|  |
|--|
|  |
|--|
| **Not applicable***(Translation of Registrant’s name into English)* | **Republic of France***(Jurisdiction of incorporation or organization)* |
|--------------------------------------------------------------------------|-------------------------------------------------------------------------|

**26, quai Alphonse Le Gallo 92512     Boulogne-Billancourt Cedex     France***(Address of principal executive offices)*

| Title of each class:                                                                                                             | Name of each exchange on        which registered |
|----------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------|
| **American        Depositary Shares,        each representing one Ordinary Share        nominal value****€****1 per share** | **New York Stock Exchange**                      |
| **Ordinary Shares, nominal value****€****1 per share***                                                                     | **New York Stock Exchange**                      |
|                                                                                                                                  |                                             |
| Securities      registered or to be registered pursuant to Section 12(g) of the Act: None                                                                                                                                                                                                                                                                                         |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Securities      for which there is a reporting obligation pursuant to Section 15(d) of the      Act: None                                                                                                                                                                                                                                                                         |
| Indicate      the number of outstanding shares of each of the issuer’s classes of capital      or common stock as of the close of the period covered by the annual report:                                                                                                                                                                                                   |
| Ordinary      Shares: 179,309,188                                                                                                                                                                                                                                                                                                                                                 |
| Indicate      by check mark whether the registrant (1) has filed all reports required      to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934      during the preceding 12 months (or for such shorter period that the registrant      was required to file such reports), and (2) has been subject to such filing      requirements for the past 90 days. |
|   | Yes            [X]     No |   |
|--------|-------------------------------------------------------------------|--------|
|   | Item        17    [   ]     Item        18    [X] |   |
|--------|-------------------------------------------------------------------------------------------------------------------------|--------|

|                                                   | **TABLE        OF CONTENTS**                                                        |   |   |
|--------------------------------------------------------|-------------------------------------------------------------------------------------|--------|--------|
|                                                   |                                                                                |   |   |
|                                                   |                                                                                |   |   |
|                                                   |                                                                                | Page   |   |
|                                                   |                                                                                |   |   |
|                                                   |                                                                                |   |   |
| Presentation        of financial and other information | 3                                                                                   |   |
|                                                   |                                                                                |   |   |
|                                                   |                                                                                |   |   |
|                                                   | **PART        I**                                                                   |   |   |
|                                                   |                                                                                |   |   |
| Item        1.                                         | Identity        of Directors, Senior Management and Advisers                        | 4      |   |
|                                                   |                                                                                |   |   |
| Item        2.                                         | Offer        Statistics and Expected Timetable                                      | 4      |   |
|                                                   |                                                                                |   |   |
| Item        3.                                         | Key        Information                                                              | 4      |   |
|                                                   |                                                                                |   |   |
| Item        4.                                         | Information        About Rhodia                                                     | 10     |   |
|                                                   |                                                                                |   |   |
| Item        5.                                         | Operating        and Financial Review and Prospects                                 | 30     |   |
|                                                   |                                                                                |   |   |
| Item        6.                                         | Directors,        Senior Management and Employees                                   | 48     |   |
|                                                   |                                                                                |   |   |
| Item        7.                                         | Major        Stockholders and Related Party Transactions                            | 56     |   |
|                                                   |                                                                                |   |   |
| Item        8.                                         | Financial        Information                                                        | 60     |   |
|                                                   |                                                                                |   |   |
| Item        9.                                         | The        Offer and Listing                                                        | 61     |   |
|                                                   |                                                                                |   |   |
| Item        10.                                        | Additional        Information                                                       | 65     |   |
|                                                   |                                                                                |   |   |
| Item        11.                                        | Quantitative        and Qualitative Disclosure About Market Risk                    | 79     |   |
|                                                   |                                                                                |   |   |
| Item        12.                                        | Description        of Securities Other than Equity Securities                       | 80     |   |
|                                                   |                                                                                |   |   |
|                                                   |                                                                                |   |   |
|                                                   | **PART        II**                                                                  |   |   |
|                                                   |                                                                                |   |   |
| Item        13.                                        | Defaults,        Dividend Arrearages and Delinquencies                              | 81     |   |
|                                                   |                                                                                |   |   |
| Item        14.                                        | Material        Modifications to the Rights of Security Holders and Use of Proceeds | 81     |   |
|                                                   |                                                                                |   |   |
| Item        15.                                        | [Reserved]                                                                          | 81     |   |
|                                                   |                                                                                |   |   |
| Item        16.                                        | [Reserved]                                                                          | 81     |   |
|                                                   |                                                                                |   |   |
|                                                   |                                                                                |   |   |
|                                                   | **PART        III**                                                                 |   |   |
|                                                   |                                                                                |   |   |
| Item        17.                                        | Financial        Statements                                                         | 82     |   |
|                                                   |                                                                                |   |   |
| Item        18.                                        | Financial        Statements                                                         | 82     |   |
|                                                   |                                                                                |   |   |
| Item        19.                                        | Exhibits                                                                            | 82     |   |

**PRESENTATION OF FINANCIAL AND OTHER  INFORMATION**

Since January 1, 1999, Rhodia has published its consolidated  financial statements in euro (“€”). Prior to that date, Rhodia prepared  its consolidated financial statements in French francs (“francs” or “FRF”) and  subsequently translated them into euro amounts at the fixed legal rate of €  1.00 = FRF 6.55957. For your convenience, this  annual report contains translations of certain franc and euro amounts into U.S.  dollars at specified rates. These translations should not be construed as representations  that the converted amounts actually represent such U.S. dollar amounts or could  be converted into U.S. dollars at the rates indicated or at any other rate.

Unless otherwise stated, the translations into dollars    have been made at the rate of $ 0.98 = €    1.00, the noon buying rate in New York City    for cable transfers in euro as certified for customs purposes by the Federal    Reserve Bank of New York (the “Noon Buying Rate”) on June 26, 2002.    See “Item 3. Key Information – Exchange Rate Information” for    information regarding the franc/U.S. dollar exchange rate from January 1,    1997 to December 31, 1998 and the euro/U.S. dollar exchange rate since January    1, 1999.

Unless otherwise indicated, the financial information  contained in this annual report has been prepared in accordance with French  generally accepted accounting principles (GAAP), which differ in certain significant  respects from U.S. GAAP. See Note 30 to Rhodia’s audited consolidated financial  statements for the three years ended December 31, 2001, (together with the notes  thereto, the “Consolidated Financial Statements”) included elsewhere in this  annual report, for a description of the principal differences between French  GAAP and U.S. GAAP, as they relate to Rhodia and its consolidated subsidiaries,  and for a reconciliation to U.S. GAAP of net income and stockholders’ equity.

Unless the context requires otherwise, (i) the terms  “Rhodia,” the “Company,” the “Group,” “we,” “our” or “us” refer, for periods  prior to January 1, 1998, to the Chemicals segment and the Fibers and Polymers  segment of Rhône-Poulenc, as well as certain other businesses related to the  chemicals, fibers and polymers businesses that were operated during such periods  by other Rhône-Poulenc segments, and to Rhodia and its consolidated subsidiaries  for the periods subsequent to January 1, 1998. See “Item 4. Information About  Rhodia — Corporate History — Formation of Rhodia.” On December 15, 1999, Hoechst  merged into Rhône-Poulenc and Rhône-Poulenc changed its name to Aventis. References  to “Aventis” refer to Rhône-Poulenc S.A. and its consolidated subsidiaries for  periods prior to the merger, and refer to the merged entities for periods after  the merger.

The name brands (indicated in capital letters) mentioned  in this annual report are trademarks of Rhodia, its affiliates and/or associated  companies, or are used with permission under a license agreement.

All references herein to “United States” or “U.S.”  are to the United States of America, references to “dollars” or “$” are to the  currency of the United States, references to “France” are to the Republic of  France, references to “French francs,” “francs” or “FRF” are to the currency  of France prior to January 1, 1999, and references to “euro” and “€” are to the currency of the  twelve European Union member states (including France) participating in the  European Monetary Union.

**PART I**

**Item 1. Identity of  Directors, Senior Management and Advisers**

Not Applicable.

**Item 2. Offer Statistics  and Expected Timetable**

Not Applicable.

**Item 3. Key Information**

Selected Financial Data

The tables below set forth  selected consolidated financial data for Rhodia for each of the five years during  the period ended December 31, 2001. These financial data are derived from the  consolidated financial statements of Rhodia, which have been prepared in accordance  with French GAAP and audited by PricewaterhouseCoopers, independent auditors.  The selected consolidated financial data for the fiscal years 2001, 2000 and  1999 should be read in conjunction with the Consolidated Financial Statements  of Rhodia and the related notes thereto included elsewhere in this annual report.  See “Item 18. Financial Statements.” French GAAP differs in significant respects  from U.S. GAAP. For a discussion of the principal differences as they relate  to Rhodia, and a reconciliation of net income and total stockholders’ equity  for the three years ended December 31, 2001 to U.S. GAAP, see Note 30 to the  Consolidated Financial Statements included in this report at “Item 18. Financial  Statements.”
|                                                                | **For          the Year Ended and as of December 31,**                       |
|---------------------------------------------------------------------|------------------------------------------------------------------------------|
|                                                                | **2001(1)**                                                                  |  | **2001** |  | **2000** |  | **1999** |  | **1998** |  | **1997(2)** |
|                                                                     | **$**                                                                        |  | € |  | € |  | € |  | € |  | € |
|                                                                | **(in          millions,except for number of shares and per share data)(3)** |
| **Amounts in        accordance with French GAAP:**                  |                                                                         |   |   |   |   |   |   |   |   |   |
| *Income Statement        Data:*                                     |                                                                         |   |   |   |   |   |   |   |   |   |   |
| Net sales                                                           | 7,133                                                                        |   | 7,279 |   | 7,419 |   | 5,526 |   | 5,537 |   | 5,804 |
| Operating expenses                                                  | (7,118)                                                                      |   | (7,263) |   | (6,923) |   | (5,117) |   | (5,203) |   | (6,545) |
| Operating        income (loss)                                      | 16                                                                           |   | 16 |   | 496 |   | 409 |   | 334 |   | (741) |
| Equity in earnings        (losses) of affiliated companies          | (24)                                                                         |   | (24) |   | 17 |   | 13 |   | (14) |   | (27) |
| Financial expense        – net                                 | (182)                                                                        |   | (186) |   | (177) |   | (116) |   | (113) |   | (193) |
| Other income        (expenses) – net(4)                        | (106)                                                                        |   | (108) |   | (7) |   | 12 |   | (38) |   | (152) |
| Income        (loss) before income taxes and minority interests     | (296)                                                                        |   | (302) |   | 329 |   | 318 |   | 169 |   | (1,113) |
| Benefit (provision)        for income taxes                         | 92                                                                           |   | 94 |   | (104) |   | (96) |   | (58) |   | (47) |
| Minority        interests in net (income) losses of subsidiaries    | (5)                                                                          |   | (5) |   | (9) |   | 5 |   | 5 |   | 43 |
| Net        income (loss)                                            | (209)                                                                        |   | (213) |   | 216 |   | 227 |   | 116 |   | (1,117) |
| Earnings (loss)        per share(5)                                 | (1.17)                                                                       |   | (1.19) |   | 1.23 |   | 1.30 |   | 0.67 |   | – |
| Dividend per        share(6)                                        | 0.12                                                                         |   | 0.12 |   | 0.40 |   | 0.40 |   | 0.20 |   | – |
| Average number        of ordinary shares outstanding (in thousands) | 179,104                                                                      |   | 179,104 |   | 175,843 |   | 174,359 |   | 174,146 |   | – |
| *Balance Sheet        Data:*                                        |                                                                         |   |   |   |   |   |   |   |   |   |   |
| Working capital(11)                                                 | (420)                                                                        |   | (429) |   | (262) |   | 359 |   | (250) |   | (1,742) |
| Total property,        plant and equipment                          | 3,499                                                                        |   | 3,570 |   | 3,768 |   | 2,955 |   | 2,634 |   | 2,638 |
| Total assets                                                        | 8,781                                                                        |   | 8,960 |   | 9,514 |   | 6,974 |   | 7,772 |   | 7,026 |

|                                                                 | **For the Year Ended and as of December          31,**                        |
|----------------------------------------------------------------------|-------------------------------------------------------------------------------|
|                                                                 | **2001(1)**                                                                   |   | **2001** |   | **2000** |   | **1999** |   | **1998** |   | **1997(2)** |
|                                                                 | **$**                                                                         |   | € |   | € |   | € |   | € |   | € |
|                                                                 | **(in millions,except for number          of shares and per share data)(3),** |
| Long-term debt(8)                                                    | 1,910                                                                         |   | 1,949 |   | 2,077 |   | 1,145 |   | 465 |   | 1,112 |
| Other long-term liabilities                                          | 1,307                                                                         |   | 1,334 |   | 1,153 |   | 959 |   | 970 |   | 1,034 |
| Net debt(9)                                                          | 2,521                                                                         |   | 2,572 |   | 3,066 |   | 1,553 |   | 1,136 |   | 3,403 |
| Minority interests in net assets of consolidated        subsidiaries | 82                                                                            |   | 84 |   | 87 |   | 69 |   | 65 |   | 74 |
| Total stockholders’ equity                                      | 2,222                                                                         |   | 2,267 |   | 2,593 |   | 2,390 |   | 2,130 |   | (232) |
| Common stock and paid in capital                                     | 2,639                                                                         |   | 2,693 |   | 2,693 |   | 2,624 |   | 2,667 |   | – |
| *Other Operating Data:*                                              |                                                                          |   |   |   |   |   |   |   |   |   |   |
| Capital expenditures                                                 | 473                                                                           |   | 483 |   | 503 |   | 372 |   | 336 |   | 339 |
| Depreciation and amortization                                        | 605                                                                           |   | 617 |   | 524 |   | 423 |   | 457(7) |   | 1,256(7) |
| Research and development expenses(10)                                | 211                                                                           |   | 215 |   | 212 |   | 190 |   | 195 |   | 200 |
| **Amounts in accordance with U.S. GAAP:**                            |                                                                          |   |   |   |   |   |   |   |   |   |
| *Income Statement Data:*                                             |                                                                          |   |   |   |   |   |   |   |   |   |   |
| Net sales                                                            | 7,133                                                                         |   | 7,279 |   | 7,419 |   | 5,238 |   | 5,190 |   | 5,454 |
| Operating expenses                                                   | (7,118)                                                                       |   | (7,263) |   | (6,923) |   | (4,855) |   | (4,875) |   | (5,806) |
| Operating income (loss)                                              | 16                                                                            |   | 16 |   | 496 |   | 383 |   | 315 |   | (351) |
| Net income (loss)                                                    | (209)                                                                         |   | (213) |   | 216 |   | 227 |   | 106 |   | (1,130) |
| Earnings (loss) per share                                            | (1.17)                                                                        |   | (1.19) |   | 1.23 |   | 1.30 |   | 0.61 |   | – |
| *Balance Sheet Data:*                                                |                                                                          |   |   |   |   |   |   |   |   |   |   |
| Working capital(11)                                                  | (455)                                                                         |   | (464) |   | (262) |   | 359 |   | (297) |   | (1,769) |
| Total property, plant and equipment                                  | 3,499                                                                         |   | 3,570 |   | 3,768 |   | 2,955 |   | 2,527 |   | 2,516 |
| Stockholders’ equity                                            | 2,187                                                                         |   | 2,232 |   | 2,593 |   | 2,390 |   | 2,120 |   | (245) |
| (1)  | Dollar amounts are provided for convenience        only and have been translated at the Noon Buying Rate in effect on June        26, 2002 (€ 1.00 = $ 0.98).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)  | Certain reclassifications have been        made to the 1997 combined financial statements to conform to the 1998        presentation. In particular, 1997 net losses recorded for an amount of        € 89 million        as “gains (losses) on sales of assets” and arising from the recording        of Brazilian polyester activities and other industrial facilities of the        company Setila as assets held for sale have been reclassified as “Production        costs and expenses” and considered as asset impairments.                                                                                                                                                                                                                                                                                                                       |
| (3)  | Financial and operating data for periods        prior to January 1, 1999 have been translated from French francs into        euro at the legal rate of conversion of € 1.00 = FRF6.55957.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (4)  | Includes gains (losses) on disposals        of assets – net and other income (expenses) – net.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| (5)  | Basic and diluted. Earnings (loss)        per share for 1998, 1999, 2000 and 2001 has been calculated on the basis        of 174,145,539 shares, 174,359,024 shares, 175,843,305 shares and 179,103,640        shares outstanding (less treasury stock) on average for such years, respectively        (174,145,539 shares, 175,263,935 shares, 176,351,932 shares and 179,103,640        shares outstanding on average on a diluted basis, respectively). Earnings        (loss) per share has not been provided for the year ended December 31,        1997. Management believes that, on a historical basis, such information        would not be relevant because it would not take into account certain important        changes in Rhodia’s capital and financial structure resulting principally        from the 1998 Capital Increase and the U.S. Net Debt Reduction |
| (6)  | As Rhodia was created on January 1,        1998, dividends have been paid only with respect to the years 1998, 1999        and 2000. Dividends for fiscal year 2001 will be paid on July 1, 2002.        The dividends set forth above do not include French avoir fiscal. See        “Item 8. Financial Information –Dividend Policy” below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (7)  | Includes depreciation and amortization        expenses included in one-time charges for the corresponding year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (8)  | Long-term debt includes the debt relating        to capitalized leases but does not include the current portion of long-term        debt.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| (9)  | Net debt is defined as bank overdrafts,        current portion of long-term debt, short-term borrowings and long-term        debt minus cash, short-term deposits and marketable securities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (10) | Research and development expenses,        include depreciation and amortization. See Note 26 to the Consolidated        Financial Statements. Research and development expenses in the Consolidated        Statements of Operations are shown excluding depreciation and amortization.        See Note 1e to the Consolidated Financial Statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (11) | Working capital is defined        as total current assets minus total current liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

**Exchange Rate Information**

Under the provisions of the Treaty on the European  Union negotiated at Maastricht in 1991 and signed by the then 12 member states  of the European Union in early 1992, a European Monetary Union, known as EMU,  was implemented on January 1, 1999, and a single European currency, known as  the euro, was introduced. The following 12 member states participate in EMU  and have adopted the euro as their national currency: Austria, Belgium, Finland,  France, Germany, Greece, Ireland, Italy, Luxembourg, The Netherlands, Portugal  and Spain. The legal rate of conversion between French francs and the euro was  fixed on December 31, 1998 at € 1.00 = FRF 6.55957. Beginning January 1, 2002, the participating member  states have issued new euro-denominated bills and coins for use in cash transactions.  On February 17, 2002, France withdrew the bills and coins denominated in French  francs from circulation, and these bills and coins will no longer be legal exchange  for any transactions.

For your convenience, this annual report contains    translations of certain euro amounts into U.S. dollars. Unless otherwise indicated,    dollar amounts have been translated from euro at the rate of $ 1.00 = €    1.02, the Noon Buying Rate for euro on June    26, 2002. This does not mean that Rhodia actually converted these amounts    into U.S. dollars at that rate, and you should not assume that they could    have been converted at that or any other rate.

Fluctuations in the exchange rate between the euro  and the U.S. dollar will affect the U.S. dollar price of Rhodia’s ADSs on the  New York Stock Exchange and the U.S. dollar value of any dividends Rhodia may  declare.

Since the euro did not exist prior to January 1, 1999,  Rhodia cannot present exchange rates between the euro and the U.S. dollar shown  in Rhodia’s Consolidated Financial Statements and in the other financial information  discussed in this annual report. Rhodia’s reporting currency during those periods  was the French franc. In order that you may ascertain how the trends in Rhodia’s  financial results might have appeared had they been expressed in U.S. dollars,  the following table shows the French franc/U.S. dollar exchange rate for 1997  and 1998 based on the Noon Buying Rate expressed in French francs per $ 1.00,  and the euro/U.S. dollar exchange rate for 1999, 2000 and 2001 based on the  Noon Buying Rate expressed in euro per U.S. dollars.
|                        | **Period-end rate** |        | **Average rate****(1)** |        | **High**    |        | **Low**     |
|-----------------------------|---------------------|--------|-------------------------|--------|-------------|--------|-------------|
| **Month**                   |                |   |                    |   |        |   |        |
| Euro/Dollar(2)              |                |   |                    |   |        |   |        |
| June 2002 (through June 26) | € 1.02         |   | € 1.05             |   | € 1.07 |   | € 1.02 |
| May 2002                    | 1.07                |   | 1.09                    |   | 1.11        |   | 1.07        |
| April 2002                  | 1.10                |   | 1.13                    |   | 1.14        |   | 1.11        |
| March 2002                  | 1.15                |   | 1.14                    |   | 1.16        |   | 1.13        |
| February 2002               | 1.15                |   | 1.15                    |   | 1.16        |   | 1.14        |
| January 2002                | 1.12                |   | 1.13                    |   | 1.16        |   | 1.11        |
| December 2001               | 1.12                |   | 1.12                    |   | 1.14        |   | 1.12        |
|                        |                |   |                    |   |        |   |        |
| **Year**                    |                |   |                    |   |        |   |        |
| Euro/Dollar(2)              |                |   |                    |   |        |   |        |
| 2001                        | € 1.12         |   | € 1.12             |   | € 1.19 |   | € 1.05 |
| 2000                        | 1.07                |   | 1.09                    |   | 1.21        |   | 0.97        |
| 1999                        | 0.99                |   | 0.94                    |   | 1.00        |   | 0.85        |
| French Franc/Dollar         |                |   |                    |   |        |   |        |
| 1998                        | FRF 5.59            |        | FRF 5.90                |        | FRF 6.21    |        | FRF 5.39    |
| 1997                        | 6.02                |        | 5.85                    |        | 6.35        |        | 5.19        |
| (1)         | The yearly averages of the Noon Buying      Rates for French francs or euro, as the case may be, were calculated using      the average Noon Buying Rate on the last business day of each month during      the relevant period. The monthly averages were calculated using the average      of the daily Noon Buying Rates for euro within each month. |
|-----------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)         | Originally published as dollar/euro.                                                                                                                                                                                                                                                                                                                    |

**Risk Factors**

In addition to other information    contained in this annual report, you should consider carefully the risks described    below. These risks are not the only ones we face. Additional risks not currently    known to us or that we currently deem immaterial may also impair our business    operations. Our business, financial condition or results of operations could    be materially adversely affected by any of these risks.

**Risks Related to our Business**

***Currency and interest rate    fluctuations may have a material impact on our financial results***

A considerable portion of our    assets, liabilities, sales, revenues and expenses is denominated in currencies    other than the euro, principally in U.S. dollars and, to a lesser extent,    in British pounds. Fluctuations in the values of these currencies – especially    in the dollar and currencies tied to the dollar, such as the Brazilian real    – with respect to the euro may have a significant impact on our financial    results. In 2001, variations in currencies, particularly the dollar and the    Brazilian real, decreased our consolidated net sales by approximately 1.3%.

An appreciation of the euro compared    to the dollar would lessen the euro-value of sales and revenues generated    in dollar-zone countries and could lower the competitiveness of the products    we produce in Europe against products we produce in, or export from, the United    States and other dollar zones. This effect would be partially offset by exchange    rate variations in the euro-cost of much of our raw material and energy purchasing    requirements.

Our policy with respect to limiting    our exposure to short-term fluctuations in exchange rates is to calculate    on a daily basis our net foreign currency exposure based on our transactions,    including both sale and purchase transactions, and to use financial instruments    to reduce such exposure by hedging against rate changes with respect to the    euro. Positions are recorded at their market value, and the main instruments    we currently use are forward exchange contracts for periods of less than six    months. Nonetheless, we may not be able to protect ourselves from sustained    movements in the value of the euro against other currencies.

We are also exposed to interest    rate risk. At December 31, 2001, our net debt amounted to € 2,572 million,    of which long-term debt amounted to € 1,949 million. Fluctuations in interest    rates may affect our interest expense on existing debt and the cost of new    financing. We use swaps to manage this risk but our financial condition and    results of operations may nevertheless be materially adversely affected by    sustained increases in interest rates.

For further discussion of these    matters and the measures we have taken to seek to protect our business against    these risks, see the section of this annual report entitled “Item 11. Quantitative    and Qualitative Disclosure about Market Risk.”

***Environmental and health    and safety laws and regulations may increase our costs of operations or expose    us to substantial liability***

Environmental and health and safety    laws and regulations expose us to the risk of substantial costs and liabilities,    including liabilities associated with assets that have been sold and activities    that have been discontinued. In most jurisdictions in which Rhodia operates,    industrial activities are subject to obtaining permits, licenses and/or authorizations,    or to prior notification. In addition, we may be subject to liabilities relating    to personal injury (including exposure to hazardous substances), property    damage or damage to natural resources. We are subject to a broad range of    extensive and evolving environmental and health and safety laws and regulations    in each of the jurisdictions in which we operate, which impose increasingly    stringent standards on us. They relate to, among other things, air emissions,    waste water discharges, the use and handling of hazardous materials, waste    disposal practices, and clean-up of existing environmental contamination.

Currently, we are involved in    a number of compliance and remediation efforts and legal proceedings concerning    environmental matters. Based on information presently available, we have budgeted    capital expenditures for environmental improvement projects and have established    reserves for known environmental remediation liabilities that are probable    and reasonably capable of estimation. However, environmental matters cannot    be predicted with certainty, and these amounts may not be adequate for all    purposes. In addition, the development or discovery of new facts, events,    circumstances or conditions, and other developments such as changes in the    law, could result in increased costs and liabilities.

