inspected the site,
concluded that it was decontaminated in accordance with applicable regulations
and released it for unrestricted use. In 1984, pursuant to a request from the
DOE, Grace Chemicals transferred the Wayne property to the DOE and made a cash
payment as a contribution towards the DOE's cleanup efforts at the site, which
was acknowledged by the DOE as fulfilling any obligation Grace Chemicals had to
contribute to DOE's cleanup effort. As a result of these transactions, Grace
Chemicals believes it has no further obligation to contribute to the DOE's
cleanup activities.
 
     In March 1993, an action was filed in the U.S. District Court for the
Southern District of Texas against Grace Drilling Company, a subsidiary of Grace
Chemicals, the business and assets of which have since been sold, and several
other defendants, for alleged violations of the Clean Water Act and the Rivers
and Harbors Act (U.S. v. Fina Oil and Chemical Co., et al.). The government
alleges that seagrasses and seabeds around a drilling rig operated by Fina Oil
and Chemical Co. were damaged in connection with the placing, servicing and
removal of the rig. The government is seeking injunctive relief requiring the
defendants to restore the damaged areas and to compensate for temporary loss of
the seagrass habitat, as well as civil penalties of up to $25,000
 
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per day of violation and attorneys' fees. The parties to such action are
currently participating in a court-ordered mediation process.
 
     Grace Chemicals is also a party to other proceedings involving federal,
state and/or local government agencies and private parties regarding Grace
Chemicals' compliance with environmental laws and regulations. These proceedings
are not expected to result in significant sanctions or in any material
liability. As a voluntary participant in the EPA Toxic Substances Control Act
("TSCA") Compliance Audit Program, Grace Chemicals agreed to undertake a
corporate-wide audit of compliance with Section 8 of TSCA, and agreed to pay a
stipulated civil penalty for each study or report that the EPA alleges should
have been, but was not, submitted to the EPA as required under Section 8 of
TSCA. Grace Chemicals has been advised that it will be required to pay the EPA a
penalty of $255,000 for information discovered in the course of the audit. In
addition, Grace Chemicals has voluntarily reported to the EPA violations of
certain notification and related requirements under TSCA, and penalties may be
assessed against Grace Chemicals in connection therewith; however, the amount of
such penalties cannot be determined at this time.
 
     Grace Chemicals believes that the liabilities for environmental remediation
costs that have been recorded in Grace New York's historical financial
statements are adequate. In addition, Grace Chemicals is presently involved in
litigation with its insurance carriers seeking to hold them responsible for
certain amounts for which Grace Chemicals may be held liable with respect to
such costs. The outcome of such litigation, as well as the amounts of any
recoveries that Grace Chemicals may receive in connection therewith, is
presently uncertain. However, Grace Chemicals believes that the resolution of
pending environmental proceedings will not have a material adverse effect on the
consolidated financial position, results of operations or liquidity of New
Grace. For further information, see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION."
 
     Insurance Litigation.  Grace Chemicals is involved in litigation with
certain of its insurance carriers with respect to asbestos-related insurance
claims and environmental liabilities. It has settled all of its asbestos-related
insurance coverage actions, with the exception of Maryland Casualty Co. v. W. R.
Grace & Co., pending in the U.S. District Court for the Southern District of New
York. Grace Chemicals' two environmental insurance coverage actions consist of
an action pending in the U.S. District Court for the Southern District of New
York, also styled Maryland Casualty Co. v. W. R. Grace & Co., and an action
pending in the U.S. District Court for the District of New Jersey, Hatco Corp.
v. W. R. Grace & Co.-Conn. The relief sought by Grace Chemicals in these three
actions would provide insurance that would partially offset Grace Chemicals'
estimated exposure with respect to amounts already expended, and that may be
expended in the future, by Grace Chemicals to defend claims, satisfy judgments
and fund settlements. See Note 2 to the Consolidated Financial Statements and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION" for additional information.
 
     Prior to 1993, Grace Chemicals received payments totaling $97.7 million
from insurance carriers, the majority of which represented the aggregate
remaining obligations owed to Grace Chemicals by those carriers for
primary-level insurance coverage written for the period June 30, 1962 through
June 30, 1987. In 1993 and 1994, Grace Chemicals settled with insurance carriers
for a total of $300.2 million (portions of which were paid or will be paid in
subsequent years), in reimbursement for amounts expended by Grace Chemicals in
connection with asbestos-related litigation. In 1995, Grace Chemicals settled
with a primary-level insurer for $100 million, and with other insurers for a
total of $200.3 million, including future payments of approximately $70 million.
In 1996, Grace Chemicals has settled with additional excess-level insurers for a
total of $59.9 million (including $19.2 million to be received over the next
five years) with respect to both products liability and other coverage. As a
result of these settlements, Grace Chemicals' asbestos-related insurance claims
have been dismissed as to the primary-level product liability insurance coverage
previously sold by the relevant insurers to Grace Chemicals, as well as to many
of Grace Chemical's excess-level liability insurers. However, ligation continues
in New York federal court as to certain excess-level carriers which have not
settled.
 