In addition, many of our manufacturing    sites have an extended history of industrial use. As is typical for such businesses,    soil and groundwater contamination has occurred in the past at some sites    and might occur or be discovered at other sites in the future. Consistent    with our past practice, we are continuing to investigate and remediate or    monitor soil and groundwater contamination at certain of these sites. In addition,    Rhodia has been and may in the future be

liable to contribute to the cleanup    of disposal facilities to which it has sent wastes for disposal, pursuant    to the U.S. Comprehensive Environmental Response, Compensation and Liability    Act (commonly known as “Superfund”) and other similar laws. Under these laws,    the owner or operator of contaminated properties and the generator of wastes    sent to a contaminated disposal facility can be jointly and severally liable    for the remediation of such properties, regardless of fault.

In connection with the creation    of Rhodia, Rhône-Poulenc (now Aventis) commissioned an independent consultant    to conduct a review of a substantial number of its operations in the chemicals    and fibers and polymers businesses with respect to environmental issues. In    July 1999 we commissioned an update of this review and since that date, Rhodia    has regularly carried out audits of its sites.

As of December 31, 2001, our reserve    for probable future remediation expenses amounted to approximately €    183 million. Based on current information, provisions established for environmental    matters and the Environmental Indemnification Agreement with Aventis under    which, subject to certain conditions, we may claim indemnification from Aventis    with respect to certain costs that may arise from certain unanticipated environmental    liabilities, we do not believe that environmental compliance and remediation    requirements will have a material adverse effect on our business, financial    condition or results of operations. The Environmental Indemnification Agreement    is described at “Item 7. Major Stockholders and Related Party Transactions.”    In 2001, Rhodia made a claim to Aventis pursuant to this agreement for several    sites and recorded a receivable from Aventis of € 35 million. Notwithstanding    the Environmental Indemnification Agreement, future events, such as changes    in existing laws, the promulgation of new laws or the development or discovery    of new facts or conditions could cause us to incur significant additional    costs and liabilities that could have a material adverse effect on our business,    financial condition and results of operations.

**Risks Related to our Industry**

***Sustained high raw materials    prices may decrease demand for our products, increase our production costs    and expenses of goods sold, and ultimately adversely affect our profitability***

On an aggregate basis, our purchases    of raw materials in 2001 totaled approximately € 1.7 billion as well as an    additional € 300 million in energy purchases. Significant variations in the    costs of raw materials can affect our financial results. Increases in overall    levels of raw materials prices may not necessarily be passed on through an    increase in sales prices, and may, in certain cases, create negative pressure    on margins. Decreases in the average prices of raw materials may, as a result    of competitive pressures, also cause prices to decline, and may, in certain    cases, limit the potential gain on margins. See “Item 5. Operating and Financial    Review and Prospects – Certain Factors Affecting Rhodia’s Financial Condition    and Results of Operations – Cost of Raw Materials” and “Item 4. Information    on the Company – Raw Materials.”

This risk primarily reflects purchases    of fuel, natural gas and raw materials. Since July 1, 2000, we have managed    such risks by using swaps and option contracts traded over-the-counter or    on organized markets. The sensitivity of these transactions to market changes    is calculated regularly. For accounting purposes, these transactions are marked    to market. In the case of a 10% increase in the price of oil on December 31,    2001, these financial instruments would have had a negative impact on earnings    of € 6.18 million. See “Item 11. Quantitative and Qualitative Disclosure About    Market Risk.”

***Our markets are subject    to price competition***

We face significant competition    in each of our markets. In the specialty chemicals industry, competition is    based upon a number of considerations, principally product differentiation    and innovation, product quality and quality of logistics, including distribution    capability. In addition, in some market segments, our products are subject    to intense price competition due to factors such as overcapacity, competition    from low-cost producers and consolidation among our customers and competitors.    New products or technologies developed by competitors also may have a material    adverse impact on our competitive position.

***We are dependent on new    products and processes***

Our operating results depend to    a significant extent on our ability to continue to introduce new products    and applications and to continue to develop our production processes to be    a competitive producer. We believe that many of our businesses are technological    leaders in their principal markets. We are committed to remaining a technological    leader and a competitive producer and believe that our portfolio of new products    and improved products under development is strong. However, we may not be    able to develop new products and applications successfully or bring them to    market in a timely manner.

**Risks Related to our Shares    and to ADSs**

***The price of our Shares    and ADSs might be adversely affected if holders of exchangeable notes issued    by Aventis do not exercise their exchange rights***

In October 1999 Rhône-Poulenc    (now Aventis) issued approximately 44 million notes exchangeable for Rhodia    shares with a par value of € 23.22, maturing on October 22, 2003. The exchange    ratio is one Rhodia share per note. Holders may exchange their notes for shares    at any time until October 2003. Furthermore, Aventis has the right to redeem    the notes for Rhodia shares beginning on October 22, 2002 if Rhodia’s share    price reaches 130% of the notes’ par value plus interest.

To the extent that bonds are not    exchanged before redemption in cash on the maturity date, Aventis will continue    to hold an equity interest in Rhodia as of such date. Aventis has agreed with    the European Commission that, in the event it holds more than 5% of Rhodia’s    share capital at the end of the exchange period for the exchangeable notes,    it will undertake to reduce its shareholdings to below 5% as soon as possible,    and in any event no later than six months after the end of the exchange period.    The sale of a significant block of Rhodia shares by Aventis could adversely    affect the price of our shares and ADSs.

***The price of our ADSs and    the U.S. dollar value of any dividends will be affected by fluctuations in    the U.S. dollar/euro exchange rate***

The ADSs trade in U.S. dollars.    As the principal trading market for the shares underlying the ADSs is the    *Premier Marché*of Euronext Paris, where the shares trade in euro, the    value of the ADSs will likely fluctuate as the U.S. dollar/euro exchange rate    fluctuates. If the value of the euro decreases against the U.S. dollar, the    price at which our ADSs trade will decrease. In addition, since any dividends    that we may declare will be denominated in euro, exchange rate fluctuations    will affect the U.S. dollar equivalent of dividends received by holders of    ADSs. See “– Exchange Rate Information,” above. If the value of the euro decreases    against the U.S. dollar, the value of the U.S. dollar equivalent of any dividend    will decrease comparatively.

***You may not be able to exercise    preemptive rights for shares underlying your ADSs***

Under French law, stockholders    have preemptive rights *(“droits préférentiels de souscription”)*to    subscribe for cash for issuances of new shares or other securities giving    rights, directly or indirectly, to acquire additional shares on a pro rata    basis. Stockholders may waive their preemptive rights specifically in respect    of any offering, either individually or collectively, at an extraordinary    general meeting. Preemptive rights, if not previously waived, are transferable    during the subscription period relating to a particular offering of shares    and may be quoted on the *Premier Marché.*U.S. holders of ADSs may not    be able to exercise preemptive rights for the shares underlying their ADSs    unless a registration statement under the U.S. Securities Act of 1933, as    amended, is effective with respect to such rights or an exemption from the    registration requirements thereunder is available. We intend to evaluate at    the time of any rights offering the costs and potential liabilities associated    with any such registration statement, as well as the indirect benefits of    enabling the exercise by the holders of ADSs of the preemptive rights associated    with the shares underlying their ADSs, and any other factors we consider appropriate    at the time, and then to make a decision as to whether to file such a registration    statement. We cannot guarantee that any registration statement would be filed,    or, if filed, that it would be declared effective. If preemptive rights cannot    be exercised by an ADS holder, Citibank N.A., as depositary, will, if possible,    sell such holder’s preemptive rights and distribute the net proceeds of the    sale to the holder. If the depositary determines, in its discretion, that    such rights cannot be sold, the depositary may allow such rights to lapse.    In either case, ADS holders’ interest in us will be diluted and, if the depositary    allows rights to lapse, holders of ADSs will not realize any value from the    granting of preemptive rights.

***Holders of ADSs may be subject    to additional risks related to holding ADSs rather than shares***

Because holders of ADSs do not    hold their shares directly, they are subject to the following additional risks:
    - In the event of a dividend      or other distribution, if exchange rates fluctuate during any period of      time when the depositary cannot convert a foreign currency into dollars,      the ADS holder may lose some or all of the value of the distribution. There      can be no assurances that the depositary will be able to convert any currency      at a specified exchange rate or sell any property, rights, shares or other      securities at a specified price, nor that any of such transactions can be      completed within a specified time period.  In order to vote at stockholders’      meetings, ADS holders who are not registered on the books of the depositary      are required to transfer their ADSs for a certain number of days before      a stockholders’ meeting into a blocked account established for that purpose      by the depositary. Any ADS transferred to this blocked account will not      be available for    9  
transfer during that time. ADS    holders who are registered on the books of the depositary must give instructions    to the depositary not to transfer their ADSs during this period before the    stockholders’ meeting. ADS holders must therefore receive voting materials    from the depositary sufficiently in advance in order to make these transfers    or give these instructions. There can be no guarantee that ADS holders will    receive voting materials in time to instruct the depositary to vote. It is    possible that ADS holders, or persons who hold their ADSs through brokers,    dealers or other third parties, will not have the opportunity to exercise    a right to vote at all.
- ADS holders may not receive      copies of all reports from us or the depositary. You may have to go to the      depositary’s offices to inspect any reports issued.  We and the depositary may amend      or terminate the deposit agreement without ADS holders’ consent in a manner      that could prejudice ADS holders.   **Cautionary Statement Regarding    Forward-looking Statements**  Certain of the statements contained    in this annual report that are not historical facts, including, without limitation,    certain statements made in the subsections entitled “Outlook” for each of    Rhodia’s Divisions and discussed in “Item 4. Information on the Company,”    and in “Item 5. Operating and Financial Review and Prospects – Outlook,” are    statements of future expectations and other forward-looking statements. Forward-looking    statements can be identified by the use of forward-looking terminology such    as “believes,” “expects,” “may,” “is expected to,” “will,” “will continue,”    “should,” “would be,” “seeks” or “anticipates” or similar expressions or the    negative thereof or other variations thereof or comparable terminology, or    by discussions of strategy, plans or intentions. These statements are based    on management’s current views and assumptions and involve known and unknown    risks and uncertainties that could cause actual results, performance or events    to differ materially from those anticipated by such statements. Factors that    could cause such differences in actual results include: (i) changes in the    competitive and regulatory framework in which the Company operates, in particular    increased competition in the specialty chemicals industry; (ii) changes in    raw material prices, in particular the price of oil; (iii) the Company’s ability    to introduce new products and to continue to develop its production process;    (iv) changes in interest rates and currency exchange rates, including particularly    the exchange rate of the euro to the U.S. dollar and U.S. dollar-influenced    currencies; (v) changes in economic or technological trends; (vi) customers    and market concentration; (vii) risks and uncertainties attendant to doing    business in numerous countries that may be exposed to, or may have recently    experienced, economic or governmental instability; and (viii) general competitive    and market factors on a global, regional and/or national basis. For a description    of other factors that might affect Rhodia’s results, please see “– Risk Factors”.  **Item 4. Information About Rhodia**  ***Overview***  With net sales of € 7.3 billion    for 2001, Rhodia is one of the world’s largest specialty chemicals companies.    Rhodia has leading worldwide market positions in many of its major businesses,    ranking number one on the basis of 2001 net sales in products such as food    phosphates, vanillin, guar, acetyl-salicylic acid, mild surfactants and highly    dispersible silica, and in services such as sulfuric acid regeneration and    separated rare earths. Rhodia is the second largest producer in the world    of polyamide, food cultures, xanthan gum and paracetamol. Rhodia has developed    strong customer relationships throughout the world in a broad range of industries,    including consumer goods such as health, beauty and food products; industrial    applications, such as electronics, paper and packaging; chemicals; housing    and construction materials; life sciences; high technology services to the    pharmaceutical industry; automobile and transport; and environmental protection.  In 2001, Rhodia recorded a net    loss of € 213 million, and its research and development expenses totaled 2.95%    of net sales. As of December 31, 2001 Rhodia had 26,925 employees and 125    sites worldwide.   10  
**Five Divisions**

The simplified organizational chart below sets forth, for  each of Rhodia’s five Divisions, their principal technologies or business activities  and the relative contribution of each Division to Rhodia’s net sales for 2001.
**FINE****CONSUMER****INDUSTRIAL** **SERVICES****ORGANICS****SPECIALTIES****SPECIALTIES****POLYAMIDE****& SPECIALTIES****(17%)****(29%)****(17%)****(20%)****(14%)**Life SciencesSurfactantsAliphaticTextile YarnsAcetow  Isocyanates, Latex    and Solvents  IntermediatesPhosphatesSiliconesPolyamideEco Services  Intermediates PerfumesHydrocolloidsSilicasTechnical FibersElectronicsand Specialtiesand Food Culturesand Industrial Yarns& Catalysis PhosphorusEngineering Plastics  Derivatives  
The principal activities of Rhodia’s five Divisions are set  forth below.

*Fine Organics.*The Fine Organics  Division researches, develops and produces customized molecules, usually in  collaboration with its customers, and also produces certain other molecules,  including vanillin and vanillin derivatives, diphenols, acetyl-salicylic acid,  diphenolethers, calcium phosphate excipients, salicylic acid and fluorinated  aromatic intermediates. The Division also produces phenol, acetone and bisphenol.  The Division’s products are used principally in the pharmaceuticals, agrochemicals,  food and perfume industries. For 2001, the Fine Organics Division’s research  and development expenses amounted to 1.9% of net sales. At year-end 2001, the  Division had 4,220 employees.

*Consumer Specialties.*The Consumer  Specialties Division develops and produces a range of manufacturing additives,  including surfactants, phosphates, food cultures, hydrocolloids (including guar  gum and xanthan gum), silicates and co-stabilizers for PVC containers, which  enhance the performance and quality of end products. The Division’s products  are used in a variety of industries and end-uses, including principally food,  consumer products, agriculture, oil fields, metal treatment and pharmaceuticals.  For 2001, the Consumer Specialties Division’s research and development expenses  amounted to 2.6% of net sales. At year-end 2001, the Division had 5,185 employees.

*Industrial Specialties.*The Industrial Specialties Division develops and produces high performance  specialty products, including silicones, for a wide variety of industries, including  coatings and building; latex, principally for the paper industry; silica, including  highly dispersible silica, principally for the tire and rubber industries; and  ADI (aliphatic diisocyanate), a key component of automobile and industrial paint,  principally for the automobile industry. For 2001, the Industrial Specialties  Division’s research and development expenses amounted to 4.2% of net sales.  At year-end 2001, the Division had 3,038 employees.

*Polyamide.*The Polyamide Division  develops and produces polyamide intermediates, textile yarns, engineering plastics,  industrial yarns, and performance fibers (including technical fibers) used principally  by the construction, apparel and automobile industries. For 2001, the Polyamide  Division’s research and development expenses amounted to 2.5% of net sales.  At year-end 2001, the Division had 6,367 employees.

*Services & Specialties.*The Services & Specialties Division is comprised of the Eco Services  business, which is active principally in sulfuric acid production and regeneration  as well as water treatment; the Acetow business, which produces filter tow,  the principal raw material for cigarette filters; and cellulose acetate flakes,  and the Electronics & Catalysis business, which designs products for high-technology  applications. For 2001 the Services & Specialties Division’s research and  development expenses amounted to 2.2% of net sales. At year-end 2001, the Division  had 3,616 employees.

**Corporate Information**

The legal and commercial name *(dénomination sociale)*of the company is  Rhodia. Rhodia was incorporated in 1998 for a period of 99 years. The company  is a *société anonyme,*a  form of limited liability company, domiciled in, incorporated under and governed  by the laws of France — most notably law No. 066-537 of July 24, 1966 (as amended),  regulating commercial companies. Rhodia’s corporate governance structure is  set out in the company’s by-laws *(statuts),*which  were last amended on May 21, 2002.
    11  
The Company is registered with the Register of Commerce and  Companies of Nanterre under the number 352 170 161. Rhodia’s registered office  is located at 26, quai Alphonse Le Gallo, 92512 Boulogne-Billancourt Cedex,  France, and its phone number at this location is +33-1-55-38-40-00.

The name and address of Rhodia’s agent in the United States  is Rhodia Inc., 259 Prospect Plains Road, Cranbury, New Jersey 08512-7500.

For more information on Rhodia’s corporate governance and  share capital, see “Item 10. Additional Information.”

**Corporate History**

***Predecessors of Rhodia***

Rhodia’s origins go back to the nineteenth century to two  chemical companies, the Société Chimique des Usines du Rhône and l’Entreprise  de Produits Chimiques Etienne Poulenc. In 1928 they merged to form Rhône-Poulenc.  Over the years Rhône-Poulenc expanded into such areas as polyester and nylon  fibers (polyamide), pharmaceuticals and animal and plant health, and made many  major acquisitions in the chemicals industry, including food phosphates and  sulfuric acid regeneration (Stauffer Chemicals, USA, 1987); acetyl salicylic  acid and paracetamol (Monsanto, USA, 1988); surfactants (RTZ Corporation PLC,  UK, 1989). In 1990, Rhône-Poulenc merged its specialty surfactants business  in the United States with that of the GAF Corporation, forming a limited partnership  in which Rhodia (following its formation) held a 49.02% interest and Rhône-Poulenc  Surfactants and Specialties, Inc., the general partner, held 1%. In early 1999,  pursuant to the amended partnership agreement, the limited partners withdrew  and retired from the partnership. See Note 30a to the Consolidated Financial  Statements. Rhône-Poulenc also entered into a joint venture for waste treatment  with Sita (France), a listed subsidiary of Suez-Lyonnaise des Eaux (France),  in 1992.

During the 1990s, Rhône-Poulenc refocused its industrial strategy  on specialty chemicals and life sciences. From 1990 to 1997, it divested many  businesses in basic chemicals, including polyvinyl chloride (PVC), bromine derivatives,  polychloroprene, acetics operations in Europe, sodium carbonate production in  North America, vinyl acetate in Brazil, titanium oxide, some chlorine and caustic  soda operations, and toluene diisocyanate (TDI). Rhône-Poulenc also applied  its strategy of focusing on specialty products to its Fibers & Polymers  division and gradually disposed of its polyester business except for Rhodia  Ster. In all, Rhône-Poulenc divestitures from 1995 to 1998 represented sales  of almost € 2 billion, or about one third of its chemicals activities.

***Formation of Rhodia***

The formation of Rhodia with its current name and organizational  structure occurred as of January 1, 1998, through a series of transactions carried  out by Rhône-Poulenc and several of its subsidiaries. Rhodia was originally  incorporated in 1989 under the name Transformations Chimiques S.A., which was  later renamed Rhône-Poulenc Fibres et Polymères S.A. (“RPFP”), the holding company  for substantially all of the fibers and polymers businesses of Rhône-Poulenc  in France. Immediately prior to the creation of Rhodia, approximately 60% of  the outstanding shares of RPFP were held by Rhône-Poulenc and approximately  40% were held by Rhône-Poulenc Chimie, a wholly owned operating company carrying  out substantially all of the chemicals businesses of Rhône-Poulenc in France.  In connection with the creation of Rhodia, Rhône-Poulenc Chimie transferred  its interest in RPFP to Rhône-Poulenc, following which Rhône-Poulenc caused  the outstanding shares of Rhône-Poulenc Chimie (excluding directors’ qualifying  shares) to be transferred to RPFP. Rhône-Poulenc also transferred or caused  to be transferred to RPFP or RPFP’s wholly owned subsidiaries (i) Rhône-Poulenc’s  directly and indirectly held equity interest in the other subsidiaries, partnerships  and businesses that made up the Chemicals and Fibers and Polymers segments of  Rhône-Poulenc and (ii) substantially all other assets and liabilities related  to its chemicals, fibers and polymers businesses that were historically recorded  under segments of Rhône-Poulenc other than the Chemicals and Fibers and Polymers  segments. In connection with such transactions, RPFP changed its name to Rhodia.  As of January 1, 1998, substantially all transactions related to the formation  of Rhodia had occurred.

Rhodia quickly laid the foundation for its recovery with a  new organizational structure and continued to re-center its business portfolio.  Rhodia became a public company on June 25, 1998 when Rhône-Poulenc sold 33%  of its stake in the Group. In the first year of its existence, Rhodia began  its turnaround, instituting new operating and management structures based on  a results-oriented culture and launching new cost-cutting programs.

Since its creation Rhodia has actively restructured its portfolio,  divesting a wide range of activities in all its divisions and divesting all  of its polyester activities, with the exception of Rhodia Ster. These divestitures  and certain strategic acquisitions are described in “Item 5. Operating and Financial  Review and Prospects – Certain Factors Affecting Rhodia’s Financial Condition  and Results of Operations – Scope of Activities Included in Consolidated Financial  Statements.”
    12  
***Albright & Wilson Acquisition***

In March 1999 Rhodia backed a bid by ISPG to acquire the    British company Albright & Wilson, the world’s leading producer of phosphates,    in pursuit of Rhodia’s strategy of focusing on market-leading positions. In    exchange, Rhodia received an option to purchase the shares of Albright &    Wilson, exercisable from January 1 through April 1, 2000. As a result of this    acquisition, Rhodia became the world leader in specialty phosphates. See “—    Consumer Specialties Division” below and “Item 5. Operating and Financial    Review and Prospects — Scope of Activities Included in Consolidated Financial    Statements.”

***Second Rhône-Poulenc Offering***

On October 15, 1999, Rhône-Poulenc divested its 67.3% stake    in Rhodia with a two-part transaction in which Rhône-Poulenc:
- sold 39.1% of Rhodia’s outstanding shares. The share      price was set at € 18; and   issued notes exchangeable into Rhodia shares representing      25.9% of Rhodia’s share capital. The notes were sold through a private placement.      They have a principal amount of € 23.22, bear a 3.25% coupon, and are exchangeable      at the option of the holder into one share each of Rhodia through October      2003 (subject to early redemption rights of Rhône-Poulenc).   Following this divestiture, Rhône-Poulenc held 2.3% of Rhodia’s    equity directly, in addition to 25.9% in connection with the exchangeable    notes. Rhône-Poulenc and Rhodia agreed to modify or terminate the contracts    they had signed when they established Rhodia as a separate operating group    on January 1, 1998. Some contracts (the general assistance agreement and the    financing contract) were thus terminated in advance, whereas others (the scientific    and technical cooperation agreement, the environmental indemnification agreement    and the lease for the former head contracts) serve to facilitate the separation    of the two companies. See “Item 7. Major Stockholders and Related Party Transactions.”  On October 25, 1999, at Rhodia’s first board meeting following    Rhône-Poulenc’s divestiture, four outside directors were appointed to replace    Rhône-Poulenc’s outgoing directors and represent Rhodia’s new shareholding    structure. Aventis now has two directors on Rhodia’s board. On December 1,    1999 Rhodia moved its head office from the Aventis (formerly Rhône-Poulenc)    building to new premises in Boulogne-Billancourt near Paris.  ***Rhodia ChiRex***  In September 2000 Rhodia acquired ChiRex, a U.S. company    specializing in high technology services to the pharmaceutical industry, through    a friendly takeover. ChiRex was integrated into the Fine Organics Division    in the fourth quarter of 2000. In addition, Rhodia contributed its own pharmaceutical    activities to ChiRex, creating a new company called Rhodia ChiRex.  **Fine Organics Division**  ***Overview***  The Fine Organics Division develops, manufactures and markets    advanced intermediates and active ingredients worldwide. Its development is    focused on expanding market segments, in particular pharmaceuticals and perfumes,    and all areas in which its capabilities and scientific expertise can create    significant value for its customers.  The Fine Organics Division has a portfolio of front-ranking    products developed using phenol chemistry and phenol derivatives which have    enabled the Division to obtain global leadership positions in vanillin, analgesics    (acetylsalicylic acid, the active ingredient in aspirin), paracetamol, and    benzenoids for perfumes and building blocks for agrochemicals and pharmaceuticals.    Rhodia is number one worldwide in terms of 2001 sales in acetylsalicylic acid    (aspirin), diphenol and vanillin, and number two worldwide in terms of 2001    sales in paracetamol. Rhodia develops and produces new molecules for the life    sciences industries, especially in the field of fine fluorides, where the    Group is also a world leader. The Group produces phenol to meet its own needs,    since a significant number of Fine Organics products are derived from the    technology tree that branches out from this raw material. Rhodia believes    that this vertical integration protects it from fluctuations in the price    of phenol and provides a competitive advantage in terms of costs. Today, half    of Rhodia’s phenol production is used internally, and all of this production    is protected from cyclical pressures through the use of sale contracts indexed    to base costs.     13  
The tables below set forth, for each of the years 1999,    2000 and 2001, the percentage contributions to the Fine Organic Division’s    net sales by technology and geographic region, respectively.
**Sales by technology****1999****2000****2001**Life science chemicals30% – –Pharmaceutical ingredients19 – –Life sciences(1)– 41% 44%Perfumes and specialties24 21 21Intermediates27 38 35**Total**100% 100% 100%(1) Includes Life Science Systems,        Pharmaceutical Ingredients and Rhodia ChiRex.  **Sales destination by geographic        region****1999** **2000** **2001**Europe61% 59% 64%North America19 17 18Latin America10 12 10Asia/Pacific10 12 8**Total**100% 100% 100%
The acquisition of ChiRex strengthened the Division’s capabilities    in pharmaceutical services. Pharmaceutical companies are increasingly focusing    their skills on research and marketing, prompting a search for partners who    can manage processes across the production cycle. In addition, the need to    shorten time-to-market is leading them to select chemical manufacturers with    best-in-class expertise and technology. Rhodia offers an extensive range of    solutions to meet all of the critical challenges involved in the production    of pharmaceuticals.

By capitalizing on the Group’s vast portfolio of technologies,    the Division is developing new solutions for its customers. For example, the    phosphorus chemistry expertise of the Phosphorus Derivatives business is being    leveraged to produce treatments for osteoporosis, cancer and AIDS.

The pharmaceutical industry imposes high quality standards    and operates in a strictly regulated environment. To meet these requirements,    the Division maintains a large diversified base of reactors and facilities    for manufacturing advanced intermediates and active ingredients, which conform    to cGMP standards (current Good Manufacturing Practices). These production    sites are regularly inspected by the FDA (Food and Drug Administration) and    the EMEA (European Agency for the Evaluation of Medicinal Products).