     In April 1996, as a result of rulings in the New York federal court action
favorable to Grace Chemicals with respect to its asbestos-related property
damage liabilities, the insurers agreed to the entry of summary
 
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judgment in favor of Grace Chemicals. These insurers have stated that they
intend to appeal the trial court's rulings. The New York court has not yet
addressed Grace Chemicals' claims for insurance coverage for its
asbestos-related bodily injury liabilities.
 
     The Hatco environmental coverage action, involving a single environmental
site, is set for trial in September 1996, with its discovery phase substantially
complete. The comprehensive environmental coverage action in New York federal
court, potentially involving several hundred sites, is just entering its
discovery phase, focusing on eight representative or "test" environmental sites.
No trial date has been set, but the test sites will probably be tried next year.
 
     Fumed Silica Plant Litigation.  In 1993, Grace Chemicals initiated legal
action in the Belgian courts against the Flemish government to recover losses
resulting from the closing of Grace Chemicals' fumed silica plant in Puurs,
Belgium. Grace Chemicals is seeking damages in excess of four billion Belgian
francs (approximately $135.5 million at the December 29, 1995 exchange rate),
plus interest and lost profits. This claim was dismissed at the trial court
level and is now being appealed by Grace Chemicals. The trial court also
determined that Grace Chemicals should repay approximately 239 million Belgian
francs (approximately $8.1 million at the December 29, 1995 exchange rate), plus
interest to the Flemish government for previously received investment grants;
this decision is also being appealed by Grace Chemicals. Also pending is an
arbitration involving the engineering company that was responsible for the
design and construction of the fumed silica plant. The outcome of this
proceeding may affect the action filed against the Flemish government.
 
     Shareholder Litigation.  Commencing in March 1995, five lawsuits were
brought against Grace New York and members of the Grace New York Board (as well
as against J. P. Bolduc, who resigned as President and Chief Executive Officer
and a director of Grace New York in March 1995) in New York State Supreme Court,
New York County. These lawsuits were consolidated in the case entitled Weiser,
et al. v. Grace, et al. The consolidated amended complaint in this lawsuit,
which purports to be a derivative action (i.e., an action brought on behalf of
Grace New York), alleges, among other things, that the individual defendants
breached their fiduciary duties to Grace New York (i) by providing J. Peter
Grace, Jr. (the Chairman and a director of Grace New York until his death in
April 1995) with certain compensation arrangements upon his voluntary retirement
as Grace New York's Chief Executive Officer in 1992 and (ii) by approving Mr.
Bolduc's severance arrangements, and that Messrs. Grace and Bolduc breached
their fiduciary duties by accepting such benefits and payments. The lawsuit
seeks unspecified damages, the cancellation of all allegedly improper
agreements, the cancellation of the non-employee director retirement plan, the
return of all remuneration paid to the present and former directors who are
defendants while they were in breach of their fiduciary duties to Grace New
York, an award of attorneys' and experts' fees and costs, and such other relief
as the Court may deem appropriate.
 
     In March 1996, two purported shareholder derivative class actions were
filed in New York State Supreme Court, New York County, against Grace New York
and Albert J. Costello, Grace New York's Chairman, President and Chief Executive
Officer, alleging that the defendants breached their fiduciary duties to Grace
New York's shareholders by failing to investigate and consider fully a proposal
by Hercules, Incorporated to acquire or merge with Grace New York (Izes, etc. v.
W. R. Grace & Company, et al. and Polikoff, etc. v. W. R. Grace & Company, et
al.). The lawsuits seek injunctive relief ordering defendants to carry out their
fiduciary duties by considering and evaluating such proposal, unspecified
monetary damages, costs and counsel fees and such other relief as the Court
deems proper.
 
     Securities and Exchange Commission Investigations.  Grace New York has been
notified that the Securities and Exchange Commission (the "Commission") has
issued a formal order of investigation with respect to Grace New York's prior
disclosures regarding benefits and retirement arrangements provided to J. Peter
Grace, Jr. (the Chairman and a director of Grace New York until his death in
April 1995) and certain matters relating to J. Peter Grace III, a son of J.
Peter Grace, Jr. Grace New York is cooperating with the investigation.
 