***Markets and Competition***

The table below sets forth, for each of the Fine Organics    Division’s sectors, the principal products, markets, brand names and competitors.
**PRODUCTS****MARKETS****BRANDS****COMPETITORS****Life Science Chemistry**Agrochemistry, Lonza, Clariant, pharmaceuticals, energy storage, Bayer, Eastman electronics, refrigerants  **Analgesics and**   **Nutritional Supplements**PharmaceuticalsRHODINE, RHODAPAP ,Mallinckrodt, Bayer  A-TAB, DI-TAB, TRI-TAB **Advanced Intermediates**Pharmaceuticals DSM, Lonza,**and Active Ingredients**  Cambrex, Degussa**Perfumes and Specialties**Perfumery, flavoring agents,   polymerization inhibitors,RHODIAFLOR, RHODIANTAL  electronics, agrochemistry,RHODIAROME, RHONAVILMitsui, Eastman, photographyRHODIASCENTBorregaard, Ube**Intermediates**Analgesics, upstream fibers,   diphenol, perfumery, epoxy,   polycarbonates, solvents      14  
*Advanced Intermediates & Active Ingredients (Rhodia    ChiRex).*A world leader in services for the pharmaceutical    chemicals industry, Rhodia ChiRex develops innovative processes and offers    the most competitive production of active molecules. In 2001, the business    expanded its customer base both among world-class pharmaceutical companies    and among smaller start-ups specialized in the development of new molecules,    which are now playing an increasingly important role in the industry. Rhodia    ChiRex’s technological breakthroughs are driven by a team of distinguished    scientists and their combined skills, supported by a Scientific Board including    front-ranking chemists from Harvard University and MIT.

In a market where chirals account for two-thirds of new    drugs brought to market, Rhodia ChiRex’s expertise in chiral chemistry gives    the Enterprise a decisive competitive advantage. Its processes and technologies    are designed to meet the technical challenges associated with most of the    major therapeutic domains. Rhodia ChiRex is one of the few companies offering    its customers an integrated approach to their needs from research and development    to contract manufacturing of their new products, all of which is outlined    in a long-term partnership agreement.

*Chemistry for Life Sciences.*With expertise in three major technologies – fluorination, chlorination    and nitration –the Life Science business focuses on manufacturing and marketing    building blocks to the pharmaceutical and agrochemical industries. As a leading    producer of fluorinated products, Rhodia has become a partner to the global    agrochemical industry, which accounts for half of the sales in its life science    chemistry activity, and these products are also widely sold to the pharmaceutical    industry. A strong commitment to innovation resulted in the filing of more    than 20 patents in 2001. The activity is stepping up deployment in such promising    segments as advanced pharmaceutical intermediates, developed in collaboration    with Rhodia ChiRex. It also provides contract manufacturing of products for    new active agrochemical molecules designed in partnership with some of the    largest companies in the industry.

*Perfumes and Specialties.*The Perfumes and Specialties business operates in a concentrated competitive    environment, with four producers accounting for most of worldwide sales of    diphenols and perfumes. The top two producers account for more than half of    worldwide sales of each of vanillin, vanillin derivatives, coumarin and benzyl    salicylate. Rhodia is the world’s largest producer of vanillin and vanillin    derivatives as well as specialty diphenols such as polymerization inhibitors    and antioxidants. Rhodia is the only company in the industry with production    facilities on four continents and a sales network that spans the globe. In    addition to an established position in Europe and the United States, the business    maintains a strong manufacturing base in Brazil and two production sites in    China. With a broad presence in the detergents, fine perfumes and cosmetics    markets, it is benefiting from growing demand for functional fragrances used    in detergents and cosmetics. It also serves a wide variety of specialty markets,    ranging from photography and tires to electronics.

The strategy for the Perfumes and Specialities business    is to increase its leadership position along three axes: 
- Expanding its product portfolio and accelerating the      pace of innovation to support designers of mass-marketed fragrances where      fast product renewal cycles and competitive costs are critical.   Reinforcing certain advanced technologies such as high-temperature      chemistry, for example to develop new cyclopentanone applications that offer      highly attractive solvent properties for the electronics industry.Expanding in Asia, where over the past two years, the      business has obtained more than 50% of the vanillin market in China and      built production facilities in the region, thus improving its cost structure.

*Analgesics and Nutritional Supplements (Pharmaceutical    Ingredients).*The analgesic active ingredients    market is concentrated, with Rhodia and Bayer (Germany) accounting for approximately    half of worldwide capacity in both salicylic acid and acetyl salicylic-acid,    and Rhodia, Mallinckrodt (United States) and Celanese (Germany) accounting    for the majority of worldwide capacity in acetaminophen. This activity sells    both active ingredients, in particular aspirin and paracetamol used in pharmaceutical    applications, and additives for nutritional supplements. 

The business derives its competitiveness from the performance    of its salicylic acid manufacturing process. Customers may choose from an    extended range of exclusive services, with guaranteed quality, formulation    capabilities, integration into their supply chain and online ordering. In    2001, the business signed partnership agreements to provide formulation services    for two pharmaceutical groups, Roche and PharmaFab. The objective is to strengthen    and develop these relationships through multiyear contracts with other large    customers in the pharmaceutical industry.

*Intermediates.*The Intermediates    business’ open market sales of phenol and acetone are principally in Europe    and Latin America. The Group manufactures a large portion of the phenol used    in-house. Its production units, whose performance is comparable to that of    industry leaders, are located in France and Brazil.
  15
***Technologies***
- Life Science Chemistry  develops building blocks for agrochemistry, pharmaceuticals, energy      storage and exclusive agrochemical molecules, including a broad mix of fine      fluorinated and nitrated products.   *Analgesics and Nutritional Supplements*are      active ingredients including analgesics, calcium phosphates and upstream      products.Perfumery and Specialties 
encompass a wide range of fragrances and perfume fixatives, flavoring      agents, vanillin, salicylates, specialties and upstream products (catechol      and hydroquinone).
- Advanced Intermediates and Active Ingrediants for      the Pharmaceutical Industry  includes exclusive      research to produce sophisticated, tailor-made molecules.  
**Consumer Specialties Division**
The Consumer Specialties Division develops, manufactures    and markets high value-added additives designed to improve performance in    food, cosmetics, detergents and water treatment products. To serve these markets,    the Division uses its expertise in five core technologies: specialty phosphates,    phosphorus derivatives, hydrocolloids, surfactants and food cultures. Rhodia    is number one worldwide in terms of sales in specialty phosphates, phosphorus    derivatives, guar and mild surfactants, and is number two worldwide in terms    of 2001 sales in food cultures and xanthan gum.
The tables below set forth the percentage contributions    to the Consumer Specialties Division’s net sales by principal technology and    by geographic region for each of 1999, 2000 and 2001.
**Sales by technology****1999** **2000** **2001**        Phosphates35% 32% 37% Surfactants30 43 28 Phosphorus Derivatives (PPD)– 12 14 Hydrocolloids and Food Cultures35 13 21 **Total**100% 100% 100%        **Sales destination by geographic region****1999** **2000** **2001**        Europe43% 46% 39% North America49 38 43 Latin America3 8 10 Asia/Pacific5 8 8 **Total**100% 100% 100% 
The ability to combine its technological skills, scientific    knowledge and employee capabilities has enabled the Division to expand its    activities in high growth markets. For example, by combining proprietary nanoparticle    technologies of the Electronics & Catalysis business and the organic synthesis    technologies of the Cosmetics and Detergents business, Rhodia developed and    successfully launched a new-generation sunscreen.
During 2001, the Division completed the integration of Albright    & Wilson, making Rhodia the world leader in specialty phosphates, and    serves a wide variety of markets, including the food, pharmaceuticals, electronics    and detergents markets. In April 2001, Albright & Wilson’s European surfactants    business was sold to the Huntsman Corporation. With its manufacturing base    and sales processes reorganized, its teams integrated and its information    systems harmonized, the new structure is fully operational. Rhodia has become    the world’s leading manufacturer of specialty phosphates, with expertise spanning    the entire phosphate value chain, from manufacturing and purification of phosphoric    acid to the production of specialty salts and special formulations designed    for world-class food and industrial customers.
Specialty Phosphates develops solutions to optimize quality    and performance of finished products in a wide range of industries, including    food, pharmaceuticals, detergents, water treatment, papermaking, metal treatment,    horticulture and textiles.
The industrial and drinking water treatment market is a    source of strong demand for specialty phosphates. KALIPOL, one of the business’s    flagship products, offers an innovative solution to help reduce heavy metal    concentrations by eliminating traces of lead in water pipes. Stricter European    legislation in this area is expected to stimulate demand for water treatment    products by the end of 2002.
  16

***Markets and Competition***

The table below sets forth, for each of the Consumer Specialties    Division’s principal technology areas, the principal products, markets, brand    names and competitors.
**PRODUCTS****MARKETS****BRANDS****COMPETITORS****Phosphates**Food, detergents, waterLEVAIR REGENT , RHODIA-PHOS,Astaris, Foret, treatment, horticulture,KALIPOL, A VGARDPrayon/OCP, metal treatment, ceramics Thermphos, Budenhein**Phosphorus**Industrial applicationsANTIBLAZE, PROBAN, TOLCIDE,Great Lakes,**Derivatives**(flame retardants, water treatment,BRIQUEST , ALBRIVAP ,Astaris, Albemarle, Bayer leather tanning, agrochemicals,BRICORR, ALBRITE  plastic additives)  **Hydrocolloids**Food, cosmetics, detergents,MEYPRO, RHODIGEL, JAGUAR,CP Kelco, Hercules, oil drillingRHEOZAN, RHODOPOLDegussa, FMC**Surfactants**Cosmetics, agrochemicalMIRANOL, DERMALCARE, MIRACARE,Stepan, Huntsman, formulations, lubricants,SOPROPHOR, LUBRHOPHOS,Cognis, Sasol/Condea emulsions, polymerizationSUPERSOL, ABEX, RHODAFAC **Food Cultures**Dairy and meat productsMARSCHALL, EZAL, TEXEL,DSM, Hansen, Danisco  MICROGARD, FLORA-FIT , DPL,   NCFM, SUPERSTART 
*Phosphorus    Derivatives*. As the global industry leader, the Phosphorus Derivatives business    focuses on several core markets: water treatment, flame retardants, plastics    and polymers, pharmaceutical intermediates and fine chemicals. In 2001, its    manufacturing capabilities were strengthened through new production agreements    and joint ventures in China. Several new products were successfully brought    to market, including a pharmaceutical intermediate, an anti-corrosion agent    for water treatment applications and a softer second-generation flame retardant    for the textiles industry. Certain organic derivatives are also used as agrochemical    products to stimulate plant growth and, more recently, as synthetic intermediates    used in critical applications for the pharmaceutical industry. 
With this activity, Rhodia develops water treatment solutions    to prevent the formation of scale deposits, corrosion and microbial contamination    in a broad variety of industrial applications. In the oil-drilling segment,    for example, TOLCIDE, its flagship product, is the only biocide used for drilling    wells in the fragile ecosystems in the North Sea and the Gulf of Mexico. BRICORR,    also used in this same industry, is recognized as the most effective scale    prevention polymer in its category.

In 2001, Rhodia launched the second generation of PROBAN,    the flame retardant used in clothing, bed linen and furniture. PROBAN has    become the global benchmark in this market segment. Since U.S. legislation    now requires the use of fire-retardant fibers in children’s sleepwear, this    market is expected to grow substantially as these technologies gain greater    acceptance in the coming years.

With its vast expertise, the business has begun marketing    advanced phosphorus chemicals research and development services, which range    from laboratory development to full-scale commercial production. These services,    provided under exclusivity agreements, enable customers to quickly develop    new specialty chemical intermediates from phosphorous molecules.

*Hydrocolloids, Cultures and Food Phosphates (Food Ingredients).*Recognized as a world leader in the food ingredients    industry, Rhodia is one of the foremost suppliers of food cultures to the    dairy industry and sets the standard for food preservation products with its    antioxidants, food cultures and phosphate salts. In 2001, this leadership    position in texture agents was further reinforced through its Gelymar joint    venture in Chile, which assures preferred access to carrageenans, particularly    the Kappa II type, whose unique textures are highly prized by the dairy and    meat industries.

By enhancing texture, developing organoleptic qualities    and guaranteeing food safety, Rhodia’s technologies constantly evolve with    the ever-changing demands of this market. In 2001, for example, the development    of a range of special active food cultures to meet rising demand from large    manufacturers of dairy products, beverages and vitamin supplements helped    drive exceptionally strong growth in the probiotic market.

Widening its leadership in the field of food safety, Rhodia    has developed a new-generation of its AVGARD antibacterial poultry treatment    process. Marketed worldwide in 2002, the new process will enable poultry plants    to reduce their waste effluent–an important advantage for customers in environmentally    sensitive regions.

As innovation is a key success factor in meeting food industry    expectations, a laboratory dedicated to developing food textures is now operating    in central Europe and has intensified its scientific initiatives in the field    of probiotic cultures.  17
Rhodia has also identified food safety as a strategic development    path, and preparations are underway to introduce targeted solutions for meat    and processed food producers in the United States. A third strategic priority    is geographical expansion. By strengthening its sales and marketing resources    and laboratories in Asian markets, the food ingredients business is prepared    for strong growth in this region. Its locally based teams are skilled in adapting    solutions to the specific requirements of the fast growing Chinese and Southeast    Asian markets.

*Surfactants (Cosmetics and Detergents).*By    combining surfactant technologies with other areas of expertise within the    Group, the Division is developing new solutions for the cosmetics, detergents    and industrial markets. In addition, Rhodia’s extensive capabilities in hydrodispersible    polymers (natural or synthetic), which are critical raw materials for surface    treatment technologies, along with its 16 production plants on four continents,    enable Rhodia to offer its customers highly competitive solutions.

The business is positioned in markets in which innovation    represents a key vector of differentiation and where customers tend to be    cross-border organizations seeking partnerships with suppliers to quickly    bring to market innovations that offer perceptible benefits to consumers.    Rhodia’s speed and effectiveness in responding to these concerns – with faster    time-to-market cycles and enhanced performance – have propelled it to the    top ranks of producers of anti-stain polymers and foaming agents. As a major    supplier to the world cosmetics industry, this activity markets a full range    of products that combine surfactant, hydrocolloid and polymer technologies.    In 2001, it successfully entered the baby-wipe segment with a mild, easy-to-use,    surfactant-based product. In the household cleaning product segment, Rhodia    delivers innovative solutions that enhance the positions of its customers    in the highly competitive detergent market. In 2001, the development of MIRAPOL,    a foaming agent, enabled Rhodia’s partner, Procter & Gamble, to gain a    competitive advantage in the dishwashing detergent market.

In industrial markets, the business is a global benchmark    supplier to the agrochemical, metal treatment and oil industries.

***Technologies***
- Phosphates  are derived      from phosphate ores, which are processed into elemental phosphorus or phosphoric      acid. They are used in the form of salts or acid in detergents, food and      water treatment products.   *Phosphorus Derivatives*are organic molecules derived from phosphorus trichloride, phosphorus      oxychloride or phosphine (PH3). They are used in a wide range of applications      from pharmaceutical intermediates to agrochemicals.Hydrocolloids 
(guar, xanthan      gum, carrageenans) are plant seeds, seaweed extracts and biopolymers used      as thickeners, stabilizers or gelling agents in food or cosmetics, or as      lubricants in the petroleum industry.
- Surfactants  consists of      two components, one with a high affinity for oils and the other with a high      affinity for water. They are critical additives in formulation industries,      and are typically found in soaps.   *Food Cultures*are concentrated      mixtures of bacteria used in the dairy industry to make cheese and yogurt      and in the meat industry to protect cured meat and in agrobiology to improve      storage.   **Industrial Specialties Division**  The Industrial Specialties Division develops specialty chemical    products based on four main technologies: silicones, silica, latex and aliphatic    isocyanate resins. These specialty products and services are used primarily    in the construction and automotive industries, as well as high-technology    sectors such as electronics and medical. Rhodia is number one worldwide in    terms of 2001 sales in silicone molding and highly dispersible silicas, and    number two worldwide in terms of 2001 sales in performance coatings and aliphatic    isocyanates (TOLONATE).  The tables below set forth the percentage contribution to    the Industrial Specialties Division’s net sales by principal technology and    by geographic region for each of 1999, 2000 and 2001.  **Sales by technology****1999** **2000** **2001**Silicas19% 17% 17%Silicones36 35 36Aliphatic isocyanates (TOLONATE), Latex        and Oxygenated solvents(1)45 48 47**Total**100% 100% 100%  (1)          For 1999 and the first seven months of 2000,        these technologies included 100% of sales of Rhodia’s latex operations.        On August 1, 2000 Rhodia contributed its latex operations to a 50/50 joint        venture and has accounted for its interest under the equity method from        that date.  **Sales destination by geographic        region****1999** **2000** **2001**Europe62% 59% 59%North America14 13 13Latin America10 14 14Asia/Pacific14 14 14**Total**100% 100% 100%     18  
In line with its strategic commitment to expanding in niche    markets where the Group holds leadership positions, the Industrial Specialties    Division is repositioning its business with three key value drivers:
- A product portfolio refocused on specialties, which represented      50% of silicone output and nearly 60% of silica sales in 2001.   Market segments in which product properties create value      for customers, such as the high-performance silica products developed for      tires and toothpaste, and the silicones designed for anti-cling paper coatings.Related services or systems, such as the SILCOLEASE machines      that enable manufacturers of self-adhesive papers or coated textiles for      airbags to automate their silicone mixing processes and significantly enhance      productivity.

With a broad range of expertise Rhodia combines the Group’s    technologies to develop innovative, end-to-end solutions. In 2001, for example,    the Division developed a number of products with high-growth potential. It    recently introduced a new moisture-resistant water-based paint developed by    combining expertise of the Silicones and Paints businesses. It also pooled    the competencies of the Food Ingredients, Pharmaceutical Ingredients and Silica    businesses to create the nutraceutics unit, designed to speed up the development    of products to improve the delivery of active ingredients in the human body.

Innovations designed with environmental protection in mind    are allowing industrial customers to deliver equivalent performance with new,    more eco-friendly products, while improving the safety of their manufacturing    processes. To enhance safety in the work place, for example, Nike uses dust-free    silicas that are much easier to handle.

***Markets and Competition***

The table below sets forth, for each of the Industrial Specialties    Division’s principal technology areas, the principal products, markets, brand    names and competitors.
**PRODUCTS****MARKETS****BRANDS****COMPETITORS****Silicas**Automotive applications,ZEOSIL, TIXOSIL, TIXOLEXDegussa, PPG, Huber toothpaste, nutraceutics   (animal feed and human food),   clothing, technical and industrial parts  **Silicones**Automotive applications,RHODORSIL, SILCOLEASE,Dow Corning, GE, clothing, cosmetics, medicalRHODOTAK, RHODALIS,Wacker, Shinetsu and dental care, electronics,SILBIONE, CAF  labels, sealing, paints  **Latex**Decorative paints, tile,RHODOPAS, RHOXIMATRohm & Haas, Clariant, bonding agents, adhesives BASF, Wacker**Aliphatic**Paints, adhesives, leatherTOLONATE, RHODOCOATBayer, Degussa, BASF**isocyanates**   **Oxygenated**Paint, leather, adhesives,RHODIASOLV , MEKPLUSOxiteno, Exxon, BP, Shell,**solvents**print inks, oils and lubricants, Cloroetil, Sol Petroleo, agrochemicals, pharmaceuticals Sasol, Atanor, Celanese,   Dow/UCC
*Silica.*The Silica business    is expanding primarily in the area of precipitated silica specialties, which    currently accounts for 60% of sales. Rhodia is the world leader in precipitated    silica and is the inventor of highly dispersible silica and its solid form    MICROPEARL. Rhodia maintains its leadership position in silica systems by    developing demand for these systems in such applications as high-performance    tires and nutraceutic substrates. Rhodia’s extensive manufacturing base, which    was recently expanded with new capacity in Barquisimeto, Venezuela and Collonges,    France, means that Rhodia can support the development of global customers    with consistent-quality products. In addition to marketing products, Rhodia    is also helping to create value for customers by combining Group technologies    to offer one or several functions, such as improved gripping power or durability,    as part of integrated systems.

*Silicones.*The many properties    of silicones, combined with the Group’s rich array of technologies, extend    the scope of silicone applications. Rhodia had targeted niches in which the    properties of its products create a significant competitive advantage for    customers who are often leaders in their industries. Rhodia enjoys strong    positions in such segments as molding, coatings for airbag textiles, anti-cling    paper coatings for stickers and medical and dental care applications. By offering    a diversified range of solutions combining a product with a related service,    Rhodia is maintaining solid positions in sealing applications and the elastomer    industry. In addition, the RHODALIS technology for sealants and water-based    coatings is expanding the scope of environmentally-friendly applications.
  19
Aliphatic isocyanates, Latex and Oxygenated solvents (Paint,    Paper and Construction Materials). The Paints, Paper and Construction Materials    business mainly serves two markets — automotive and industrial paints, and    architectural coatings, such as paints, adhesives and adhesive mortars. It    applies a broad range of technologies, including aliphatic isocyanates (TOLONATE),    latex emulsions and powders, and solvent systems, which can also be combined    with many other Group technologies, such as surfactants, silica, silicones,    hydrocolloids, polyamide fibers and specialty phosphates.

The business’ strategy is aimed at developing and serving    niche applications for which demand significantly outpaces market growth.    In 2000, the paper latex coatings business was transferred to the Latexia    joint venture, in order to concentrate on performance latex products. These    niches are being expanded in response to local demand in the various regions    in which Rhodia operates, so that each requirement can be met with the right    specialty solution.

Special emphasis is now being given to new products whose    application and use are more respectful of the environment. Three examples    include TOLONATE HDT LV2, a low-solvent hardener for automotive paint applications;    RHODOPAS 2800, a solvent-free water-based paint; and the family of oxygenated    solvents.

***Technologies***
- Silica  is the basic element      in sand. After extraction and processing, precipitated silica is a light-weight,      free-flowing product that offers a wide array of benefits in absorption,      abrasion and especially reinforcement. Its development in systems significantly      enhances the performance of certain materials, such as rubber and silicones.   *Silicones*are polymers      with unique properties, including impermeability, resistance to aging and      heat, elasticity, adhesion and sealing without shrinkage, chemical inertness,      antifoaming and lubrication. Their structure allows fixation of organic      molecules, thus combining their properties.Latex 
is a dispersed polymer      consisting of fine particles in water or powder with strong bonding ability.      By injecting various components into the latex molecule, its properties      can be varied for use in a wide variety of applications.
- Aliphatic isocyanates  are used as hardeners in polyurethane resins. They are UV-resistant      and, when added to coating, improve finish and provide with exceptional      durability.   *Oxygenated solvents*combine      high thinning power with low impact on the ozone layer and negligible toxicity.      Rhodia offers a broad range of these products.   **Polyamide Division**  Polyamide is a high value-added polymer used in a wide variety    of applications for its elastic, easy-to-dye, readily recyclable and heat-    and abrasion-resistant properties. Rhodia is the world’s second-largest manufacturer    of polyamide, with four lines of business: polyamide intermediates, high-performance    engineering plastics, technical fibers and industrial and textile yarns. Rhodia    is number two worldwide in terms of 2001 sales in polyamide.  The tables below set forth the percentage contributions    to the Polyamide Division’s net sales by principal technology and geographic    region for each of 1999, 2000 and 2001.  **Sales by technology(1)****1999** **2000** **2001**Engineering plastics17% 18% 18%Textile yarns39 36 33Performance fibers12 12 –Industrial yarns11 11 –Intermediates21 23 24Technical Fibers(2)– – 25**Total**100% 100% 100%(1) Including 50% of the sales        of the joint venture Nylstar, principally in textile yarns.  (2) Combination of Performance Fibers and        Industrial Yarns.     **Sales destination by geographic        region(1)****1999** **2000** **2001**Europe74% 70% 70%North America4 5 6Latin America12 13 11Asia/Pacific10 12 13**Total**100% 100% 100%  (1)          Including 50% of the sales of the joint        venture Nylstar, principally in textile yarns.    20  
Estimated at $23 billion, the global polyamide market has    experienced growth averaging 3% a year since 1970. The market is relatively    concentrated, with six manufacturers producing 50% of worldwide yarn, fiber    and plastics, and 67% of intermediates. This high concentration, which is    expected to continue in the years ahead, is sustained by substantial technological    and financial barriers to entry.

The integrated production of adiponitrile (ADN) and adipic    acid, the two key raw materials for manufacturing polyamide 6.6, represents    an important competitive advantage. Through Butachimie, a 50/50 joint venture    Rhodia shares with DuPont, an ADN production plant that is considered one    of the most efficient in the world. In 2001, Rhodia and DuPont jointly made    a major investment in the Butachimie plant, making it the world’s largest    producer of polyamide intermediates.

By sharing R&D capabilities and working closely with    other Group businesses, the Polyamide Division is creating new custom, adipic    acid-based solutions for leading customers. For example, the Polyamide Intermediates    business developed an additive for laundry detergents, and the new ADIFOOD    product has enabled the food industry to improve the preservation of powder    preparations for gelatins and sherbets. The resistance properties of polyamide    fibers used in the recently introduced RHOXIMAT Nyl are also finding new applications    in construction and public works projects where they are used to reinforce    construction materials.

From the production of raw materials to the recovery of    end-of-cycle waste, the Polyamide Division fully embraces Rhodia’s sustainable    development commitment to reduce pollutant emissions. A far-reaching research    program is exploring ways to recycle by-products from polyamide manufacturing,    while a network for recovering polyamide waste is being set up in partnership    with customers.

***Markets and Competition***

The table below sets forth, for each of the Polyamide Division’s    principal products, the principal markets, brand names and competitors.
**PRODUCTS****MARKETS****BRANDS** **COMPETITORS****Engineering**Automotive applications, electrical,TECHNYL, TECHNYLSTARDuPont, Solutia,**plastics**electronics, industrial goods,  BASF, DSM, Honeywell consumer goods, sports    and recreational products   **Technical fibers**Automotive applications, tires,SYLKHARESSE,        NOVAL,DuPont, Acordis,**and industrial**carpeting, flock, textiles, filtration,KERMEL Solutia, Honeywell**yarns**silkscreen printing, paper   **Textile yarns**Lingerie, stockings and pantyhose,MERYL,AMNI  accessories, dress and sports apparel  DuPont**Polyamide**Engineering plastics, industrial        yarns,DIORO,        ADIFOODDuPont, BASF,**intermediates**textile yarns and technical fibers  Solutia, Asahi**and polymers**(Rhodia downstream and open market),    polyurethane intermediates:    for shoes, automotive applications,    paper, detergents, food, coatings   
*Engineering Plastics.*The    Engineering Plastics business manufactures thermoplastic polyamide for injection    molding. Light and ideal for making complex, high-performance parts, thermoplastic    polyamide is increasingly replacing steel or aluminum. To sustain growth,    the business has focused on high-potential markets where it has become a preferred    partner, leveraging its global reach, capacity for innovation and competitive    products and services. In addition to targeting high-tech markets like automotive    equipment, connectors and electrical components, the business also operates    in certain industrial and consumer segments, such as sports equipment and    electrical tools.

Rhodia has identified the automotive industry as a strategic    market, developing a product range and an organization to meet the related    challenges. Anticipating new European legislation that in 2003 will require    automakers to recycle their cars, Rhodia is already working with leading automotive    companies to devise solutions for the future. Rhodia is also developing its    business with global electrical equipment manufacturers, and in 2001, the    major U.S. automakers approved us as a supplier. In Asia, where it operates    plants in China, Taiwan and South Korea, the Engineering Plastics business    strengthened its positions as a supplier to regional electrical component    manufacturers and carmakers. 

*Technical Fibers and Industrial Yarns.*The    Technical Fibers and Industrial Yarns business manufactures and sells yarns    and fibers that are used in a variety of markets, including carpeting, tire    reinforcement, filters and silkscreens. Rhodia
    21  
is the global leader in non-woven and monofilament polyamide    fibers. The Technical Fibers business is focusing on high value-added technical    applications. Rhodia’s industrial yarns and technical fibers are recognized    around the world for their flexibility, durability and solidity, for their    resistance to heat, moisture and fire, and for their variety of sizes. They    are used to manufacture filters for chemical applications, in particular to    filter liquids and gases, and for medical applications such as filtering blood.    

In 2001, the business continued to reconfigure its production    base in Western Europe and strengthen its facilities in Eastern Europe and    Brazil. Around the world, it is consolidating its leadership positions in    specialty markets and expanding its product line to meet customer requirements    more effectively. In Brazil, for example, downstream capacity was added to    produce impregnated textiles used as tire reinforcements by tiremakers operating    in Brazil such as Pirelli. 

*Textile Yarns.*Textile yarns    are produced by Nylstar, a joint venture with SNIA, and by subsidiaries in    Brazil and China. This business designs, manufactures and markets high value-added    textile yarns designed for various clothing markets, that combine performance    and comfort sports and ready-to-wear apparel, underwear, stockings and pantyhose.    The distinguishing feature of Nylstar yarns is that their filaments are extremely    fine, which give clothing such unique characteristics such as durability,    flexibility, texture, resistance to perspiration and ease of use. The quality,    inter-fiber weavability and strength of Nylstar yarns have captured the interest    of leading fashion designers. Kappa, Sergio Tacchini sportswear and Benetton    are working with Nylstar to create new collections that combine performance    and comfort.

Based on its experience with these partnerships, Nylstar    has broad insight into future market demand and was able to proactively anticipate    the success of products offering such multiple benefits as comfort and elegance,    intensive wearability and resistance to perspiration, flexibility and resistance.    In 2001, it introduced MERYL SKINLIFE, the first bacteriostatic fiber that    prevents the proliferation of bacteria associated with body odor. The result    of a joint project with Kappa, the new MERYL microfiber features exceptionally    light weight, total adaptability to heat and moisture and faster drying than    any other fiber. This fiber will be used in the manufacture of jerseys to    be worn by Italy’s soccer team during the 2002 World Cup.

*Polyamide Intermediates and Polymers.*Adipic    acid and adiponitrile (ADN) are the key intermediates in 6.6 polymers. Rhodia    is the world’s second-largest producer of adipic acid for non-nylon applications.    Traditionally used to make textile yarns and fibers, ADN-based polymers and    intermediates are finding new applications in coatings, plastics additives,    perfumes and reinforcing resins. Developments in the Intermediates business    are closely linked to the Division’s downstream businesses, in particular    the sale of textile yarns and engineering plastics. In 2001, for example,    the business increased capacity at its adipic acid plant in Paulinia, Brazil    to meet the requirements of various Rhodia markets in the Americas and, with    its partner DuPont, doubled capacity at the Butachimie plant in Chalampé,    France.

***Technologies***
- Engineering plastics  are used for applications requiring high heat resistance, especially      in the automotive and electrical industries, or requiring great solidity,      as in furniture or sports and leisure equipment.   *Technical fibers*are used      primarily in industrial and domestic carpeting and rugs, as well as non-wovens      and flock. Some fibers are used for their resistance to fire, especially      products in the KERMEL line (fire safety, fire fighting equipment, etc.).Industrial yarns 
are yarns      with very high resistance to deformation, used to make tires, airbags and      cording.
- Textile yarns  are used      for pantyhose, lingerie, sports and casual wear. These fibers are produced      by Nylstar (50/50 joint venture with SNIA) and Rhodia Polyamida (Brazil).      MERYL, a microfiber successfully introduced in 1996, is the flagship product      and accounts for 50% of Nylstar’s sales. Rhodia has taken advantage of the      different characteristics of this product, which can be found under several      brand-names and is used in varied applications: as a lightweight, insulating,      hollow fiber for ski clothing, or combined with other fibers to improve      texture (cotton, velour etc.).  
**Services & Specialties Division**
The Electronics & Catalysis, Rhodia Eco Services and    Acetow businesses operate in high-tech markets in close partnership with the    electronics, automotive, refining and chemicals industries. The Services &    Specialties Division also supports the development of water companies and    cigarette manufacturers. Rhodia is number one in terms of 2001 sales in sulfuric    acid regeneration and separated rare earths.
  22

The table below sets forth the percentage contributions    to the Services & Specialties Division’s net sales by technology and geographic    region for each of 1999, 2000 and 2001.
**Sales by technology****1999** **2000** **2001**Eco Services40% 40% 39%Electronics & Catalysis (formerly Rare        Earths)17 19 16Acetow43 41 45**Total**100% 100% 100%     **Sales destination by geographic region****1999** **2000** **2001**Europe58% 52% 53%North America33 29 30Latin America9 8 8Asia/Pacific– 11 9**Total**100% 100% 100%
Products made by the Services & Specialties Division    help to attenuate the impact of human and industrial activities on the environment,    regenerating sulfuric acid, and treating hazardous industrial waste, all without    creating any pollution. The Division also designs solutions that improve the    quality of drinking water and the treatment of wastewater. And lastly, it    develops additives made from rare earths, such as EOLYS, which, when combined    with a particle filter, reduces diesel engine particle emissions by more than    99%. 

The Division’s industrial strategy is based on two core    value drivers:
- locating plants close to customer facilities. Rhodia      Eco Services’ sulfuric acid regeneration plants cover more than half the      requirements of North-American refineries, while Acetow’s production units      are located in high-consumption regions, such as Western Europe, Russia      and Brazil; and   easy access to rare earths, with two plants in China,      facilities for manufacturing high value-added products in France and the      United States, and research laboratories in Japan, the United States and      France.   The Division draws on the full range of Group technologies.    Rhodia Eco Services, for example, has enhanced its global lineup of water    treatment products and services with KALIPOL, a product leveraging Rhodia’s    phosphate expertise that provides a simple solution for preventing lead corrosion    in water pipes. Moreover, to broaden its capabilities in the water market,    the Division has undertaken a cross-functional study of water-related issues,    working with Specialty Phosphates, Phosphorus Derivatives, Paints and Surfactants    and Rhodia Eco Services.  ***Markets and Competition***  The table below sets forth, for each of the Services &    Specialties Division’s principal areas, the principal products, markets, brand    names and competitors.  **PRODUCTS****MARKETS****BRANDS****COMPETITORS****Electronics & Catalysis**Luminescence, optics, electronics,ACTALYS, NEOLOR,Chinese manufacturersProducts containing oxidesdyes, catalysts, automotive pollutionOPALINE, CEROX, and rare earth saltsabatement, chemical catalysis, fuel cellsEOLYS **Eco Services**Chemicals, refining, metallurgy,SATCO, REGENGrillo, Dupont,Sulfuric acid regenerationpigments, fertilizer, paper, Arch Chemical electronic components  Industrial wasteSpecialized incineration, wasteULYSSE, CLARIDIS,Onyx, Laidlaw,treatmenttreatment, soil audit and reclamation,LABO PROPRE,SARP, Trédi, recycling of catalytic convertersCYCLEONUS Waste Services,   Dames and MooreWater treatmentMunicipal water,AQUALENC, AQUARHONE,Sachtleben,Sludge treatmentindustrial effluentsDESHYDRIXAtochem, KemiraMembraneAutomotive applications,PLÉIADE, KERASEP ,Vivendi Water,filtration systemsbiotechnologies, agri-food,CARBOSEP , PERSEP ,Ondeo Pall textiles, nuclear energyIRIS **Acetow**Cigarette filters,RHODIA FILTER TOW ,Celanese, Eastman, polyester tow for ink containersRHODIA ACETOL,Acordis, Daicel  RHODIA WICKTOW     23  
*Environmental Services.*Estimated at approximately € 350 billion, the global environmental    services market is growing quickly. Rhodia Eco Services leverages its full    range of environmental capabilities, from purification to recycling, reuse    and destruction, to develop solutions in three areas: sulfuric acid regeneration,    hazardous industrial waste treatment, and water and industrial fluid treatment.    In 2001, firm demand for waste treatment in the United States offset the impact    of stiffer competition in Europe. In all its country markets, the business    delivers its services under long-term contracts that support steady, sustainable    growth.

Rhodia serves more than half the sulfuric acid regeneration    market in the United States, through an extensive industrial base. Rhodia    also provides the ability to offer end-to-end solutions, from the management    of used sulfuric acid at customer facilities to the resale or delivery of    the purified end product. In Europe, the business ranks among the market leaders.    Rhodia Eco Services also holds strong positions in particularly difficult-to-treat    hazardous industrial waste through Teris, which recently began offering a    full array of treatment technologies in the United States.

The growing interest of heavy industry for zero waste solutions    is expected to drive faster growth in this business, which is consistent with    Rhodia’s sustainable development strategy. In 2001, several long-term sulfuric    acid regeneration contracts were signed in partnership with large manufacturers.

Rhodia Eco Services is consolidating its positions in the    European sulfuric acid regeneration and hazardous industrial waste treatment    markets, while improving the competitiveness of its products and services.    The business also increased its share of the effluent treatment market, with    a focus on segments (such as foam control, sludge dewatering and membrane    filtration), which offer the most promise and the best opportunities to leverage    its technological leadership.

*Electronics & Catalysis.*With 30% of the worldwide market in 2001, Electronics & Catalysis    is the only Western company to produce rare earths and leverage their physical    and chemical properties. Its technological lead in this area is driving the    development of performance products meeting the most exacting quality standards.    The business capitalizes on its global presence to deliver technological expertise    and local services in the United States, China, Japan and Europe. Its two    strategic plants in China facilitate access to raw materials, thus enhancing    the attractiveness of its products.

Rare-earth based products are helping to support the development    of increasingly small electronic components, faster, more efficient communication    devices and systems, new flat screen technologies and innovative lighting    and display systems. Their outstanding properties have spawned numerous consumer    applications by enabling greater miniaturization with enhanced reliability,    performance and battery time.

Electronics & Catalysis’ marketing and innovation strategy    is based on close partnerships with customers, and increasing involvement    far upstream in the product development cycle. In a number of areas, such    as automotive emissions control and industrial gas scrubbing, the business’    catalysis expertise and materials help to implement solutions to reduce or    diversify consumption (e.g., with non-renewable resources) and environmental    impact (e.g., by curbing greenhouse gases). They also support the introduction    of alternative power generation solutions for tomorrow’s clean energy sources.

*Acetow.*In terms of capacity,    Acetow is one of the world’s three largest manufacturers of acetate tow, a    raw material used to make cigarette filters. It maintains preferential relationships    with major cigarette manufacturers around the world through long-term contracts.    Over the past ten years, Acetow has regularly enhanced its positions with    cigarette manufacturers. Its production process is based on high-performance    techniques combined with sophisticated quality control systems. Acetow is    competitive both in terms of costs and location, with facilities in Germany,    Eastern Europe and Latin America to support its customers’ international expansion.    

The growing global shift from non-filter to filter cigarettes    is pushing up demand in the tow market, which grew by 3% in 2001. Heightened    liability issues arising from increasingly strict regulations are prompting    cigarette manufacturers to look for ways to mitigate the harmful effects of    tobacco. The business is also developing a new generation of filters capable    of significantly reducing the effects of tobacco and responding to new legislative    requirements.

The Group is pursuing expansion in emerging economies in    Eastern Europe and Asia, where cigarette filter demand is climbing rapidly.    Growth is also being led by consumer demand for increasingly varied products,    such as light cigarettes and longer and biodegradable filters. To serve these    markets, Acetow strengthened its industrial base in 2001 by closing a plant    in Brazil and extending its manufacturing best practices to all four of its    other facilities. 

Acetow has identified partnerships with cigarette manufacturers    to develop new-generation filters as a major area of diversification. By leveraging    the full range of Rhodia capabilities, Acetow is developing products and processes    to produce filters that preserve the flavor of tobacco. The business is also    developing a new generation of filters capable of significantly reducing the    effects of tobacco and responding to new legislative requirements.
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***Technologies***
- Rare earths  are natural      elements just like oxygen, iron or carbon. Their particular molecular structure      makes them extremely difficult to separate, but gives them unique physical      and chemical properties used in many areas, including catalysis, luminescence,      optics, magnetics and electronics. Despite their name, rare earths are quite      common; the lanthanides are as abundant as copper in the Earth’s crust.   *Acetate tow*is produced      from wood pulp in a two-step process. Cellulose acetate is first made by      reacting wood pulp with acetic anhydride, then dissolved in acetone and      spun and curled to produce a cable comprising thousands of fibers. The number      and size of the fibers varies according to the desired performance characteristics.Eco Services 
offers products,      equipment, systems and services to industrial manufacturers for controlling      the environmental impact of their activities. Eco Services’ main activities      are the regeneration of used sulphuric acid and water treatment.

**Global Change Initiatives**

Beginning in 1998, the year of the Group’s creation, Rhodia    launched a number of far-reaching Global Change Initiatives to enhance its    competitiveness. These programs seek not only to cut costs substantially,    but also to optimize asset use and increase sales of high value-added products.    A significant portion of the savings obtained is reinvested in marketing and    sales in order to boost market share through lower sales prices.

***Jump-Bingo-WCM (World Class Manufacturing)***

The Bingo and Jump cost-cutting programs have been integrated    into operating unit objectives through the implementation of local productivity    plans. As a result, while reducing variable as well as fixed costs remains    a Group priority, target figures will no longer be disclosed. The WCM program    aims to improve overall industrial performance, from the receipt of raw materials    at production facilities to delivery of finished products to customers. This    program enables Rhodia to achieve cost savings, enhance customer satisfaction,    optimize industrial capacity utilization and reduce working capital requirements.    

***R&D Efficiency***

Rhodia rolled out a new global research organization in    1999 to improve R&D efficiency. As part of this effort, the Group’s internal    project selection process has been completely revised, with new projects now    judged on their potential net discounted cash flow. In addition, a monitoring    system allows projects to be curtailed at any moment should they fall short    of expectations. Outside the Group, key customers have been associated closely    with major research projects in order to assure optimal coordination between    technological innovations and user requirements.

***Commercial Excellence***

Developed at the end of 1999 to improve sales and marketing    efficiency, the Commercial Excellence program is one of the Group’s many Customer    Relationship Management (CRM) initiatives, Commercial Excellence contributes    to Rhodia’s growth by seeking improvement in three areas: people and organization,    tools and methods, and the development of e-business. Action plans implemented    in 2000 saw their first concrete applications in 2001, with the selection    and adaptation of a dedicated software package and the tool’s deployment in    a specific customer segment. Several hundred users have been equipped and    trained out of a total that eventually will exceed 2000.

***E-business***

The Group’s e-business strategy has been consolidated through    creation of an internal e-network and the launching of targeted initiatives.    In 2001, Rhodia laid its e-business foundations with a number of practical    measures aimed at automation of the purchasing and procurement process: the    implementation of an internal e-procurement system (excluding raw materials    procurement) at 25% of the sites in Europe and the U.S.; the creation of KeyMRO,    a joint-venture procurement company (excluding production procurement), in    partnership with Schneider Electric, Thomson Multimedia and Usinor; and the    Group’s participation in Elemica, the e-market exchange platform created in    2000 by 22 major chemical companies.

In 2001, Rhodia also launched several projects to strengthen    customer relations: implementation of second-generation web sites providing    advanced marketing and CRM functions; expansion of the marketing offer through    deployment of a common global e-commerce platform (with 60% of Group businesses    equipped by year-end 2001); enhanced exchanges and new Web-based communications    tools (groupware tools, webinars, etc.). To support these developments, training    and information initiatives focusing on the importance of e-business and new    technologies have
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been made available for all employees. These tools will    be gradually deployed in all Group entities in 2002. All sites in Europe and    the U.S. will be equipped with the e-procurement system and all Enterprises    will be equipped with the e-commerce platform.

**Insurance**

Rhodia has evaluated the coverage for risks and insurance    in force for product liability, property damage, business interruption and    other potential risks. The Group seeks to reduce its exposure to these types    of risks and will continue to devote significant efforts to maintaining and    improving security and internal control programs. Despite the sharp rise in    insurance premium costs and the level of deductibles imposed by market conditions,    Rhodia believes that its insurance coverage and the amounts and the risks    insured are comparable to those of other companies in the chemicals industry.    While Rhodia cannot guarantee that it will not incur an uninsured loss, its    financial, earnings and cash situation should not be materially affected.

**Research and Development**

Specialty chemical makers were originally mere producers    of molecules, but over time they have evolved into designers of exclusive    solutions. One of the essential growth levers for Rhodia is its ability to    respond to its customers’ specific needs and to innovate through five centers    of expertise: organic synthesis, inorganic synthesis, polymer synthesis, material    physics and physical chemistry of dispersed materials.

Research and development constitutes an important part of    Rhodia’s activities. The table below sets forth research and development expenses    by Division and as a percentage of Division net sales (including sales to    other Divisions) for the three years ended December 31, 2001.
 **Year ended December 31,** **1999****2000****2001** **(**€          **millions,****except          percentages)          (unaudited)** € **%** € **%** € **%**Fine Organics26 2.8 31 2.4 23 1.9Consumer Specialties42 3.7 52 2.4 56 2.6Industrial Specialties55 5.0 58 4.7 51 4.2Polyamide34 2.6 37 2.3 36 2.5Services & Specialties24 2.7 25 2.5 22 2.2Polyester3 – 3 – 3 –Other6 – 6 – 24 –**Total(1)**190 3.4 212 2.9 215 3.0
(1) Total research and development expenses, and total research    and development expenses as a percentage of consolidated net sales.

After reconfiguring its R&D organization in 2000, Rhodia    is now focusing on improving R&D productivity by speeding up innovation    and shortening time-to-market cycles. Rhodia’s R&D structure is based    on:
- Cross-fertilization between marketing, research and production      teams through Rhodia’s four multidisciplinary R&D centers, located in      Lyon and Aubervilliers (France), Cranbury, NJ (USA), and Paulinia (Brazil),      serving the Group’s worldwide activities and home to 60% of Rhodia’s 1,500      researchers.   Maintaining proximity with customers through Rhodia’s      network of more than 30 technical development centers located throughout      the world designed to serve customers at a local level.Focused cooperation with outside expertise, with 6% of      the R&D budget dedicated to cooperation agreements with leading universities      and research centers, such as National Scientific Research Center (CNRS)      in France, the University of California at Santa Barbara and Princeton University      in the United States, the Université Catholique de Louvain in Belgium, and      Universidade Estadual de Campinas in Brazil.

Rhodia files more than 200 patent applications in an average    year, and 12.6% of its sales come from products that are less than five years    old.

The following are among the innovations made possible in    2001 by Rhodia’s R&D efforts:
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MERYL SKINLIFE. Developed by Nylstar in partnership with    Benetton, MERYL SKINLIFE polyamide fibers prevent the development of odors    with a bacteriostatic agent embedded in the fiber. This new smart fiber has    become a marketing factor for some of Benetton’s new collections.

*Tailor-Made for Roche.*The    Roche Nicholas laboratories, a long-standing Rhodia partner, is looking for    ways to optimize its effervescent delivery systems, particularly for multi-vitamins.    The challenge is two-fold: develop an easy-to-handle compound that guarantees    the delivery of essential inorganic salts. Through Rhodia’s ability to cross-fertilize    its expertise and technological capabilities, a new “two-in-one” formula,    currently used in food applications, is expected soon in the pharmaceuticals    market.

*Oil Well Productivity.*As    a preferred partner of oil drilling service companies like Halliburton, Petrolite    andSchlumberger, Rhodia cross-fertilizes its silicone,    latex, polymer, surfactant and hydrocolloid technological capabilities to    create a customized solution for a variety of problems. New fluids have been    developed, based on improved technologies and concepts used in other applications    such as detergents. This technological breakthrough enables faster oil extraction    and significantly reduces the risk of damage.

RHOXIMAT *Nyl.*Adapting    polyamide fibers to the construction industry, Rhodia developed RHOXIMAT Nyl,    an innovative combination of polyamide and latex technologies that considerably    improves the resistance and durability of materials used to coat facades and    flooring or to bond ceramic tiles, while at the same time providing improved    safety and appearance.

*Phosphor for Plasma Screens.*As a leader in rare earth-based high-tech products, Rhodia contributes    to the plasma screen market, which is growing by 80% a year. Rhodia’s R&D    team partnered with Samsung to develop new phosphors that improve image clarity    and quality and extend the life of new-generation plasma screens.

*Athletic Shoes.*Combining    its polymer and silicone expertise, Rhodia is developing a new generation    of silicas for the soles of athletic shoes. These highly dispersible silicas,    used in Nike’s latest Shox basketball shoes, increase durability and provide    manufacturers with greater flexibility in terms of design, weight and sole    thickness.

**Raw Materials**

Rhodia purchases raw materials and chemical intermediates    from a large number of third parties, with a centralized purchasing department    procuring the entirety of the raw materials needs of each of Rhodia’s Divisions.    On an aggregate basis, Rhodia’s expenses for purchases of its raw materials    totaled approximately € 1.7 billion in 2001, as well as an additional € 300    million in energy purchases.

Any significant change in raw material costs can have a    significant effect on Rhodia’s earnings. Changes in prices of raw materials    cannot always be passed on to the customer as higher prices for finished goods,    hence profit margins may be affected. Moreover, competitive pressures may    drive down selling prices in the wake of lower raw material prices, thereby    limiting the potential for improved profits. As a hedge against fluctuations    in the prices of raw materials, Rhodia has recourse to medium- and long-term    contracts for the primary materials used in its production. The table below    lists the principal raw materials purchased by Rhodia from outside sources    for its production operations and the principal products for which such materials    are used.
**DIVISION****RAW MATERIAL****PRODUCTS USED FOR**Fine OrganicsBenzene, propylenePhenol MethanolMethyl chlorideConsumer SpecialtiesElemental phosphorus, phosphoricPhosphate acid, rock phosphate  Ethylene oxideSurfactantsIndustrial SpecialtiesStyrene, butadieneLatex MethanolSiliconesPolyamideButadiene, cyclohexanePolyamide intermediates Natural gasPolyamide intermediatesServices & SpecialtiesSulphurSulphuric acid, carbon disulphide
Major requirements for key raw materials and energy are    typically satisfied pursuant to medium- or long-term relationships and contractual    agreements with suppliers. Rhodia is not generally dependent on any one supplier    for a major part of its raw materials requirements, but certain important    raw materials are obtained from a few major suppliers. In general, where Rhodia    has limited sources of raw materials, it has developed contingency plans to    minimize the effect of any interruption or reduction in supply.
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Temporary shortages of raw materials may occasionally occur    and cause temporary price increases. In recent years, such shortages have    not resulted in unavailability of raw materials. However, the continuing availability    and price of raw materials are subject to unscheduled plant interruptions    occurring during periods of high demand, or due to domestic and world market    and political conditions, as well as to the direct or indirect effect of European    and national regulations. During periods of high demand, certain raw materials    are subject to significant price fluctuations, and, in the past, such fluctuations    have had an adverse impact on the results of operations of Rhodia. The impact    of any future raw material shortages on Rhodia’s business as a whole or in    specific geographic regions cannot be accurately predicted. Operations and    products may, at times, be adversely affected by legislation, shortages or    international or domestic events. See also “Item 5. Operating and Financial    Review and Prospects.”