     In April 1996, Grace New York received a formal order of investigation
issued by the Commission directing an investigation into, among other things,
whether Grace New York violated the federal securities
 
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laws by filing periodic reports with the Commission that contained false and
misleading financial information. Pursuant to this formal order of
investigation, Grace New York has received a subpoena from the Southeast
Regional Office of the Commission requiring the Company to produce documents
relating to reserves (net of applicable taxes) established by Grace New York and
NMC during the period from January 1, 1990 to the date of the subpoena (the
"Covered Period"). New Grace believes that all financial statements filed by
Grace New York with the Commission during the Covered Period, the financial
statements of NMC included in the NMC Form 10 filed with the Commission on
September 25, 1995, and the Consolidated Financial Statements (all of which
financial statements, other than unaudited quarterly financial statements, were
covered by unqualified opinions issued by Price Waterhouse LLP, independent
certified public accountants), have been fairly stated, in all material
respects, in conformity with generally accepted accounting principles. Grace New
York is cooperating with the investigation. The outcome of this investigation
and its impact, if any, on Grace New York, New Grace or NMC cannot be predicted
at this time.
 
     Shareholder Actions Relating to NMC.  In 1995, nine purported class action
lawsuits were brought against Grace New York and certain of its officers and
directors in various federal courts. These lawsuits have been consolidated in
the case entitled Murphy, et al. v. W. R. Grace & Co., et al., which is pending
in the U.S. District Court for the Southern District of New York. The first
amended class action complaint in this lawsuit, which purports to be a class
action on behalf of all persons and entities who purchased Grace New York's
publicly traded securities during the period from March 13, 1995 through October
17, 1995, generally alleges that the defendants concealed information, and
issued misleading public statements and reports, concerning NMC's financial
position and business prospects, a proposed spin-off of NMC and the matters that
are the subject of the investigations of NMC by the Office of the Inspector
General of the U.S. Department of Health and Human Services (the "OIG"), in
violation of federal securities laws. The lawsuit seeks unspecified damages,
attorneys' and experts' fees and costs and such other relief as the Court deems
proper.
 
     In October 1995, a purported derivative lawsuit was filed in the U.S.
District Court for the Southern District of Florida, Northern Division, against
Grace New York, certain of its directors and its former President and Chief
Executive Officer, alleging that such individuals breached their fiduciary
duties by failing to properly supervise the activities of NMC in the conduct of
its business (Bennett v. Bolduc, et al.). In December 1995, the plaintiff in
this action filed a new action, based on similar allegations, in the U.S.
District Court for the Southern District of New York (Bennett v. Bolduc, et
al.). The Florida action has been dismissed in favor of the action filed in the
U.S. District Court for the Southern District of New York. A second action
making similar allegations was filed in October 1995 in New York State Supreme
Court, New York County (Bauer v. Bolduc, et al.). Grace New York has been
advised that this action will be dismissed or stayed in favor of the Bennett
action, which has been consolidated, for discovery purposes only, with the
Murphy action described above. The complaint in the Bennett action seeks
unspecified damages, attorneys' and experts' fees and costs and such other
relief as the Court deems proper.
 
     In February 1996, a purported class action was filed in New York State
Supreme Court, New York County, against Grace New York and certain of its
current and former directors, alleging that the defendants breached their
fiduciary duties, principally by failing to provide internal financial data
concerning NMC to Vivra Incorporated and by failing to negotiate with Baxter
International, Inc. in connection with a business combination involving NMC
(Rosman v. W. R. Grace, et al. 96-102347). The lawsuit seeks injunctive relief
ordering the defendants to carry out their fiduciary duties and preventing or
rescinding the Reorganization or any related transactions with Fresenius AG,
unspecified monetary damages, an award of plaintiff's attorneys' and experts'
fees and costs and such other relief as the court may deem just and proper. The
plaintiff has not taken any steps to prosecute this lawsuit since it was filed,
and the defendants believe this lawsuit is without merit.
 
     OIG Investigation.  As discussed in the Joint Proxy Statement-Prospectus
mailed herewith, NMC is the subject of an investigation (the "OIG
Investigation") by the OIG, among others. One of the subpoenas received in
connection with the OIG Investigation requests documents from NMC relating to
the relationship of NMC with Grace New York and Grace Chemicals and Grace
Chemicals' and Grace New York's knowledge of NMC's activities. Such request may
indicate that investigators are looking into Grace Chemicals' potential
liability in respect of NMC's activities. Under the Distribution Agreement,
Grace New
 
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York will indemnify Grace Chemicals with respect to all liabilities arising from
or relating to the OIG Investigation and may not settle or compromise the OIG
Investigation unless, as part of such settlement or compromise, Grace Chemicals
is granted an unconditional release in respect thereof. However, no assurance
can be given that Grace Chemicals will not have liability in this regard. See
"THE DISTRIBUTION -- Fraudulent Transfer and Related Considerations." In
addition, under the OIG Agreement, Grace Chemicals has given certain guarantees
in connection with the OIG Investigation. See "THE DISTRIBUTION -- Other
Arrangements."
 
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