**Sales, Marketing and Distribution**

Rhodia sells its products in over 150 countries through    decentralized sales, marketing and distribution functions. Such functions    are currently carried out pursuant to policies established by the management    of each enterprise. Rhodia’s products are generally sold in bulk for use in    industrial applications or subsequent reformation or incorporation in consumer    and business goods. In connection with Rhodia’s strategy of increasing accountability    of enterprise management, sales, marketing and distribution, which in the    past were managed mainly by local subsidiaries responsible for several enterprises,    are increasingly being placed under the direct responsibility of the management    of individual enterprises. In addition, Rhodia is putting increased emphasis    on key account management across geographic regions in order to establish    global sales, marketing and distribution arrangements for customers operating    internationally.

Sales in all Divisions are generally on a purchase order    basis; however, longer-term arrangements have been established with certain    key customers or when dictated by customer requirements. Such arrangements    generally do not extend beyond one year. Rhodia occasionally enters into long-term    arrangements for periods ranging from three to five years with customers who    consider their purchases to be strategic products or with whom Rhodia has    jointly developed customized products.

**Health, Safety and Environment**

The Group’s Health, Safety and Environment policy (HSE)    is based on a worldwide program of risk prevention and continual improvement.

This policy is part of Rhodia’s Commitment to Progress,    aimed at sustainable growth. On a day-to-day basis, this policy seeks sustained    improvement in the following areas:
- Good practices and a standard of excellence on the part      of personnel in addressing health and safety issues;   Protection of the environment at industrial sites, for      the safety and well-being of local populations;Responsible product management in relations with customers      by integrating HSE throughout the life-cycle of Rhodia’s products.

*Safety and environment.*Rhodia has developed its own system for managing the safety of its    employees and sites, which goes beyond ISO 14000 standards, the current environmental    norm. Rhodia requires that its own system be enforced at all sites, regardless    of their size or the nature of their activities. In addition, sites are regularly    audited.

Controlling industrial risks requires identifying and ranking    them by severity; preventive measures must also be taken to avoid irreversible    impacts. Rhodia’s industrial sites are inspected at least once every five    years to ensure the safety of local populations. Moreover, Rhodia engages    in systematic preventive procedures regarding the health of its own employees,    persons working at Rhodia sites, people living in neighborhoods adjacent to    Rhodia plants, and the users of Rhodia products. Every workplace at every    business unit throughout the world is evaluated for exposure to physical,    chemical and biological risk.

Rhodia seeks to improve its safety record on an ongoing    basis. This requires daily individual commitment by all of the Group’s employees,    especially its managers. Accordingly, members of the Executive Committee regularly    inspect Rhodia’s sites without prior warning. The results speak well for the    efforts expended: the rate of accidents has declined each year. The accident    frequency rate, with or without work stoppage, declined 17% in fiscal year    2001 compared with fiscal year 2000. Rhodia intends to do even better. For    instance, it will deploy new worldwide behavioral procedures such as BBS (Behavior    Based Safety), which have yielded proven results at the U.S. sites where they    have been adopted.
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The table below sets forth certain information relating    the accident frequency rate for the fiscal years 1999, 2000 and 2001.
 **************1999** **2000** **2001**TF1(1)   2.2 2.1 2.1TF2(2)   6.2 5.8 4.8TF1EE(3)   7.1 6.4 4.0(1)          TF1: Accident Frequency Rate resulting in        a work stoppage, expressed in terms of number of accidents per million        hours worked.(2)TF2: Accident Frequency Rate with or without        work stoppage, expressed in terms of number of accidents per million hours        worked.(3)  TF1EE: Accident Frequency Rate with or without        work stoppage, for companies outside the Rhodia Group but involved in        work at Rhodia sites.
*Environment.*In 2001 Rhodia    devoted € 171 million to safety and the environment and invested € 67 million    in installations designed to reduce water and air pollutants as well as waste    products. These investments are part of Rhodia’s ongoing improvement programs    that have been in place for several years and that account for growth in the    Group’s industrial activities.

Since 1990 Rhodia’s discharges into the air and water, as    well as generation of other waste products, have decreased by 40-50%. In 2000,    for instance, emissions of VOCs (volatile organic compounds), which affect    the ozone layer, declined by 10%. Rhodia is also pursuing its policy of investing    in co-generation units, such as the plant currently under construction at    its site in Chalampé, France, to reduce its energy consumption levels.

In 2000 Rhodia implemented a data reporting procedure based    on European Chemical Industry Council (CEFIC) standards. This procedure combines    both raw data and indicators based on overall environmental impacts at over    90% of the Group’s sites.

*Social Commitment.*With its    workforce of 26,925, approximately two-thirds of which is outside France,    Rhodia is a global player facing human and social challenges. It meets these    challenges in a spirit of sustained improvement, innovation and strict ethics.    The Group is committed to a proactive policy of dialogue with employees, career    planning on a world scale, and implementation and encouragement of an organization    firmly based on strong ethical principles.
Rhodia is committed to:- Respecting its agreements with customers and engaging      in an open, sincere dialogue with them.   Developing loyal, transparent relationships with its      suppliers.Respecting its neighbors in host communities all over      the world.

**Intellectual Property**

Rhodia owns a large number of patents that relate to a wide    variety of products and processes. Each year, Rhodia files over 200 new patent    applications, and is also licensed under a small number of patents owned by    others. In addition, Rhodia owns a considerable number of registered trademarks    throughout the world, under which it markets its products. Such patents and    trademarks in the aggregate are of material importance in Rhodia’s operations.    In addition to patent protection, Rhodia also relies on its know-how and technical    expertise in many of its manufacturing processes for developing and maintaining    its market position.

Although exclusivity can be maintained on a relative basis    for certain products following patent expiration through know-how and technical    expertise, the expiration of a patent can result in intense competition, including    from lower cost producers, and erosion of margins. Prior to and following    expiration of the patent for a key product, Rhodia will generally focus efforts    on developing patentable enhancements to the product or new patentable formulations    for which the product is used. Management does not believe that the loss of    patent protection for any particular product or process would have a material    adverse effect on Rhodia’s financial condition, results of operations or cash    flows.

**Government Regulation**

Production and marketing of chemical substances are regulated    by domestic and international laws. Although almost every country has its    own legal procedure for registration and import, laws and regulations in the    European Union, the United States, Canada and Japan are most significant to    Rhodia’s business. The most important of these laws include the European Inventory    of Existing Chemical Substances, the European List of Notified Chemical Substances,    the United States Toxic Substances Control Act Chemical Substances Inventory,    the Domestic Substance List of Canada and the Japan Handbook of Existing and    New Chemical Substances. Chemicals that are on one or more of the above lists    can usually be registered and imported without additional testing in any other    country, although additional administrative hurdles may exist. Rhodia personnel    work closely with the regulatory agencies of theses countries to bring new    chemicals and products to market.
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Rhodia also actively seeks approvals from the U.S. Food    and Drug Administration (FDA) for certain specialty chemicals, principally    where Rhodia believes that such specialty chemicals will or may be used in    the manufacture of products that will come in contact with food. In addition,    certain chemicals to be used in the manufacture of food and/or drug products    are subject to thorough review by Rhodia’s staff and, where applicable, the    FDA.

**Property, Plants and Equipment**

As of December 31, 2001, Rhodia operated 125 production    sites worldwide, excluding closed sites and sites operated by joint ventures    accounted for under the equity method. The net book value of Rhodia’s property,    plants and equipment was € 3.6 billion as of December 31, 2001, of which €    1.0 billion corresponded to assets located in France. Many sites contain two    or more facilities operated by different Divisions. Net fixed assets located    in France, North America and Latin America accounted for approximately 27.5%,    26.8% and 23.9% respectively, of Rhodia’s net fixed assets base as of December    31, 2001. All of Rhodia’s major manufacturing facilities have qualified for    ISO 9001 or ISO 9002 certification. Rhodia owns entirely its principal manufacturing    facilities and substantially all of the land on which such facilities are    located. Rhodia has also entered into several production arrangements and    participates with interests of up to 50% in more than 20 joint ventures accounted    for under the equity method.

The table below sets forth the number of Rhodia’s principal    production sites, by Division and geographic region, as of December 31, 2001.    The sizes of Rhodia’s sites vary considerably in terms of employees and production    capacity.
**Production Sites(1)**                      **Europe****North America****Latin America****Asia/Pacific****Total** Fine Organics11 3 1 1 16 Consumer Specialties17 13 4 6 40 Industrial Specialties16 5 1 7 29 Polyamide13 – 3 5 21 Services & Specialties7 7 1 2 17 Polyester– – 2 – 2 **Total**64 28 12 21 125 (1)          Of the 125 sites, 16 serve two or more Divisions.        These sites are listed in the table under the principal Division utilizing        the site. Table excludes facilities operated by joint ventures accounted        for under the equity method.
Utilization of Rhodia’s principal facilities may vary with    economic and other business conditions. Rhodia’s business facilities generally    have sufficient capacity for existing needs and expected near-term growth.    The acquisition of ChiRex in September 2000 has given Rhodia access to large    cGMP capacities to custom-manufacture active ingredients and advanced intermediates    for the pharmaceutical industry, thus enabling high future growth in this    field. As part of its global productivity review, the management of each Division    is reviewing its facilities to identify opportunities for closure or consolidation.    Where possible, Rhodia seeks to consolidate production at lower cost sites    in order to enhance operating efficiency. Rhodia is strengthening its position    in emerging markets, particularly Asia-Pacific, by expanding its facilities    in these areas, generally by entering into joint ventures with local producers.

Many of Rhodia’s manufacturing sites have an extended history    of industrial use. As is typical for such businesses, soil and groundwater    contamination has occurred in the past at some sites, and might occur or be    discovered at other sites in the future. Consistent with its past practice,    Rhodia is continuing to investigate and remedy or monitor soil and groundwater    contamination at certain of these sites. Based on information presently available,    Rhodia has budgeted capital expenditures for environmental improvement projects    and have established reserves for known environmental remediation liabilities    that are probable and reasonably capable of estimation. However, environmental    matters cannot be predicted with certainty, and these amounts may not be adequate    for all purposes. In addition, the development or discovery of new facts,    events, circumstances or conditions, and other developments such as changing    laws, could result in increased costs and liabilities. See “Item 3. Key Information    – Risk Factors.” Rhodia may claim indemnification from Aventis with respect    to certain costs that may arise from certain unanticipated environmental liabilities.

See “Item 7. Major Stockholders and Related Party Transactions.”

**Item 5. Operating and Financial Review and Prospects**

The discussion below is based on, and should be read in    conjunction with, the Consolidated Financial Statements and the notes thereto    included elsewhere in this annual report. Rhodia’s Consolidated Financial    Statements have been presented in the euro since the euro’s adoption by France    on January 1, 1999. See “Item 3. Key Information – Exchange Rate Information.”
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EBITDA, as defined by Rhodia, equals operating income before    depreciation and amortization. EBITDA should not be considered as an alternative    to net income, as an indicator of operating performance, or as an alternative    to cash-flow, as a source of liquidity, and may not be comparable with EBITDA    as defined and reported by other companies.

**Overview of 2001**

In a difficult 2001 economic environment that continued    to feel the effects of high raw material prices, Rhodia launched a number    of restructuring measures aimed at enhancing its long-term profitability.    These measures, designed to significantly reduce fixed costs and support the    ongoing improvement in available cash flow, included the following:
- Comprehensive overhaul of all Group Divisions to optimize      capacity utilization and reduce overheads.   Strict inventory control to significantly reduce existing      levels.Limiting capital expenditures to € 400 million in 2002      and in 2003 as a result of improved project selection and the impact of      the 2001 restructuring.
- Improving selectivity in research and development projects      on the basis of expected earnings potential, while maintaining the R&D      efforts necessary to drive future growth.  
Restructuring costs increased from € 20 million in 2000    to € 253 million in 2001. These costs include restructuring charges (€ 163    million in 2001 versus € 14 million in 2000) and the exceptional write down    of assets linked to restructuring measures, which increased from € 6 million    in 2000 to € 90 million in 2001 (including € 25 million for the accelerated    amortization of goodwill).
Other items affecting earnings included:
A non-recurring charge of € 26 million linked to the      temporary shutdown for the extension of the Polyamide production plant at      Chalampé, France (Butachimie joint venture), charged to production costs.
- Provisions for risks and non-recurring items of € 80      million charged to pretax income.  
In addition, higher raw material and energy prices in 2001    compared with the prior period resulted in an increase in costs of € 166 million    (at constant scope of consolidation and exchange rates). On the other hand,    the Group benefited from synergies achieved by the integration of Albright    & Wilson in 2000 as well as from the results of the Global Change Initiatives    programs launched in 1998.
Net sales declined by only 1.9%, demonstrating Rhodia’s    ability to withstand the major crises affecting certain end markets, such    as textiles and electronics, by capitalizing on its strong product range in    high value-added segments that are less vulnerable to downturns.
Finally, positive cash flow generation and an improved working    capital position demonstrated the Group’s ability to optimize day-to-day management    of its businesses.
**Certain Factors Affecting Rhodia’s Financial Condition    and Results of Operations**
Certain factors affecting Rhodia’s financial condition and    results of operations are described below. For further discussion of these    and certain other factors, see “– Results of Operations”.
***General Economic Conditions***
Rhodia’s products serve a broad range of industries worldwide.    Rhodia’s sales in Europe, North America, Latin America and the Asia/Pacific    region accounted for approximately 51%, 22%, 16% and 11%, respectively, of    Rhodia’s net sales by destination for 2001, and therefore overall demand for    Rhodia’s products is affected by general economic trends primarily in the    industrialized countries. Rhodia’s strategic refocusing on specialty chemicals    is intended to make its operations less sensitive to economic cycles in certain    business sectors.
***Exchange Rate Fluctuations***
Rhodia publishes its Consolidated Financial Statements in    euro. Because a substantial portion of its assets, liabilities, sales and    earnings are denominated in currencies other than the euro, Rhodia has a translation    exposure to fluctuations in the values of these currencies against the euro.    These currency fluctuations, especially the fluctuation of the value of the    U.S. dollar against the euro, could have a material impact on Rhodia’s financial    condition and results of operations. In 2001, the net impact on Rhodia’s consolidated    sales of currency fluctuations in relation to the euro was marginal(a 1% increase from the dollar    and a 1.8% decline from the Brazilian real).
  31

A depreciation in the dollar against the euro would lessen    the euro-value of sales and revenues generated in dollar-zone countries, and    could lower the competitiveness of products manufactured by Rhodia in Europe    compared to exports from the United States and other dollar zones. This effect    would be partially offset by exchange rate variations in the euro-cost of    much of the Group’s raw materials and energy purchasing requirements.

The table below sets forth average exchange rates of the    euro with respect to key currencies in 1999, 2000 and 2001.
 **Average exchange rates and changes(1)****Currency****1999** **% change 1998/1999** **2000** **% change 1999/2000** **2001** **% change 2000/2001**U.S. dollar / euro1.07 (3.6) 0.92 (14.0) 0.90 (2.2)Pound sterling / euro0.66 (1.5) 0.61 (7.6) 0.62 1.6Brazilian real / euro1.93 37.8 1.69 (12.4) 2.10 24.3(1)          Daily exchange rates published by the Banque        de France on the 5th, 10th, 15th, 20th and 25th of every month for 1998        and 1999. Daily currency prices for 2000 and 2001, published by the European        Central Bank.
To reduce exposure to short-term exchange rate changes,    positions on foreign currency purchasing and sales transactions are calculated    daily and hedged against rate changes with respect to the euro using appropriate    financial instruments. Positions are recorded at market value. Over-the-counter    forward agreements are used with maturities of generally less than six months.    The foreign exchange risk exposure used to calculate risks related to derivatives    (see below) involves only exchange positions on advance-order sales in currencies    other than the euro over the coming three-month period. See “Item 11. Quantitative    and Qualitative Disclosure about Market Risk” and Notes 1b, 1k, 22 and 24    to the Consolidated Financial Statements included in this Annual Report.

***Cost of Raw Materials***

On an aggregate basis, Rhodia’s expenses for purchases of    its raw materials in 2001 totaled approximately € 1.7 billion as well as an    additional € 300 million in energy purchases. Significant variations in the    costs of raw materials can affect Rhodia’s financial results. Rhodia continually    tracks the prices of key raw materials through a raw materials index encompassing    Rhodia’s top 100 strategic raw materials. Based on a base value of 100 taken    in 1999, the strategic raw materials index decreased four base points from    an average of 119 base points for fiscal year 2000 to an average of 115 base    points for fiscal year 2001. This decrease in raw materials index corresponds    principally to decreases in the prices of raw materials linked to oil prices.    The main raw materials that affected the price index in 2001 were ethanol,    styrene, butadiene, propylene and benzene.

The 20 principal raw materials shown below together represent    € 1,100 million in costs, or 65% of Group key raw materials purchases in 2001.
 Acetic AcidGlass Fiber AmmoniaNitric Acid BenzenePhosphorus ButadienePhosphoric Acid (MGA) Caustic SodaPhosphoric Acid (PWA) CaprolactamePropylene CumeneRock Phosphate CyclohexaneStyrene Ethylene OxideSulfur GasWood Pulp
After maintaining an average price above U.S.$ 26.60 a barrel    during the first three quarters of 2001, the average Brent reference price    declined to U.S.$ 19.70 in the fourth quarter (source: Chemical Market Associates    Inc.). As a result, average prices over 2001 for most of Rhodia’s key raw    materials remained very close to 2000 levels, keeping purchasing costs high.

Because of the length of manufacturing cycles, the positive    impact of the decline in raw material prices is only felt in the accounts    after a delay of three to four months. Inventories also had an unfavorable    impact, because many products sold in 2001 were manufactured at the end of    2000 or the beginning of 2001 at relatively high costs. Increases in the sales    prices and improvements in the product portfolio were therefore not sufficient    to offset the additional € 166 million cost of raw materials compared with    2000.

Increases in overall levels of raw materials prices may    not necessarily be passed on through an increase in sales prices, and may,    in certain cases, create negative pressure on margins. Decreases in the average    prices for raw materials may, as a result of competitive pressures, cause    prices also to decline, and may, in certain cases, limit the potential gain    in

  32

margins. In order to reduce the impact of change in raw    materials prices, Rhodia’s major requirements for key raw materials are typically    satisfied pursuant to medium-or long-term contracts. See “Item 4. Information    on the Company -Raw Materials.”
          ***Scope of Activities Included in the        Consolidated Financial Statements***
During the period covered by the discussion below, Rhodia    has pursued a program of focusing on the specialty chemicals business and    reducing its activities in chemical commodities. The principal acquisitions,    divestitures and other changes in the scope of activities included in Rhodia’s    financial statements during the three years ended December 31, 2001, are set    forth below.

**2001:***Sales of European    Surfactants and Empicryl.*In April 2001, Rhodia    sold Albright & Wilson’s (A&W) European surfactants business (research,    manufacturing and marketing) to Huntsman International LLC. In June 2001,    Rhodia sold the Empicryl lubricant additives businesses to Group Degussa AG.    Empicryl, which is used in the lubricants industry to improve viscosity, was    manufactured at Whitehaven. Net sales of A&W’s European surfactants and    Empicryl lubricant additives businesses for the period April 1, 2000 to December    31, 2000 were€ 339 million.

**2000:***Fine Organics.*ChiRex,    a U.S. company specializing in high technology services to the pharmaceutical    industry, was integrated into Rhodia’s Fine Organics Division during the fourth    quarter of 2000, following the friendly takeover bid launched in July of that    year. In order to gain maximum advantage from the expertise of ChiRex’s teams,    Rhodia contributed to ChiRex its own pharmaceutical-related activities, creating    a new entity, Rhodia ChiRex.

*Consumer Specialties.*Albright    & Wilson was consolidated by Rhodia effective April 1, 2000. Following    this acquisition, the Group became the world’s leading producer of specialty    phosphates. The complementary marketing, technological and geographic fit    of Albright & Wilson and Rhodia produced results from the outset, and    the synergies achieved exceeded forecasts. Savings of € 22 million over nine    months in 2000 were followed by € 57 million in full-year 2001. The Group    now forecasts additional savings of € 25 million in 2002, bringing the total    to more than € 100 million annually, which is above the € 90 million target.

Management cautions that the synergy gains set forth in    this paragraph are forward-looking statements (within the meaning of section    27A of the Securities Act and section 21E of the Securities Exchange Act)    and are based on management’s current expectations. Rhodia’s success in achieving    these strategic objectives will depend on, among other factors, Rhodia’s ability    to efficiently merge the businesses’ sales forces, reduce fixed and variable    costs and successfully pursue Albright & Wilson’s “Way Forward” program.

**1999:***Fine Organics.*In    March 1999, Rhodia sold its equity interest in the 50/50 joint venture Chloralp    to its joint venture partner, Laroche Industries. Chloralp is a European producer    of chlorine and sodium hydroxide.

*Industrial Specialties.*On January 4, 1999, Rhodia signed an agreement with ISIS, IFP *(Institut    Français du Pétrole)*and Procatalyse, pursuant    to which Rhodia sold its 50% stake in Procatalyse, a joint venture with ISIS.    Procatalyse markets catalyzers, absorption agents, and containment materials    for the refining, petrochemical and gas industries. In addition, Rhodia Chimie    sold certain intellectual property, up to then licensed to Procatalyse, to    the IFP. Rhodia Chimie contributed to Procatalyse a significant portion of    its facilities at Salindres (France), which will be devoted to manufacturing    products marketed by Procatylse.

*Polyamide.*On December 31,    1998, Rhodia and Hoechst signed an agreement dividing the activities of their    50/50 shared subsidiary, Fairway (Brazil). Starting on January 1, 1999, Rhodia    resumed management and control of 100% of Fairway’s polyamide business in    Santo André and Jacarei. In 1998, this business, renamed Rhodia Poliamida,    generated net sales of approximately € 146 million and employed about 1,700    persons. For its part, Hoechst took over management of the polyester business    of Fairway on January 1, 1999. On January 15, 1999, Rhodia and the South Korean    group Hyosung signed an agreement enabling Rhodia to acquire the Hyosung group’s    Engineering Plastics Polyamide company, the sales leader in South Korea in    this field. The agreement includes the acquisition of a production unit and    a development center located in Anyang, a suburb of Seoul. The annual sales    posted by these acquired businesses are approximately € 37 million.

*Services & Specialties.*In October 1999, Rhodia sold Rhodia Chimie’s Gallium business, representing    sales of€ 15 million    in 1998.

***Restructuring charges***

Restructuring charges increased from € 20 million in 2000    to € 253 million in 2001. These charges include restructuring and environmental    costs (€ 163 million in 2001 compared with € 14 million in 2000) and the exceptional

  33

writedown of assets linked to restructuring measures, which    increased from € 6 million in 2000 to € 90 million in 2001 (including € 25    million for the accelerated amortization of goodwill). In 2000, restructuring    and environmental costs concerned restructuring costs for European sites of    the Polyamide and Fine Organics Divisions. In 2001, these reserves concerned    the major restructuring plans developed by Group management in response to    the difficult economic environment. The breakdown of these costs (restructuring    and environmental costs plus accelerated depreciation and amortization) by    Division is as follows:

Fine Organics: € 92 million
- Closing of two manufacturing facilities, St. Louis and      New Brunswick (USA).   Shutdown of a production unit at the Lille site (France).Industrial productivity improvements at the St. Fons,      Mulhouse and Salindres (France) and Avonmouth (UK) sites.

Consumer Specialties: € 37 million
•Measures to improve the competitiveness        of sites in Kreuzlingen (Switzerland), Huelva (Spain) and several production        units in the United States.
Industrial Specialties: € 15 million
- Closing of the Troy site (USA) and a production unit      in Korea.   Industrial productivity measures for sites in St Fons,      Collonges and Ribecourt (France) and in Mexico.   Polyamide: € 46 million    - Industrial productivity measures at the Belle Etoile      and Chalampé (France) and Emmenbrücke (Switzerland) sites.   Closing of production units in Italy.In Brazil, reorganization of the headquarters of Rhodia      Polyamide South America and industrial rationalization measures.

Services & Specialties: € 37 million
- Industrial productivity improvement for sites at Staveley      (UK) and Rieme (Belgium).   Closing of the Acetow manufacturing activity at the Santo      André site (Brazil).   Others: € 27 million    - In the U.S., closing of the Shelton, Connecticut, headquarters      as well as reorganization of shared services based in Cranbury, New Jersey.   Productivity improvement measures at Division head offices      and corporate functions in France, the UK, Spain and Brazil.   Rhodia’s reserves for restructuring and environmental costs    are described in greater detail in Note 17 to the Consolidated Financial Statements.    While these measures were implemented rapidly, the complexity of some of them    will prevent the expected savings from being fully realized before the second    half of 2002. Within this same time frame, the Group is targeting an aggregate    7% reduction in personnel in relation to year-end 2000 due to these restructuring    measures. This target is a forward-looking statement based on management’s    current knowledge and beliefs. Actual results may differ significantly for    a variety of reasons, including those set forth under “Item 3. Key Information    – Cautionary Statement Regarding Forward-looking Statements.”  The table below sets forth the restructuring costs recorded    in 2001 by Division.    **Restructuring and environmental          costs****Restructuring-related depreciation          and amortization**  **(€ millions)****(€ millions)** Fine Organics(49) (44) Consumer Specialties(21) (15) Industrial Specialties(12) (2) Polyamide(36) (10) Services & Specialties(20) (18) Other(26) – **Total**(163) (90)      34  
In 2000 the € 14 million of provisions for restructuring    and environmental costs included mainly costs for the Polyamide and Fine Organics    Divisions’ European production units.

In 1999, the € 40 million of provisions for restructuring    and environmental costs included principally costs related to production rationalization    plans at several phosphate and silicone production facilities in France and    the United States.

**Results of Operations**

*The discussion below is based on Rhodia’s financial results    for the three years ended December 31, 2001 as set forth in the Consolidated    Financial Statements, unless stated otherwise.*

*When used to compare the results of two different periods    in the discussion below, “comparable structure” means that (i) any activities    included in the Consolidated Financial Statements for all or part of the latter    period have been included, for purposes of the comparison, in the earlier    period only for the same portion of such earlier period as they were included    in the latter period; (ii) any activities which were included in the Consolidated    Financial Statements during all or any portion of the earlier period but which    were not included for any portion of the latter period, have been excluded,    for purposes of the comparison, from the results of the earlier period. The    principal acquisitions, divestitures and other changes in the scope of activities    included in the Consolidated Financial Statements for 1999, 2000 and 2001    are described above under “— Scope of Activities Included in Consolidated    Financial Statements.”*
***Net sales***       The tables below set forth certain financial        and business data for Rhodia.       **Consolidated Net Sales and Contribution        by Division**    **2000** **2001** **(**€          **millions,****except          percentages)****Net sales**7,419 7,279Contribution by Division:   Fine Organics16% 17%Consumer Specialties30 29Industrial Specialties17 17Polyamide21 20Services & Specialties13 14Other(1)3 3**Total**100% 100%(1) Include polyester sales minus inter-division        sales.   **Contribution to Net Sales        by Geographic Region(1)**        **2000** **2001**Europe50% 51%North America23 22Latin America14 16Asia/Pacific13 11**Total**100% 100%(1) By destination.   
Net sales declined by 1.9%, from € 7,419 million in 2000    to € 7,279 million in 2001. Changes in scope of consolidation, relating primarily    to the full-year consolidation of Albright & Wilson and ChiRex and disposals    of the European surfactants, Empicryl and metal organics businesses, contributed    1.2%. The net currency effect was a negative 1.3%, reflecting the positive    impact of the dollar/euro exchange rate (1.0%) and the negative impact of    the Brazilian real, the pound sterling and Asian currencies (–1.8%, –0.2%    and –0.4% respectively). On the basis of constant scope of consolidation and    exchange rates, sales declined 1.7%, representing a 3.3% drop in volume (primarily    reflecting severe downturns in the textile and electronics markets) and a    1.6% increase in prices.

*Fine Organics.*Net sales    by the Fine Organics Division amounted to € 1,219 million in 2001, up 2.8%    from the€ 1,185 million reported in 2000. The increase    was primarily due to the consolidation of ChiRex, acquired in the
    35  
fourth quarter of 2000. The conversion effect was negative    by 2.2%. On a comparable basis (constant scope of consolidation and exchange    rates), sales ended the year down 2.3%, comprising a 1.9% decline in volumes    and a 0.4% negative price effect.

The year’s overall performance reflected a significant slowdown    in all the Division’s businesses during the second half. In particular, Pharmaceutical    Ingredients was adversely affected by market over-capacity and highly aggressive    competition from Asian aspirin and paracetamol producers. Rhodia ChiRex confirmed    the growth potential of its Contract Research business, but technical difficulties    during start-up of a production plant caused delays in sales of exclusive    pharmaceutical molecules in the fourth quarter.

*Consumer Specialties.*Net    sales by the Consumer Specialties Division declined by 1.2% in 2001, to €    2,164 million from € 2,192 million in 2000, primarily due to the disposal    of Albright & Wilson’s European Surfactants and Empicryl lubricant additives    businesses in April and June. The Division benefited from a positive conversion    effect of 0.8%. On a comparable basis (constant scope of consolidation and    exchange rates), sales ended the year down 1.1%, comprising a 1.7% decline    in volumes and a 0.6% positive price effect.

With 43% of net sales generated in North America, the Division    was particularly affected by the slowdown in the U.S. economy during the second    half, worsened by the events of September 11th. Over the full year, the weakness    in demand was especially noticeable in sodium tripoly-phosphates (STPP) and    low value-added phosphorus derivatives. Food ingredients continued to expand,    without feeling any effects from the North American slowdown. Growth in the    cosmetics, detergent and food markets was driven by new product introductions.

*Industrial Specialties.*Net sales by the Industrial Specialties Division declined by 1.4% in    2001, to € 1,220 million from € 1,239 million in 2000, with a sharp 3.5% negative    currency effect related primarily to the Brazilian real. On a comparable basis    (constant scope of consolidation and exchange rates), sales were up by 2.1%,    comprising a 0.9% increase in volumes and a 1.2% positive price effect. Overall,    sales showed firm resistance to a deteriorating business environment.

The Paint, Paper and Construction Materials business increased    sales, despite the unfavorable impact of the U.S. economic slowdown. The pricing    power of the three core businesses, aliphatic di-isocyanates, specialty latex    and solvents, contributed to the gain, during this period of slow volume growth.    Silica sales were stable overall, with increases in Europe and the United    States in the tires, toothpaste, nutraceutics and other specialty markets    and sales decline in the Asian shoe market. Silicone sales demonstrated strong    resilience in the face of challenging conditions in the main markets, particularly    in North America.

*Polyamide Division.*Net sales    by the Polyamide Division declined by 9% in 2001, to € 1,444 million from    € 1,589 million in 2000, with a sharp 4.1% negative    currency effect related primarily to the Brazilian real. On a comparable basis    (constant scope of consolidation and exchange rates), sales ended the year    down 5%, comprising a 6.5% decline in volumes and a 1.5% positive price effect.    The decrease reflected difficulties encountered in textile markets, which    slipped into deep recession in 2001 following a worldwide collapse in demand.    In addition, the slump in the electronics market, which negatively affected    connectors and electrical equipment, considerably weakened sales in the Engineering    Plastics business. However, despite the exceptionally depressed market conditions,    the Division as a whole gained new market share during the year.

*Services & Specialties.*Net sales by the Services & Specialties Division rose by 3% in    2001, to € 1,013 million from€ 984    million in 2000, but results varied in its three Enterprises.

Acetow sales rose 11.8% to € 455 million from € 407 million    the year before, led by sustained strong growth in volumes and prices, particularly    in Russia, China and Brazil. At the same time, Acetow began redeploying its    cellulose acetate procurement, by halting production in Brazil and increasing    operations in the United States via Primester, a joint venture with Eastman    Chemical Co. Sales at Rhodia Eco Services gained 1.7% during the year, to    € 397 million from € 390 million in 2000. The Enterprise maintained market    share while increasing prices, particularly through the sulfuric acid regeneration    business in the United States and the waste treatment business. In Europe,    on the other hand, the Enterprise had to deal with a serious deterioration    of the sulfuric acid market following the entry of new British competitors.    After an excellent year in 2000, Rhodia Electronics & Catalysis sales    fell 13.5% last year, to € 162 million from € 187 million, due to a nearly    50% drop in demand from the electronics industry. This unfavorable market    environment temporarily offset the impact of two years of restructuring the    business portfolio and manufacturing base and disrupted the turnaround that    had begun in 2000. Nevertheless, Electronics & Catalysis consolidated    market share during the year and confirmed its leadership position in automotive    emissions control solutions.

Other Businesses include non-core activities (mainly Rhodia    Ster and “traded” product sales) and the corporate functions. Rhodia Ster,    a Brazilian subsidiary, is the Group’s last remaining company in the polyester    sector, from which Rhodia has withdrawn in all other world markets. In 2001,    Rhodia Ster posted sales of € 337 million, down
    36  
5.4% in relation to 2000, and its EBITDA margin remained    stable at 24.4% of net sales. Rhodia intends to sell Rhodia Ster when market    conditions permit such sale under optimal conditions.

The corporate functions were reorganized in 2001. Most corporate    management and support functions that had been included in Division structures    were centralized at the Group level, enabling the Divisions to focus more    effectively on their specific businesses. These restructuring measures have    already contributed to lowering costs, and savings are expected to become    even more substantial in 2002.
   ***Operating expenses***     **Year ended December 31,**  **2000** **2001**   **(**€ **millions)**     Production costs and        expenses5,053 5,166    Administrative and selling        expenses1,138 1,120    Research and development        expenses194 197    Restructuring and environmental        costs14 163    Depreciation of tangible        assets450 500    Amortization of goodwill        and other intangible assets74 117    **Operating expenses**6,923 7,263 
*Production costs and expenses.*Production costs totaled € 5,166 million, up € 113 million in relation    to 2000. Raw material costs, which are included in this category, were responsible    for an additional € 166 million. Also contributing to this increase were non-recurring    charges of € 26 million incurred by the Polyamide Division related to the    launching of a new production unit at the Chalampé site in France, including    € 11 million corresponding to non-capitalized projects and start-up expenses,    plus additional expenses of € 15 million for purchases and external storage    linked to the temporary production shutdown.

However, the Jump (reduction of fixed costs) and the WCM    programs (optimization of production capacity) provided relief on certain    structural costs, limiting their impact on declining sales and partially offsetting    the impact of non-recurring charges.

*Administrative and selling expenses.*Administrative    and selling expenses declined slightly by 1%, from € 1,138 million in 2000    to € 1,120 million in 2001. Savings generated by the Jump program offset costs    incurred by the Commercial Excellence and e-Business programs.

*Research and development expenses.*Research    and development expenses increased to approximately € 215 million (or € 197    million excluding amortization). R&D expenses as a percentage of sales    increased from 2.85% in 2000 to 2.95% in 2001.

*Depreciation and amortization.*Depreciation of tangible assets increased by 11.1% to € 500 million    in 2001 from€ 450 million in 2000, while amortization    of goodwill and other intangible assets increased by 58.1% to € 117 million    in 2001 from € 74 million in 2000. The increase in both depreciation and amortization    was due principally to the exceptional charges described above under “ –Restructuring    charges.”

***Operating income***

Operating income for 2001 stood at € 16 million compared    with € 496 million in 2000, after charges for restructuring costs (€ 253 million)    and other non-recurring items.

*Fine Organics.*In response    to the challenging environment, the Division restructured operations to improve    competitiveness by adjusting production capacity to market needs. The related    € 92 million of restructuring charges and accelerated amortization and depreciation    combined with high raw materials costs, caused earnings before interest, taxes,    depreciation and amortization (EBITDA) to decline to € 73 million from € 161    million the year before.

Operating income declined from € 76 million in 2000 to a    loss of € 72 million in 2001. Operating margin (operating income as a percentage    of sales) declined from 6.4% in 2000 to (5.9)% in 2001. In the fourth quarter,    however, the Division noted for the first time a positive impact from lower    petrochemical feedstock prices, which had begun to ease in the second half.

*Consumer Specialties.*Former    Albright & Wilson facilities were restructured during the year, leading    to an improvement in capacity utilization. This was particularly the case    in the Phosphates business, which closed four plants and head offices and    reduced workforce levels. However, the impact of synergies arising on the    integration of
    37  
Albright & Wilson, which totaled around € 75 million    by the end of 2001, was more than offset during the year by higher energy    prices and prices for soda ash, elemental phosphorus and other raw materials.    As a result, EBITDA declined to € 184 million from € 208 million in 2000.    EBITDA was also reduced by the € 20 million in restructuring expense originally    scheduled for 2002 and 2003 but incurred in 2001 in the Phosphates and Phosphorus    Derivatives businesses. Operating income declined 47.0% from € 83 million    in 2000 to € 44 million in 2001. Operating margin declined from 3.8% in 2000    to 2.0% in 2001.

*Industrial Specialties.*EBITDA declined to € 125 million from € 155 million the year before,    primarily due to the impact of restructuring and environmental costs (€ 12    million) and higher raw materials and energy prices. Operating income declined    39.1% from € 87 million in 2000 to € 53 million in 2001. Operating margin    declined from 7.0 % in 2000 to 4.3% in 2001. Margins were adversely impacted    by high raw materials prices in the first half and by greater price competition    in the second.

*Polyamide.*EBITDA fell to    € 133 million from € 271 million in 2000, due to the decline in business,    reserves for restructuring (€ 36 million), exceptional expenses related to    capacity expansion at the Butachimie upstream plant (€ 26 million) and the    impact of higher raw materials prices (partly offset by the reduction in fixed    costs). Operating income declined 82.6% from € 178 million in 2000 to € 31    million in 2001. Operating margin declined from 11.2% in 2000 to 2.1% in 2001.    The restructuring programs are targeted at optimizing the industrial base    to a best-cost position. In 2001, this involved the closure of five plants    and production facilities in order to increase utilization of the Division’s    competitive plants, particularly those located in Eastern Europe.

*Services & Specialties.*EBITDA declined by 12.2%, to € 172 million in 2001 from € 196 million    in 2000, essentially due to restructuring. Operating income declined 37.3%    from € 118 million in 2000 to € 74 million in 2001. Operating margin declined    from 12.0% in 2000 to 7.3% in 2001. The performance in 2001 was led by sustained    growth at Rhodia Acetow and breakeven results at Rhodia Eco Services, which    offset the difficulties at Rhodia Electronics & Catalysis over the year.

***Equity in earnings of affiliated companies***

Income from companies accounted for by the equity method    fell from € 17 million in 2000 to a loss of € 24 million in 2001. This sharp    decline resulted from the collapse of the polyamide markets as reflected in    the performance of Nylstar, a joint venture with SNIA to produce textile yarns.    The advances made by Teris (Services & Specialties Division), a joint    venture with Suez in the industrial waste treatment sector, were not sufficient    to offset this decline.

***Financial expense – Net***

The marginal increase in net financial expense, from € 177    million in 2000 to € 186 million in 2001, is primarily due to the impact of    recent acquisitions. Acquisitions carried out in 2000 (Albright & Wilson    and ChiRex, consolidated respectively on April 1, 2000 and October 1, 2000)    affected financial expense for only part of 2000 whereas in 2001 these charges    were incurred on a full-year basis.

Despite this burden, 2001 net financial expense represented    5.8% of the Group’s average net debt, compared with 5.9% in 2000. The series    of interest rate cuts in 2001 – the positive effects which take several months    before being reflected in financial expense – contributed to a reduction in    debt servicing, especially at the end of the year.

***Net gains on disposals of assets***

Net gains on the disposal of assets, which rose from € 13    million in 2000 to € 15 million in 2001, came primarily from the sale of real    estate in Brazil and the Empicryl business (Consumer Specialties Division)    in June 2001. In 2000, net gains on disposals primarily concerned the sale    of the Kallo company.

***Other income (expenses) – Net***

After an expense of € 20 million in 2000, this item increased    to an expense of € 123 million in 2001. The additional€    103 million expense principally reflects: 
•          Reserves for two non-recurring items totaling        € 50 million–the first to cover an environmental risk related to the closing        of the Cubatao site in Brazil, and the second related to an arbitration        proceeding between Rhodia Polyamide Intermediates, DuPont China Holding        and LYPFC (Lioyang Petrochemical Fiber Company, a subsidiary of Sinopec),        covering losses expected by Rhodia on the liquidation of a joint venture        created in 1996 in Sanlong (People’s Republic of China).    38  •         The unfavorable impact of foreign exchange        trends during the year, which resulted in a decline from income of € 18        million in 2000 to a loss of € 7 million in 2001.•  The increased size of the securitization        program, the costs of which rose from € 9 million in 2000 to € 17 million        in 2001.
***Provisions for income tax***

A deferred tax asset has been recognized, corresponding    primarily to the expected tax savings from the application of tax loss carryforwards    generated in 2001. As a result, Rhodia recorded a tax benefit of €€94 million    in 2001, compared with a provision of € 104 million in 2000.

***Net income***

The Group reported a net loss of € 213 million in 2001.    In addition to items affecting operating income, net income was adversely    affected by losses of companies accounted for by the equity method (€ 24 million)    and provisions for risks and exceptional items (€ 80 million).

Earnings per share, calculated on the basis of the average    number of outstanding shares in 2001 (179,103,640), represented a loss of    € 1.19 compared with income of € 1.23 in 2000 (on the basis of 175,843,305    outstanding shares). 
**Consolidated Operating Results for 1999 and 2000**       The tables below set forth certain financial and business        data for Rhodia.       **Consolidated Net Sales and Contribution by Division**        **1999** **2000** **(€ millions,****except          percentages)**Net sales5,526 7,419Contribution by Division:   Fine Organics17% 16%Consumer Specialties20 30Industrial Specialties20 17Polyamide24 21Services & Specialties16 13Other(1)3 3**Total**100% 100%(1) Include polyester sales minus inter-division sales.       **Contribution to Net Sales by Geographic Region(1)**        **1999** **2000**Europe53% 50%North America22 23Latin America14 14Asia/Pacific11 13**Total**100% 100%(1)By destination.***Net sales***
Net sales rose by 34% to € 7,419 million in 2000, compared    with € 5,526 million in the previous year. Structural changes, including the    consolidation of Albright & Wilson in the second half of 2000, contributed    17.6% of the increase in net sales. Currency effects, primarily reflecting    the appreciation of the dollar compared to the euro, had a positive impact    of 9%. On a comparable structure and exchange rate basis, the increase in    net sales was 6.1%, reflecting 3.0% growth in volumes and a 3.1% rise in prices.    Certain Divisions, particularly the Polyamide Division, were able to raise    their prices to pass on part of the increase in raw material costs and thereby    limit the pressure on margins.
    39  
*Fine Organics.*Sales grew    strongly in 2000, by 28.2%. Changes in the scope of consolidation, including    the integration of ChiRex during the fourth quarter of 2000, together with    conversion effects, had a positive impact of 17.6%. Sales volume grew 5.3%,    due to the strength of the perfume market and the recapturing of market share    in pharmaceuticals. Price increases of 3.7% were due in large part to the    intermediates business, which benefited from the rise in the price of phenol.    

*Consumer Specialties.*The    Division’s sales increased by 94.7%, from € 1,125 million in 1999 to € 2,192    million in 2000. This growth was due in large part to the acquisition of Albright    & Wilson, which was consolidated into Rhodia as of April 1, 2000. Excluding    changes in consolidation scope, sales increased by 1.3%, with volumes rising    2%, partially offset by a decrease in prices of 0.7%.

Growth was particularly strong in surfactants and food ingredients,    due to new specialty products for personal care, such as new high-performance    UV filters and a new detergent with more lathering, as well as new specialty    products based on xanthan gum and guar. By contrast, sodium tripolyphosphate    (STPP) declined in both price and sales volume in Europe, due to overcapacity    in the industry. Rhodia closed several STPP production units at the end of    the year due to overcapacity in the industry.

*Industrial Specialties.*The 11.5% increase in sales in 2000 resulted from a significant increase    in sales volumes (5.5%), especially in Europe and Latin America, and price    increases of 6%. This was due in particular to a range of new specialty products    and a more dynamic marketing policy, despite a slowing of the growth rate    in North America in silica and silicone applications. 

*Polyamide.*2000 proved to    be an exceptional year for Rhodia’s Polyamide Division. Rhodia posted strong    growth in volumes and prices in a market characterized by high growth. This    performance was due to strong resistance to price increases for raw materials.    As a result, sales grew 21% in 2000, to reach € 1,589 million, compared to    € 1,313 million in 1999. Excluding changes in exchange rates and consolidation    scope, sales grew 14.9%, with a volume increase of 7.4% and price increase    of 7.5%. The majority of sales in the Polyamide Division for 2000 went to    destinations in Europe (70%), followed by Latin America (13%), Asia/Pacific    (12%) and North America (5%). All the businesses in the Division saw their    volumes increase in 2000. Growth was especially strong in engineering plastics,    textile yarns and intermediates.

*Services & Specialties.*Sales of the Services & Specialties Division grew 10.9% in 2000,    with positive changes in all three businesses. Rhodia Electronics & Catalysis    recorded strong growth due to rapid changes in the electronics and automobile    emissions control markets and the development of new applications, such as    polishing electronic chips. Rhodia Acetow benefited from the strong growth    of the Chinese and Russian markets. Rhodia Eco Services also experienced substantial    growth, due mainly to its water treatment business in Europe and waste management    and regeneration businesses in the United States. The majority of sales in    the Services & Specialties Division for 2000 went to destinations in Europe    (52%), followed by North America (29%), Asia Pacific (11%) and Latin America    (8%).

Non-core and peripheral businesses are grouped as “other”    in Rhodia’s financial reporting system. This primarily includes Rhodia Ster    and corporate expenses. In 2000, the recovery of the PET market lifted Rhodia    Ster’s results. Sales rose by 50% compared to 1999, to € 356 million, and    its EBITDA margin exceeded 20%.

***Operating expenses***

Operating expenses for 2000 amounted to € 6,923 million,    an increase of 35.3% from operating expenses of € 5,117    million for 1999.

*Production costs and expenses.*Production costs rose to € 5,053 million, an increase of € 1,459 million.    Of this increase, € 1,034 million was related to volume, currency effects    and changes in the consolidation scope, and € 425    million resulted from increases in raw material prices. However, the Jump    program enabled Rhodia to reduce fixed production costs by 2.5%, and the WCM    program increased production capacity while minimizing unit costs in production.

*Administrative and selling expenses.*Administrative    and selling expenses increased by 28.8% to € 1,138 million in 2000, compared    to € 883 million in 1999. Excluding changes in exchange rates and the scope    of consolidation, administrative and commercial expenses remained stable compared    to 1999, and selling expenses remained stable as a percentage of net sales.    Cost savings achieved through the Jump program were offset by exceptional    expenses incurred for the launch of the Commercial Excellence program and    e-business initiatives.

*Research and development expenses.*Research    and development expenses rose by 10% compared with 1999. Despite this increase,    R&D expenses as a percentage of sales declined from 3.4% in 1999 to 2.9%    in 2000. This decrease reflected the integration of Albright & Wilson,    which allocated a small percentage of sales to research activities. Rhodia’s    objective is to return to the 1999 level, which is on par with the industry    average.
    40  
*Restructuring and environmental costs.*Reserves    for restructuring and environmental costs amounted to 

€ 14 million in 2000, down from € 40 million in 1999. This    figure mainly included restructuring costs for the Polyamide and Fine Organics    Divisions’ European production units. In 1999, additional reserves were recorded    to cover the cost of rationalization measures at phosphate and silicone manufacturing    facilities in France and the United States.

*Depreciation and amortization.*Depreciation and amortization increased by € 101 million to reach €    524 million compared to € 423 million in 1999, essentially reflecting changes    in the consolidation scope and, to a lesser extent, amortization of acquisition-related    goodwill.

***Operating income***

Operating income for 2000 stood at € 496 million, representing    a 21.3% increase over 1999.

*Fine Organics.*EBITDA rose    to € 161 million, up 11% from 1999 despite the strong impact of the increase    in raw material prices for the Division, which primarily uses organic materials.    The costs of integrating ChiRex and persistent difficulties in the agrochemical    market also weighed on the Division’s operations. The negative effects were    partially offset by the high level of sales and major efforts to reduce fixed    costs. Operating income decreased 5.0% from€ 80    million in 1999 to € 76 million in 2000, and operating margin decreased from    8.7% to 6.4%.

*Consumer Specialties.*The    Division posted an EBITDA increase of 121% to reach € 208 million in 2000,    compared with € 94 million in 1999. This growth was due partly to structural    impact (Albright & Wilson) and partly to savings of € 22 million from    synergies in the integration of Albright & Wilson. Moreover, Rhodia launched    its own industrial restructuring, which included closing several factories    and company offices. Operating income increased from € 29 million in 1999    to € 83 million in 2000, and operating margin increased from 2.6% to 3.8%.

*Industrial Specialties.*Significant increases in the cost of raw materials, such as styrene    and butadiene for latex, weighed heavily on the profitability of this business,    a pressure that other businesses were able to resist. The industrial paints    business (TOLONATE) continued to grow. The silicones business, faced with    price increases for methanol, fully benefited from the restructuring plan    begun in 1999 and the efforts to increase sale prices. The silica business    withstood pressures despite stiff competition in Asia from Chinese producers.    Operating income remained relatively stable at € 87 million in 2000 compared    to € 85 million in 1999, while operating margin declined from 7.7% in 1999    to 7.0% in 2000.

Overall in 2000 the Industrial Specialties Division maintained    its leadership position in specialty markets, through its determination to    compensate for the continued increases in raw material prices by reducing    costs. It finished the year with an EBITDA up slightly from 1999.

*Polyamide.*EBITDA increased    10.6%, reaching € 271 million, compared with € 245 million in 1999. This growth    was obtained despite a considerable increase in the price of the Division’s    key raw materials (cyclohexane, butadiene, gas, ammonia and caprolactame),    up € 143 million over 1999. This increase in costs was offset by significant    increases in sale prices and lower fixed costs. Operating income increased    14.1%, from € 156 million in 1999 to € 178 million in 2000, while operating    margin declined from 11.9% to 11.2%.

During 2000 the Division continued to adapt its manufacturing    facilities in France, closing monofilament production at Albi and discontinuing    several units producing carpet fibers at Arras. This restructuring cost €    13 million. The Division invested € 111 million in 2000, which allowed it    to increase manufacturing capacity and improve its cost structure.

The year 2000 was also one of geographic expansion for the    Polyamide Division, which increased its presence internationally. Following    the acquisition of plants in Slovakia and Poland, the purchase of a business    producing industrial fibers in Daugavpils (Latvia) reinforced the Division’s    competitive advantage in terms of production costs. Rhodia has established    itself in North America with the purchase of AMFIBE (Virginia), a textile    yarns manufacturer, acquired via the Nylstar joint venture, and the launch    of an engineering plastics compounding facility in Mississauga (Canada). The    Division also increased its presence in China with the opening in July of    the Yinlong facility, producing polyamide 6.6 textile yarns.

*Services & Specialties.*The EBITDA margin increased further, from 18% to 20% in 2000. The Division’s    excellent performance was due primarily to the recovery of Rhodia Electronics    & Catalysis, after two years of restructuring its portfolio and industrial    facilities to meet Group goals. The two other businesses continued to generate    good profits and a positive cash flow. Operating income increased 25.5%, from    € 94 million in 1999 to € 118 million in 2000, and operating margin increased    from 10.6% to 12.0%.
    41  
***Equity in earnings of affiliated companies***

The equity in the results of affiliated companies accounted    for by the equity method increased to € 17 million in 2000, from € 13 million    in 1999. This improvement was due to the strong performance of the two principal    joint ventures accounted for under the equity method: Teris (Services &    Specialties Division), a 50/50 joint venture operated with Suez in the industrial    waste treatment sector; and Nylstar (Polyamide Division), a 50/50 joint venture    formed with SNIA to produce textile yarns.

***Financial expense – Net***

The increase in net financial expenses from € 116 million    in 1999 to € 177 million in 2000 was due to acquisition-related debt contracted    to purchase Albright & Wilson and ChiRex. Despite this, net financial    expenses rose at a lower rate than indebtedness, as a result of Rhodia’s policy    of financing optimization and currency risk management. The key measures included    a refinancing of Brazilian debt, freezing of part of the debt prior to interest-rate    increases, and launching of two commercial paper programs in France and Belgium,    which cost less than bank borrowing.

Consequently, net financial expenses accounted for 5.9%    of the Group’s average net financial debt in 2000 (compared to 6.7% in 1999)    in spite of the significant increase in market rates between 1999 and 2000,    which rose by an average of 130 basis points for the three-month EURIBOR and    112 basis points for the three-month U.S. dollar-denominated LIBOR.

***Net gains on disposals of assets***

Net gains on disposals of assets were € 13 million in 2000    versus € 65 million in 1999. These gains essentially came from the sale of    Kallo, which made an insignificant contribution to 1999 consolidated sales.    In 1999, net gains primarily related to the divestiture of the Gallium business    (Electronics & Catalysis), disposal of the Group’s 50% stakes in the Procatalyse    (Eco Services) and Chloralp (Fine Organics) joint ventures, and the sale of    certain real estate assets.

***Other income (expenses) – Net***

The amount of other income (expenses), which had represented    an expense of € 53 million in 1999, was reduced to€    20 million in 2000. This € 33 million difference essentially resulted from    positive exchange rate trends experienced in 2000.

***Provisions for income tax***

Income tax amounted to € 104 million in 2000, compared with    € 96 million in 1999, resulting in an effective tax rate of 31.6%.

***Net income***

Net income was slightly lower than the 1999 figure, declining    by 4.8% from € 227 million in 1999 to € 216 million in 2000. Net earnings    per share, calculated on the basis of the average number of shares outstanding    in 2000 (175,843,305), were € 1.23, against € 1.30 for 1999.

**Liquidity and Capital Resources**

***Consolidated Balance Sheet***

*Liquid assets and short-term financial debt.*Rhodia’s    Consolidated Financial Statements reflect liquid assets (cash, short-term    deposits and marketable securities) totaling € 413 million at December 31,    2001, and short-term financial debt (bank overdrafts, short-term borrowings    and current portion of long-term debt) of € 1,037 million. At December 31,    2000, Rhodia had liquid assets of € 259 million and short-term financial debt    of € 1,248 million.

*Working capital.*Rhodia’s    working capital (defined as total current assets minus total current liabilities)    decreased from negative € 262 million as of December 31, 2000, to a negative    € 429 million as of December 31, 2001. The change in Rhodia’s working capital    was due primarily to the increase in other current liabilities from € 1,232    million as of December 31, 2000, to € 1,404 million as of December 31, 2001    relating principally to the increase in reserves for restructuring and environmental    costs described above under “– Restructuring charges” and the increase in    reserves relating to environmental costs at Rhodia’s Cubatao site in Brazil    and the liquidation of its former joint venture in Sanlong (People’s Republic    of China) described above. The decline of working capital was due also to    the decline in accounts and notes receivable to € 524 million at December    31, 2001 from € 819 million at December 31, 2000.
    42  
The decline in receivables reflected both efforts by Rhodia    to improve its ratio of receivables over net sales, as well as the decline    in net sales during the second half of the year.

*Net debt.*Net debt (defined    as bank overdrafts, current portion of long-term debt, short-term borrowings    and long-term debt less cash, short-term deposits and marketable securities)    decreased to € 2,572 million at December 31, 2001, from € 3,066 million at    December 31, 2000. This decline reflected primarily the disposal of Albright    & Wilson’s European surfactants business and the generation of positive    free cash flow in 2001. Rhodia’s long-term debt (excluding current portion)    amounted to € 1,949 million, or 65% of gross debt (€ 2,985 million). In March    2001, Rhodia issued a € 300 million bond offering paying a nominal yield of    6%. In addition, several bank credit lines were obtained or extended. The    average maturity of debt at December 31, 2001 decreased to 2.8 years, compared    with 3.1 years at December 31, 2000. At year-end 2001, the ratio of net debt    to stockholders’ equity and minority interests was 1.09.

*Other long-term liabilities.*Other long-term liabilities rose by € 182 million, from € 1,153 million    in 2000 to € 1,335 million    in 2001, principally reflecting increases in pension provisions. 

*Stockholders’ equity.*At    December 31, 2001 stockholders’ equity amounted to € 2,267 million, compared    to € 2,593 million at December 31, 2000. This decrease    was due to the 2001 net loss of € 213 million, dividends paid in 2001 of €    85 million and a € 28 million decrease in the cumulative translation adjustment.    See Note 14 to the Consolidated Financial Statements. 

***Consolidated Statements of Cash Flow***

*Net cash provided by operating activities.*Net    cash provided by operating activities declined to € 676 million for 2001 from    € 1,002 million for 2000, due to the deterioration of business conditions.    Net income (loss) after adjusting non-cash items declined from € 730 million    in 2000 to € 405 million due primarily to higher raw material prices and volume    slowdowns. The impact of decreases in operating assets and liabilities equally    contributed to the cash generation of approximately € 271 million in both    2000 and 2001. In 2001, the positive impact of decreases in accounts receivable    and inventories reflected lower activity at year-end, as well as management    efforts to reduce working capital. On the other hand, accounts payable negatively    impacted cash flow, also reflecting the business slowdown, which led to lower    raw materials purchases in the fourth quarter of 2001.

*Net cash used by investing activities.*Net    cash used by investing activities decreased to € 154 million for 2001 compared    with € 2,049 million for 2000. The exceptionally high level of 2000 was due    principally to the acquisitions of Albright & Wilson and ChiRex. The other    factors affecting the decline in net cash used by investing activities included:
•*additions to property, plant and equipment,*which amounted to € 483 million for 2001 compared        with € 503 million for 2000. Given the Group’s level of net indebtedness,        Rhodia has adopted measures to limit capital spending, including through        the World Class Manufacturing cost reduction program seeking to optimize        existing industrial production capacity. In response to persistent difficulties        in the economic environment, the Group has revised its investment strategy.        To manage resources allocated to fixed assets and maximize the value of        new facilities, Rhodia is targeting a reduction of capital expenditures        in 2002 to € 400 million, 20% below its capital expenditures in 2000;•*other capital investments,*which        include principally expenditures on (i) operational assets, such as computer        software, patents and licenses, and (ii) equity investments in connection        with Rhodia’s overall development, amounted to € 102 million for 2001        compared with € 138 million for 2000;•         *proceeds from disposals of assets*amounted        to € 500 million in 2001, compared to € 124 million in 2000. Asset disposals        consisted principally of sales of real estate, particularly in Brazil,        and divestitures of the businesses described above under “– Certain Factors        Affecting Rhodia’s Financial Condition” and “Results of Operations –Scope        of Activities Included in the Consolidated Financial Statements.”
*Net cash provided by financing activities.*Net    cash provided by financing activities comprises mainly changes in short-term    and long-term borrowings.
•In 2001 net cash used by financing activities        amounted to € 457 million due to a net increase of € 157 million in long-term        borrowings, offset by a decrease in bank overdrafts and short-term borrowings        of € 535 million.•         In 2000 net cash provided by financing activities        amounted to € 1,013 million due mainly to an increase of €  525        million in long-term borrowings and an increase of € 479 million in short-term        borrowings related principally to acquisitions.•         In 1999 net cash used by financing activities        amounted to € 1,355 million due mainly to a net increase in long-term        borrowings of € 212 million offset by a € 1,508 million decrease in short-term        borrowings.    43  Long-term  borrowings decreased over the three-year period due to repayment of certain  long-term debts coming to maturity.
The table below sets forth Long-term debt, Capital leases    and Operating leases at fiscal year ended 2001, as well as the maturity/payment    schedules for each of these items. See Note 18 to the Consolidated Financial    Statements.
 **At December 31, 2001** **Maturity / Payments** **Total**           **Subsequent** **2001** **2002** **2003** **2004** **2005** **2006** **years** **(**€          **millions)**Long-term debt(1)2,259(2) 318 105 595 669 534 38Capital lease Obligations21 13 3 2 1 2 –Operating leases278(3) 61 54 48 45 29 41(1)At Fiscal year ended 2001, Rhodia’s        long-term borrowings (including capital leases) totaled € 2,280 million,        consisting of € 813 million in bonds, € 1,136 million in other instruments and        a current portion of € 331 million(2)At Fiscal year ended 2001, Rhodia        held € 1,113 million of its long-term debt (including capital leases)        in euro, € 1,061 million in U.S. dollars an€ 106 million in other currencies. This        breakdown does not reflect Rhodia’s exposure to these currencies’ interest        rates.(3)At Fiscal year ended 2001, the        net present value of total future minimum lease payments (at an assumed        discount rate of 6%) was € 232 million.
***Commitments and sources of funds***

Committed credit facilities are normally subject to certain    financial covenants, none of which are linked to Rhodia’s credit rating. A    change in Rhodia’s rating could have an impact only on the cost of future    financing. At December 31, 2001, committed but undrawn credit lines amounted    to € 1,128 million. Rhodia believes that available funds are sufficient to    satisfy its liquidity needs.

Guarantees, which are primarily in favor of Group subsidiaries    and joint ventures, totaled € 260 million.

For the management of liquidity, and within the framework    of securitization agreements concluded with various banks, some Group companies    sold trade receivables during the 2000 and 2001 financial periods. The sale    of these receivables generated cash of € 617 million at year-end 2001.

***Return on Capital Employed***

Rhodia calculates return on capital employed by dividing    the sum of operating income and the share of income from affiliated companies    accounted for under the equity method by average capital employed. Average    capital employed is the annual average of Rhodia’s property, plant and equipment    plus intangible assets plus trade accounts receivable plus share of the stockholders’    equity of equity affiliates plus inventories minus trade accounts payable.

Capital employed fell from € 6,514 million at December 31,    2000 to € 5,977 million at December 31, 2001. This€    537 million decline reflected the more rigorous management of working capital    (which improved by € 271 million), stricter control of new investments and    the mechanical effect of extraordinary accelerated depreciation related to    the restructuring measures (with a total decline in fixed assets of € 266    million) and divestitures. The average amount of capital employed during 2001,    which is used to calculate return on capital employed, was € 6,326 million.

The table below sets forth information regarding the return    on capital employed of Rhodia and its Divisions for the fiscal years ended    2000 and 2001.
 **Average Capital****Operating Income****Return on Capital** **Employed****and Equity in Earnings /****Employed**     **(Loss) of Affiliated Companies**    **(€ millions,****except          percentages) (unaudited)** **2000** **2001** **2000** **2001** **2000** **2001**Fine Organics1,003 1,504 76 (72) 7.6% (4.8)%Consumer Specialties1,893 2,051 91 51 4.8 2.5Industrial Specialties865 830 83 52 9.6 6.3Polyamide1,098 1,054 183 (8) 16.7 (0.7)Services & Specialties765 789 124 84 16.2 10.6Polyester and other356 98 (44) (115) – –**Total**5,980 6,326 513 (8) 8.6% (0.1)%    44  
As defined by Rhodia, value creation reflects the difference    between return on capital employed and the weighted average cost of capital    before tax. In 2001, the average weighted cost of capital before tax was 7.92%,    against return on capital employed of negative 0.13%. In 2000, the average    weighted cost of capital before tax stood at 9.8%, against return on capital    employed of 8.6%.

Rhodia presents return on capital employed and value creation    in its annual report because they are used by management to evaluate the overall    performance of Rhodia and its Divisions. Return on capital employed is unaudited    and not a measure of financial performance under French GAAP or U.S. GAAP.    Not all companies calculate return on capital employed in the same manner.    Consequently, return on capital employed of other companies may not be comparable    with Rhodia’s return on capital employed.

**Environmental matters**

Rhodia’s businesses must comply worldwide with a vast body    of changing and increasingly stringent regulations in such areas as emissions,    discharge of regulated substances, environmental protection, health and safety.    In most jurisdictions in which Rhodia operates, industrial activities are    subject to obtaining permits, licenses and/or authorizations, or to prior    notification. As in the past, Rhodia will continue to make investments each    year in order to comply with these regulations and standards. Some regulations    could restrict Rhodia’s ability to modify or expand its facilities or continue    production. The installation of expensive pollution monitoring and control    equipment or other major expenditures may be necessary. Rhodia may also have    to bear considerable costs if new regulations require that hazardous waste    (including slightly radioactive waste) that is currently stored on its own    sites be disposed at off-sites locations. Furthermore, many of Rhodia’s plants    have been in operation for many years, and the soil and ground water at some    sites have been contaminated, as is frequently the case in the chemical industry.    Other sites may also become contaminated in the future or other contamination    may be discovered. Rhodia regularly invests in equipment to treat or prevent    soil and ground water contamination at various sites. The on-site treatment    of industrial waste or its off-site disposal may also require Rhodia to undertake    costly remediation work. When Rhodia was formed, Rhône-Poulenc (now Aventis)    commissioned an independent expert to conduct an environmental audit of the    main operations of its two Chemicals and Fibers & Polymers businesses.    This audit was updated in 1999, and since that date the Group has regularly    carried out audits of its sites. At December 31, 2001 the provision for environment-related    risks stood at approximately € 183 million, compared to € 153 million in 2000.    On the basis of currently available information, provisions made for environmental    risk and the terms of Rhodia’s agreement with Aventis (providing that Rhodia    may under certain conditions be entitled to up to € 122 million in indemnification    from Aventis if Rhodia faces unexpected environmental liabilities), the Group’s    obligations to comply with environmental regulations or undertake remedial    action are not expected to have a material adverse effect on its operations,    earnings or financial situation. However, the occurrence of new events, such    as a modification of existing regulations, the promulgation of new regulations    or the development or discovery of new elements, could result in substantial    additional expenditures that Rhodia would have to bear, and could have a material    adverse effect on its operations, earnings or financial situation.

In addition, Rhodia has been and may in the future be liable    to contribute to the cleanup of disposal facilities to which it has sent wastes    for disposal, pursuant to the U.S. Comprehensive Environmental Response, Compensation    and Liability Act (commonly known as “Superfund”) and other similar laws.    Under these laws, the owner or operator of contaminated properties and the    generator of wastes sent to a contaminated disposal facility can be jointly    and severally liable for the remediation of such properties, regardless of    fault.

**Recent Developments**

On June 24, 2002, Rhodia announced that it had signed an    agreement to sell its 50% share of the Latexia joint venture, as well as certain    paper latex production assets, to Finland-based Raisio Chemicals. Both parties    plan to finalize this transaction before July 31, 2002.

On April 22, 2002, Rhodia announced the sale of its stake    in Teris S.A. and Teris LLC to its partner SITA. Rhodia and Sita currently    own equal stakes in Teris S.A. and Teris LLC, which specialize in hazardous    waste processing, respectively in Europe and in the United States.

**Outlook**

*The statements below are forward-looking statements based    on management’s current knowledge and beliefs. Actual results may differ significantly    from those indicated below for a number of reasons including those set forth    under the caption “Cautionary Statement Regarding Forward-looking Statements.”*
    45  
Rhodia expects that the measures taken during the recent    severe economic downturn should enable it to improve profitability. Starting    in 2002, operating income should improve as provisions for restructuring return    to normal levels. In addition, the Group should profit from initial savings    (€ 70 million) expected from restructuring measures and additional synergies    (€ 25 million) expected from the acquisition of Albright & Wilson. Alongside    these internal leverage factors, Rhodia should also benefit from the positive    effects of the decline in raw material prices that began in the second half    of 2001. 

In order to reduce the level of the Group’s indebtedness,    Rhodia has launched a significant asset disposal program totaling some € 500    million. It will be implemented in line with the Group’s strategy of seeking    cross-fertilization of technologies without compromising growth prospects.

*Fine Organics.*After a 2001    shaped by a difficult business environment and the integration of Rhodia ChiRex,    2002 should see a recovery in Division operating margins, led by the expected    impact of the restructuring program launched in 2001, expected lower petrochemical    feedstock prices and expected growth at Rhodia ChiRex. U.S. Food and Drug    Administration approval of the Dudley and Annan facilities should enable Rhodia    ChiRex to leverage the partnerships formed with the pharmaceutical industry,    which should lead to the beginning of production of several advanced intermediates    during the year.

*Consumer Specialties.*After    a year spent improving its fundamentals, the Division should benefit in 2002    from the full impact of the synergies derived from the integration of Albright    & Wilson. Rhodia expects full year cost savings to exceed € 100 million    (compared to combined costs prior to the acquisition), substantially more    than was forecast in 2000. Furthermore, the Division should also record initial    benefits from the restructuring undertaken in 2001. In addition, Rhodia believes    that the programs undertaken in 2001 in the Phosphorus Derivatives business    will enable the supply of elemental phosphorus at very competitive prices,    thereby helping to increase margins. Rhodia intends for the cosmetic and detergence    surfactants business will deepen its strategy of partnering with leading customers    in an effort to continue developing innovative products that meet their needs.    At the same time, the Division remains committed to improving existing operations    and strengthening its strategic positions. It plans to drive growth in 2002    through a sharper focus on high value-added segments, supported by new product    introductions and more selective portfolio management.

*Industrial Specialties.*The Industrial Specialties Division will intensify the implementation    of its growth strategy in 2002 focusing on specific high-potential segments.    Within this framework, the Division expects to focus more on performance latex    versus paper latex. Rhodia expects the downward trend in raw materials prices    to support an improvement in margins. The Silicones business is expected to    strengthen its position in its core specialty markets. The Paint, Paper and    Construction Materials business will maintain its recovery momentum based    on two main strategies: first, it will grow its Industrial Paints and Solvents    business by extending the range of TOLONATE products offering environmentally-friendly    solutions, and second it will focus on high value-added applications for the    decorative paints and building materials markets, supported by an innovative    line of latex emulsions and powders. In all these areas, the business will    leverage the Group’s expertise to offer solutions to its partner customers    that respond to market needs. Rhodia also expects the Silica business to continue    to expand, led by sustained demand for tire silicas and new developments in    the oral care and nutraceutics markets. In particular, Rhodia believes the    business will benefit from the development of HDS technology for high performance    tires in the United States.

*Polyamide.*Rhodia believes    the Polyamide Division is now in a better position to benefit from a market    turnaround in 2002. The business environment is expected to be more favorable,    with an easing in raw materials prices, the end of last year’s inventory drawdowns    across the polyamide chain and the possibility of a recovery beginning in    the second half. Other positive factors will be the Division’s commitment    to reducing costs, particularly as part of last year’s restructuring initiatives,    and the competitive cost base created by investments carried out in 2001.    These included capacity extensions in the polyamide upstream at Butachimie    in France and in adipic acid in South Korea, as well as investments to increase    output at engineering plastics plants in Canada and Poland. Rhodia also expects    sales to improve by innovations and new products, like MERYL SKINLIFE polyamide    fibers, which prevent the development of odors through a bacteriostatic agent    embedded in the fiber’s matrix. Benetton is using this new smart fiber as    a major selling point for its new lingerie collection, developed in partnership    with Rhodia. In another area, TECHNYLSTAR, a premium thermoplastic with exceptional    flow, molding and heat resistance performance, is in high demand, in particular    for automotive applications.

*Services & Specialties.*In 2002, the Services & Specialties Division should continue to    improve its performance, supported by the following factors:
•          Rhodia Eco Services expects to benefit from        the increasingly rigorous environmental protection standards imposed on        industry in Europe and the United States.    46  - Rhodia Electronics & Catalysis should capitalize      on growing output from its new plants in China, the broader range of products      developed in partnership with customers in the electronics and automotive      industries and from more secure sourcing of raw materials. It should also      benefit from an expected cyclical upturn in the electronics market.   Acetow plans to leverage its plant in Russia to drive      faster growth in the promising Eastern European market. Results are expected      to reflect the initial impact of the Enterprise’s product and process innovation      strategy, which is supported by strategic partnerships and the cross-fertilization      of technologies.   Management cannot guarantee that its expectations will be    realized or that Rhodia will achieve its objectives. These expectations, beliefs    and objectives assume, among other things, that current economic conditions    in Rhodia’s principal markets remain stable or improve; that Rhodia will be    able to face price and marketing competition in the future as it has in the    past; that Rhodia will obtain the synergies expected from its recent acquisitions;    that raw materials prices will not increase or decrease more significantly    than could be reasonably anticipated based on recent trends; and that Rhodia    will continue to develop new products at a rate and with the commercial and    financial success reflected by its recent past. If any of these or management’s    other assumptions proves inaccurate, or if Rhodia makes a major acquisition    that significantly affects its indebtedness or involves significant restructuring    or other costs, the objectives described above may not be achieved.  **Significant Accounting Policies**  Rhodia’s management continually updates the assumptions    used in preparing financial statements in order to ensure that they are reasonable.    However, actual amounts may differ from these estimates and assumptions. Any    change in the valuation criteria could lead the Group to record higher or    lower expenses.  The consolidated financial statements are prepared in accordance    with accounting principles generally accepted in France, including rule 99-02    issued by the Comité de Réglementation Comptable. However, because Rhodia    is also listed in the United States, the Group prepares a reconciliation between    French and U.S. GAAP, which may be found in Note 30 to the consolidated financial    statements.  As indicated in Note 1, the preparation of the consolidated    financial statements requires management to make estimates and assumptions    that may affect the reported amount of assets, liabilities, expenses, revenues    and commitments.  The following paragraphs review the accounting principles    that Rhodia management considers the most important for the presentation and    understanding of the Group’s results and financial situation. These principles    require management to:    - Make difficult, complex and subjective judgments.   Estimate the effects of uncertain events whose impact      on the accounts may vary significantly depending on the assumptions retained.   ***Amortization of goodwill***  Goodwill is amortized on a straight-line basis over periods    of not more than 40 years. A long amortization period is generally applied,    due to the quality, importance and sustainability of the acquired companies’    competitive positions in their respective markets. Discounted cash flows are    compared to the net book value of tangible and intangible assets, including    goodwill, for each business in which there is an indication of potential impairment    exists. The discount rates utilized in the goodwill recoverability test are    based upon Rhodia’s Weighted Average Cost of Capital. Projected cash flows    are based on Rhodia’s medium-term business plans for each business. These    business plans take into account management’s estimates of the impact of both    external economic factors and internal business strategies. When the net book    value exceeds the discounted cash flows, accelerated amortization of goodwill    is recorded for the difference between these two amounts.  ***Deferred tax assets***  Deferred tax assets resulting from tax loss carryforwards    or deductible temporary differences are systematically recognized. A valuation    allowance is also recorded when their future realization is considered unlikely.  ***Pension, retirement and other post-employment obligations***  The consolidated financial statements take into account    existing commitments with respect to pensions, supplemental retirement plans    and retirement bonuses. The corresponding commitments are calculated based    on projected end-of-career salaries using a number of actuarial assumptions,    including:     47  - Discount rates.   Expected long-term rates of return on invested plan assets.Rates of increase in compensation levels, which vary      from country to country.

***Sales of receivables***

Rhodia accounts for transfers of accounts receivable as    sales when the transferred assets have been isolated from Rhodia and are beyond    the reach of Rhodia and its creditors. In the case of sales of trade receivables,    Rhodia immediately receives the market value of the transferred assets, less    a discount of up to 20%. The discount is paid subsequently, depending on the    recovery of these receivables. This discount represents the sole risk in the    event of non-recovery of the sold receivables.

***Environmental risks***

Rhodia recognizes losses and accrues liabilities relating    to environmental risks on a case-by-case basis as soon as available information    indicates that the event of loss is probable and can reasonably be estimated.    Management estimates are based, in particular, on the cost of remediation,    the duration and scope of actions required by the competent authorities and    the eventual liability of third parties along with Rhodia.

Environmental risks, however, remain difficult to evaluate    for a number of reasons, including the possibility of discovering new sites    where there are risks, the difficulty in obtaining necessary information relating    to certain sites, regulatory changes, ongoing changes in technology and, in    the case of joint liability, the difficulty in obtaining commitment of financial    resources from a third party over the long-term. Any anticipated recoveries    from third parties relating to environmental matters are recorded as assets    only when the realization of the claim for recovery is deemed probable.

**Item 6. Directors, Senior Management and Employees**

**Board of Directors, Chairman and/or Chief Executive Officer**

In accordance with French corporate law governing a société    anonyme, Rhodia’s affairs are managed by its board of directors, its chairman    and its chief executive officer. 

French corporate law, as recently amended by the French    Company Law No. 2001-420 dated May 15, 2001, published on May 16, 2001 (the    “Law of May 15, 2001”), gives the board of directors, pursuant to the company’s    by-laws, the right to elect one person to assume the position of chairman    and chief executive officer or to split the function between two different    persons. Rhodia’s extraordinary stockholders’ meeting held on May 21, 2002    modified its by-laws granting its board of directors the authority to make    this choice. A majority vote of two-third of the directors present or represented    at the first board meeting following the extraordinary stockholders’ meeting    will decide whether one person will assume the position of chairman and chief    executive officer or whether the two persons will split the functions. Such    a decision will remain applicable as long as the board has not decided otherwise    under similar voting conditions.
  48***Directors***
The table below sets forth, as of the date hereof, the names    and ages of the directors of Rhodia, their current positions with Rhodia,    the date of their initial appointment as directors, the expiration dates of    their current terms and their current principal occupation or employment.
**Name (Age)****Current Position****Initially** **Term****Present Principal Occupation**    **with Rhodia****Appointed** **Expires****or Employment**Jean-Pierre Tirouflet (51)   Director, Chairman and Chairman of the Board and Chief    Chief Executive Officer1993(1) 2005Executive Officer of RhodiaThierry Breton (47)(2)   Director1998 2004Chairman and Chief Executive Officer   of Thomson S.A. (France)   and Thomson Multimedia (France)Jean-René Fourtou (62)(4)   Director1998 2004Honorary Chairman and Vice-Chairman   of the Aventis Supervisory BoardPierre-Gilles de Gennes (69)(2)   Director1999 2005Professor oof the *Collège de France,*   Director of the *Ecole de physique et de chimie*Igor Landau (57)(4)   Director1997(1) 2005Chairman of the Aventis Management BoardAimery Langlois-Meurinne (59)(3)   Director2001 2004Managing Director of Pargesa Holding S.A.(Switzerland)Pierre Lévi (47)(2)           Director1999 2005Chairman and Chief Executive Officer of   Faurecia and Chairman of SAI AG (Germany)Klaus Mangold (58)(2)   Director2001 2007Member of Management Board   of DaimlerChrysler A.G.Thierry de Rudder (52)(3)   Director1999 2005Deputy Managing Director of Groupe   Bruxelles LambertHubertus Sulkowski (59)(2)   Director1999 2004Partner at Shearman & Sterling(5)Pierre de Weck (51)(2)   Director1998 2004Member of the Group Executive Committee   of Deutsche Bank(1)Indicates year of initial appointment to        the board of directors of Rhône-Poulenc Fibres et Polymères S.A., renamed        Rhodia. See “Item 4. Information About Rhodia – Corporate History – Formation        of Rhodia.”(2)Independent director as defined in the Report        of the Corporate Governance Committee, chaired by Marc Vienot, dated July        1999. The following directors are independent pursuant to the New York        Stock Exchange Rules: Thierry Breton, Pierre-Gilles de Gennes, Pierre        Lévi, Klaus Mangold and Pierre de Weck.(3)In his capacity as representative of Rhodia’s        5.49% stockholder, Groupe Bruxelles Lambert.(4)In his capacity as representative of Rhodia’s        25.21% stockholder, Aventis(5)Shearman & Sterling regularly provides        legal services to Rhodia.
Pursuant to French corporate law, as amended by the Law    of May 15, 2001, and Rhodia’s by-laws (statuts), the board of directors must    consist of at least three but no more than eighteen directors (except following    a merger). Presently, Rhodia’s board of directors consists of eleven members.    

Where the by-laws do not specifically provide otherwise,    French corporate law stipulates that the number of directors over 70 years    old must not exceed one-third of the total number of directors. Any appointment    made in breach of this requirement is null and void. If the number of directors    over 70 years old exceeds the one-third limit, the oldest director automatically    resigns by operation of law. Rhodia’s by-laws do not specify any age of retirement    for directors. 

Rhodia’s by-laws provide that each director is elected for    a term of six years, which may be renewed. Each director must also be a stockholder.    Pursuant to Rhodia’s by-laws, each of its directors must hold at least 100    of Rhodia’s shares. Under French law, a director may be an individual or a    legal entity, but the chairman and/or the chief executive officer must be    an individual. 

In accordance with French corporate law, Rhodia’s directors    are elected by the stockholders at an ordinary general meeting of the stockholders    and serve until their respective terms expire or until they resign, die or    are removed, with or without cause, by the stockholders. None of Rhodia’s    stockholders has the exclusive right to appoint a member of the board of directors.    As provided for in Rhodia’s by-laws, vacancies on the board of directors may,    under certain conditions, be filled by the board of directors, pending the    next ordinary stockholders’ meeting, which will be asked to ratify such appointment.    
  49
Rhodia’s by-laws, as recently amended, invest the board    of directors with all the power conferred upon it by law, specifically (i)    to determine the direction of the Company’s operation and see to its implementation;    (ii) to consider any issue related to the functioning of the Company and make    decisions regarding these issues at its meetings, within the limits of the    powers specifically granted to the stockholders and the corporate objectives;    (iii) to engage in controls and verifications it deems appropriate; (iv) to    create committees to examine issues as defined by the board of directors or    its chairman as well as to determine the composition and the mission of such    committees under the board’s authority; and (v) to grant to one of its member    or third party special mandates with one or more objectives, without or without    the right to delegate in part or in full. 

Pursuant to Rhodia’s by-laws, meetings of the board of directors    are convened by the chairman and presided over by the chairman. The chief    executive officer or, if the board of directors has not met for more than    two months, at least one-third of the members of the board of directors may    request the chairman to convene the board of directors on a specific agenda.    The directors may be convened by any means, even orally. 

A quorum consists of at least one-half of the members of    the board of directors, and decisions are taken by a vote of the majority    of members present either in person or represented by other members of the    board of directors. A director may give a written proxy to another director    but a director cannot represent more than one other member at any particular    meeting. Members of the board of directors represented by another member at    meetings do not count for purposes of determining the existence of a quorum.    French corporate law, as amended by the Law of May 15, 2001, allows directors    to participate in board meetings by videoconference if provided for in the    by-laws, and such participation will be included in the determination of the    relevant quorum and majority, except in relation to certain decisions. Rhodia’s    by-laws provide for the possibility of participating in a meeting by videoconference.    A director may not vote for an arrangement or contract in which he or she    is materially interested. In case of a tie, the vote of the chairman will    be the deciding vote. Rhodia’s board of directors met six times in 2001. 

French corporate law strictly prohibits loans by the company    to a director. Nor may any company provide overdrafts for directors or guarantee    any director’s obligations. This prohibition also applies to chief executive    officers *(directeurs généraux)*and    specified executive officers *(directeurs généraux    délégués),*permanent representatives of companies    on the board of directors, spouses and heirs of such persons, and other intermediaries.    

French corporate law, as amended by the Law of May 15, 2001,    requires the chairman of the board, the chief executive officer, any specified    executive officers, any directors and any stockholders holding more than 5%    of the voting rights and intermediaries thereof who are considering entering    into a non-prohibited agreement with the company, either directly or indirectly,    personally or through an intermediary, to inform the company’s board of directors    before the transaction is consummated. The chairman of the board of directors    will inform in turn the company’s auditors. French corporate law requires    such an agreement to be authorized by the board of directors and prohibits    the director in question from voting on the issue. French corporate law further    requires such an agreement to be submitted to an ordinary general stockholders’    meeting for approval once entered into, upon presentation of a special report    from the company’s auditors. Any agreement entered into in violation of these    requirements may be voided by the Commercial Court at the request of the company    or of any stockholder, if such agreement has caused damage to the company.    

In consideration for their services on the board, directors    are entitled to receive director’s fees *(“jetons    de présence”).*The total annual amount of directors’    fees is fixed by the stockholders’ meeting, but the board determines their    allocation among the directors. In addition, remuneration may be granted to    directors on a case-by-case basis for special assignments. A director may    not vote for his or her own remuneration. The board may also authorize the    reimbursement of travel and accommodation expenses as well as other expenses    incurred by directors in the corporate interest.

Under French corporate law, directors elected by Rhodia’s    stockholders are responsible for violations of French laws and regulations    applicable to sociétés anonymes, violation of Rhodia’s by-laws, or mismanagement.    They may be held liable for such actions both individually and jointly with    the other directors. 

***Chairman of the board***

The chairman of the board of directors represents the board.    He organizes and manages the duties performed by the board and reports to    the stockholders’ meeting. He is also responsible for the proper functioning    of the Company’s bodies and ensures that the directors are capable of fulfilling    their assignments. 

In the event that the chairman is temporarily indisposed    or dies, the board may appoint a director as acting chairman. In the event    of temporary indisposition, the said appointment will be made for a limited    term and it will be renewable. In the event of death, the appointment will    remain until the election of a new chairman. The board sets the chairman’s    remuneration. 
  50
***Chief executive officer***

The chief executive officer is vested with the broadest    powers to act in any circumstance in Rhodia’s name, within the limits of its    corporate purpose, and subject to the powers expressly conferred by law upon    stockholders’ meetings. The chief executive officer represents Rhodia in dealings    with third parties. Rhodia is bound even by acts of the chief executive officer    that are not within the scope of the corporate purpose unless Rhodia proves    that the third party knew that the act was outside the corporate purpose or    that under the circumstances the third party could not have been unaware of    this. However, mere publication of the by-laws is not sufficient to constitute    such proof. The board may limit the powers of the chief executive officer.    However, the limitation of his powers is not binding on third parties. 

The board of directors establishes the duration of the chief    executive officer’s term. The board sets the chief executive officer’s remuneration.    The chief executive officer may be removed at any time by the board of directors.    In the event this dismissal is not justified, the chief executive officer    may claim damages, except if the chief executive officer is also the chairman    of the board.

***Specified executive officers***

At the instigation of the chief executive officer, the board    of directors is entitled to appoint up to five specified executive officers,    whose role is to assist the chairman. 

The board of directors establishes in accordance with the    chief executive officer the duration of the specified executive officers’    term and the limit of their powers. The board sets the specified executive    officers’ remuneration. 

At the instigation of the chief executive officer, the specified    executive officers may be removed at any time by the board of directors. In    the event this dismissal is not justified, the specified executive officer    may claim damages. There are currently no specified executive officers.

**Board Committees**

***Audit Committee***

The board of directors has an Audit Committee, comprised    of Messrs. Thierry Breton (chairman), Igor Landau, Pierre Lévi and Thierry    de Rudder. The Audit Committee is responsible for ensuring that necessary    and appropriate procedures are put in place to identify and manage risk. The    Audit Committee is also responsible for the examination of Rhodia’s financial    reporting, the implementation and respect of internal procedures, among which    the Group compliance policy controls the implementation of the recommendations    of Rhodia’s independent auditors and examines the organization, functioning    and actions of the internal auditors. Pierre Prot serves as Secretary of the    Audit Committee. The Audit Committee met three times in 2001.

***Human Resources and Organization Committee***

The board of directors also has a Human Resources and Organization    Committee, comprised of Messrs. Pierre de Weck (chairman), Aimery Langlois-Meurinne    and Hubertus Sulkowski, which is responsible for proposing to the board employee    stock plans, the salaries and incentives of Rhodia’s officers and key personnel,    as well as nominees for top management posts. Bernard Chambon serves as Secretary    of the Human Resources and Organization Committee. The Human Resources and    Organization Committee met four times in 2001.

***Strategy Committee***

In addition, the board of directors has a Strategy Committee,    comprised of Messrs. Jean-Pierre Tirouflet, Thierry Breton, Jean-René Fourtou,    Thierry de Rudder and Hubertus Sulkowski, which is responsible for advising    the board of directors with regard to contemplated external growth opportunities,    asset disposals or major alliances proposed by the Office of the President.    Yves Brissy is the secretary of the Strategy Committee. The Strategy Committee    met for the first time in 2001 and has held a second meeting on March 20,    2002.
  51
**Executive Officers**

The table below sets forth, as of the date hereof, the names    and ages of Rhodia’s executive officers, and their current positions with    Rhodia. These executive officers are all members of the Executive Committee,    which is Rhodia’s principal management body. The Executive Committee defines    and executes at its regular monthly meetings Rhodia’s global orientations    established by the board of directors and Office of the President and makes    key decisions with respect to strategy, human resources, finance, international    development, environment and safety, and corporate communications.
**Name (Age)****Principal position with        Rhodia**Jean-Pierre Tirouflet (51)Chairman and Chief Executive OfficerGilles Auffret (54)President and Chief Operating OfficerJean-Julien Baronnet (43)Group Executive Vice President, Commercial        & Marketing and External CommunicationJacques Bécuwe (54)President, Industrial Specialties DivisionAndré Blazquez (46)President, Polyamide DivisionYves Boisdron (57)President, Asia-Pacific ZoneJean-Claude Bravard (54)Group Executive Vice President, Science,        Innovation and TechnologyYves Brissy (58)Senior Vice President and General CounselBernard Chambon (54)Group Executive Vice President, Human Resources        and Internal CommunicationsJean-Pierre Clamadieu (43)President, Fine Organics DivisionOlivier de Clermont-Tonnerre (50)President, Rhodia SiliconesMyron Galuskin (56)President, North America ZoneAlberto Pedrosa (47Senior Vice President, PurchasingPierre Prot (46)Senior Vice President and Chief Financial        OfficerMichel Ybert (51)President, Consumer Specialties Division
The chairman and chief executive officer is also assisted    by a four-member Office of the President, comprised of Messrs. Gilles Auffret,    Jean-Julien Baronnet, Jean-Claude Bravard and Bernard Chambon. Because of    its smaller size and the qualifications and positions of its members, this    group offers Rhodia a more responsive and rapid group decision-making mechanism    when needed. 

Yves Brissy, General Counsel, serves as the secretary of    the Executive Committee.

**Biographies**

***Jean-Pierre Tirouflet***has been Chairman and Chief Executive Officer of Rhodia since January    1, 1998. Mr. Tirouflet has been a member of the Executive Committee of Rhône-Poulenc    since 1990. Since joining Rhône-Poulenc (now renamed “Aventis”) in 1983, Mr.    Tirouflet has served in a variety of positions, including Group Chief Financial    Officer from 1987 to 1992, Group Executive Vice President from 1992 to 1997    and chief executive officer of the Fibers and Polymers segment from 1997 to    1998. Prior to joining Rhône-Poulenc, Mr. Tirouflet served in various positions    in the French Ministry of Finance, including head of the African Division    of the Economic External Relations Department from 1982 to 1983. In addition    to serving as director of Axa Corporate Solutions, Mr. Tirouflet currently    serves as a member of the Supervisory Board of Crédit Agricole Indosuez. 

***Gilles Auffret***has    been President and Chief Operating Officer since February 2001. He joined    Rhodia on September 1, 1999 as Deputy President responsible for the Polyamide    Division. Mr. Auffret started his professional career in 1975 as auditor at    the French Cour des Comptes (the equivalent of the U.S. General Accounting    Office) before moving to the French Ministry of Industry, where he served    as chargé de mission reporting to the General Director for Industry. In January    1982 he was appointed public auditor (conseiller référendaire) at the Cour    des Comptes. He joined Pechiney in September 1982, where he held a series    of senior management posts, including Director of Pechiney’s aluminum metals    department. 

***Jean-Julien Baronnet***has been Group Executive Vice President of Commercial, Marketing and    ExternalCommunications of Rhodia since April 2002    after having served as President of the Services & Specialties Division,    and then President of the HPCII Enterprise since the creation of Rhodia in    1998. Mr. Baronnet started his career in the Marketing Department of Procter    & Gamble and, subsequently, in the Marketing Department of Glaxo before    joining Bernard Krief Consulting in 1986, where he became Vice President in    1988. Appointed to Rhône-Poulenc’s Chemical Products Division in 1993, he    became President of the Cosmetics, Detergents & Industrial Formulations    Enterprise in 1995.
  52
***Jacques Bécuwe***has    been President of the Industrial Specialties Division since January 1, 1998.    Prior to being named to his current position, Mr. Bécuwe served as Head of    Eco Services in 1998 and President of the Environmental Services-Europe Enterprise    from 1996 to 1997 and as Head of the Environmental Services Strategic Business    Group from 1993 to 1995. Mr. Bécuwe managed various other chemicals operations    during his career with Rhône-Poulenc, including the sulphur/carbonate unit,    the acetics unit and the chlorine unit. Mr. Bécuwe began his career as a research    engineer with the Rhône-Poulenc group in 1970.

***André Blazquez***has    been President of the Polyamide Division since March 2001. He began his career    with Rhône-Poulenc, where he joined the production department of Nyltech (engineering    plastics) in 1981 before moving to the industrial management department of    Silicones in 1985. In 1988 he was appointed President of Rhône-Poulenc’s silicones    activities in Spain. In 1991 he became President of Rhodiamul and Erkol and    in 1993 he was appointed Executive Vice President of Rhône-Poulenc Quimica    in Barcelona. In 1994 he became an analyst in Rhône-Poulenc’s Corporate Economic    Control Department, and in 1997 he became Executive Vice President of Rhône-Poulenc.    

***Yves Boisdron***has    been President of the Asia-Pacific Zone since January 1, 1998. Prior to assuming    this position, Mr. Boisdron served as Senior Vice President of Rhône-Poulenc    Chimie from 1994 to 1996, Senior Vice President of Rhône-Poulenc IOM from    1990 to 1994, Vice President of Rhône-Poulenc Inc. from 1987 to 1990 and Vice-President    of Rhodia Bresil from 1981 to 1987. Mr. Boisdron has also served as General    Manager of the enzyme division of Gist Brocades and as a project engineer    at Badger. 

***Jean-Claude Bravard***has been Group Executive Vice President of Science, Innovation and    Technology since February 2001. Mr. Bravard was previously Deputy President    of the Fine Organics Division. Mr. Bravard began his career with the Rhône-Poulenc    group in 1971 and served in various positions in its Chemicals segment. From    1995 to 1997, he was President of the Paper, Paint and Construction Materials    Enterprise, after having served in various senior management positions within    the Organic and Inorganic Intermediates segments, the Specialty Chemicals    segment and the petrochemicals businesses of Rhône-Poulenc. 

***Yves Brissy***has been    Senior Vice-President and General Counsel of Rhodia since December 16, 1999.    Prior to being named to his current position, Mr. Brissy served as Head of    Legal Affairs, then General Counsel of the Rhône-Poulenc group from 1987 to    1999. Before joining the Rhône-Poulenc group, Mr. Brissy was Head of the Legal    Department of the Fiat Glass Unit of the Saint-Gobain Group. 

***Bernard Chambon***has    been Group Executive Vice President of Human Resources and Internal Communications    since April 2002, after having served as Executive Vice President in charge    of Human Resources and Communication since January 1, 1998. Prior to being    named to his current position, Mr. Chambon served as President of Human Resources    and Communication for the Chemicals segment’s European operations, Senior    Vice-President of Rhône-Poulenc’s Organic and Inorganic Intermediates segment    and Director of Development of Human Resources for the Rhône-Poulenc group.    Prior to joining the Rhône-Poulenc group in 1989, Mr. Chambon held senior    human resources positions at Bouygues, Aerospatiale and Fiat. 

***Jean-Pierre Clamadieu***has been President of the Fine Organics Division since January 2002.    From 1996 to 1999 he served as President of the Chemical Sector in the Latin    American Zone for Rhodia and as Manager of the Automotive Pollution Control    Project in the Chemical Sector of Rhône-Poulenc. He began his career in 1984    in the Champagne-Ardennes regional office of the French Ministries of Industry    and Environment. 

***Olivier de Clermont-Tonnerre***has    been President of Rhodia Silicones since 1998. He joined Rhodia in 1980 to    take charge of Strategy and Management Control of the Fine Chemicals Division.    Mr. de Clermont-Tonnerre then held a series of management positions in the    United States and Europe before becoming President of Rhodia Surfactants and    Specialties in 1991 and subsequently, in 1996, President of Rhodia Food. 

***Myron Galuskin***has    been President of the North America Zone as well as President of Rhodia Inc.    since September 1998. Mr. Galuskin served as Rhodia Inc.’s Vice-President    of Operation Services from January 1, 1998. Mr. Galuskin joined the Rhône-Poulenc    Group in 1992 as Vice-President and General Manager for Environmental Services    at Rhône-Poulenc Inc. Prior to 1992 Mr. Galuskin has held numerous positions    in the chemical industry. 

***Alberto Pedrosa***has    been Senior Vice President of Purchasing since early 2002. In 1985, Mr. Pedrosa    was appointed Director worldwide, Silicone Sealants of Rhône-Poulenc Specialty    Chemicals in Paris. In 1990, he became General Manager of the Diphenols, Industrial    Coatings, Aroma Ingredients division of Rhône-Poulenc Chemicals. In 1995,    he became Vice-President, worldwide Secondary Industrial Operations of Rhône-Poulenc    Rorer. In 1999, he became President of Rhodia Polyamide South America. 

***Pierre Prot***has been    Senior Vice President and Chief Financial Officer (Vice President in charge    of Finance Function) of Rhodia since January 1, 1998. From 1996 to 1998, Mr.    Prot served as Financial Director of the Rhône-Poulenc chemicals segment’s    European operations and was Corporate Finance Director of Rhône-Poulenc from    1986 to 1996. Mr. Prot began his career with Rhône-Poulenc in 1978.
  53
***Michel Ybert***has been    President of the Consumer Specialties Division since March 2001 after having    served as Deputy President of Rhodia in charge of Strategy since January 1,    2000. He began his career in 1972 at Saint-Gobain, where he was Financial    Director of the Brazilian subsidiary Santa Marina and, subsequently, of Saint-Gobain    Emballage. From 1986 to 1988 he was President of Buitoni S.A. He joined Rhône-Poulenc    in 1988 and held a series of positions as Deputy President of the Health Sector,    of the Agro Sector and of the Organic & Inorganic Intermediates Sector.    After working for Moulinex from 1995 to 1997, he moved back to Rhône-Poulenc    as President of the Polyester Division. In January 1999 he was appointed Deputy    President of Rhodia in charge of competitiveness programs and later of corporate    strategy, as well as Supervisor of the Services & Specialties Division.

**Compensation**

The aggregate amount of compensation paid to the directors    and executive officers of Rhodia as a group (25 persons total in 2001) for    services in all capacities in respect of the 2001 fiscal year was € 8,042,424.    

The aggregate amount set aside or accrued by Rhodia to provide    pension, retirement or similar benefits for the same executive officers as    a group in respect of the 2001 fiscal year was approximately € 0.5 million.    The compensation of Rhodia’s officers and key personnel is proposed by the    Human Resources and Organization Committee of the board of directors. 

Such aggregate amount of compensation includes approximately    € 373,000 in Rhodia directors’ fees and a further€ 327,334    in directors’ fees for other companies within the Rhodia group. 

In accordance with the provisions of article L 225-102-1    of the French Commercial Code, total compensation and benefits paid in 2001    by Rhodia and companies in which it exercises control to each corporate officer    is indicated below:
 **Compensation and benefits paid          by Rhodia** **(€)****Corporate officers** Jean-Pierre Tirouflet1,026,872(1)Thierry Breton41,850*Jean-René Fourtou38,050*Igor Landau40,250*Aimery Langlois-Meurinne36,450*Pierre Lévi43,250*Klaus Mangold26,650*Thierry de Rudder47,050*Hubertus Sulkowski50,000*Pierre de Weck49,450*(1)Tax included.(*)Director’s fees for meetings of the Board        of Directors and its committees.
Except as set forth below, the Company’s affiliated directors    are not compensated for their services as directors. The Company’s directors    are eligible to receive an annual fee plus fees for attendance at meetings    of the board of directors and for attendance at committee meetings. The board    of directors of Rhodia has decided to limit the maximum amount of fees payable    to each director for his services to € 50,000 per year. 

In addition, as of the date hereof, the board of directors    of Rhodia has granted options to subscribe to a total of 2,339,500 shares    to members of Rhodia’s Executive Committee pursuant to the share subscription    plans listed in the table below (see “– Employee and Director Share Ownership    – Options”). 

Senior management has entered into agreements with Rhodia    that provide for payment of up to three years of salary in the event of termination    or substantial reduction of responsibility following a change of control of    Rhodia. 

As part of Rhodia’s strategy to reinforce a result-oriented    management approach, each member of senior management has been required to    invest one year’s salary in Rhodia shares. In addition, management salaries    are composed of fixed and variable portions, with amounts payable under the    variable portion to be determined on the basis of achievement of semi-annual    performance objectives, except for the chairman and chief executive officer,    whose objectives are set annually by the board of directors upon proposal    of the Human Resources and Organization Committee.
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**Employees**

At December 31, 2001, Rhodia employed 26,925 people, excluding    independent workers. The table below sets forth the total number of Rhodia    employees and their distribution by geographic location and by Division at    December 31, 1999, 2000 and 2001.
   **At December 31,****1999** **2000** **2001** **Total employees**24,806 29,448 26,925 By Division:      Polyamide27% 23% 24% Fine Organics17 15 16 Headquarters and research16 15 17 Services & Specialties14 12 13 Consumer Specialties13 24 19 Industrial Specialties13 11 11 **Total**100% 100% 100%        By geographic zone:      Europe63% 62% 62% Latin America20 19 19 North America12 12 12 Asia/Pacific5 7 7 **Total(1)**100% 100% 100% (1)The number of employees employed in France        was 10,124, 10,300 and 9,847 for 1999, 2000 and 2001, respectively, amounting        to 41%, 35% and 37% of the total number of employees for each of those        years, respectively.
Membership of Rhodia’s employees in trade unions varies    from country to country, and Rhodia has entered into various collective bargaining    agreements. In France, the five principal French labor unions are represented    at Rhodia’s facilities. As required by French law, management holds annual    meetings with a delegation of union representatives in order to negotiate    salary movements and working conditions. Management also holds other periodic    consultations with representatives of the employees. In recent years, there    have been no significant strikes or work stoppages. Rhodia believes that relations    with its employees and unions are satisfactory.

**Employee and Director Share Ownership**

***Director and Executive Share Ownership***

The Board of Directors’ meeting of March 16, 2001 granted    300,000 stock subscription options to Jean-Pierre Tirouflet as Chairman and    CEO of the company. The exercise price of these options, which are exercisable    for a period of eight years effective March 16, 2005, was set by the Board    at € 15.70 in accordance with the authorization of the annual stockholders’    meeting of April 18, 2000. No options were exercised during 2001. At the same    Board meeting, an aggregate 580,000 stock subscription options were also granted    by the Board of Directors to the ten top managers other than officers, who    received the largest individual number of total options granted. The exercise    price of these options was set at € 15.70. No options were exercised by the    beneficiaries during 2001. 

The table below lists, to the best of Rhodia’s knowledge,    the total number of shares owned by the members of Rhodia’s board of directors    and by the Executive Committee (as a group) as of June 3, 2002.
**Identity of person or group****Shares****Percent of class**Jean-Pierre Tirouflet85,012*Thierry Breton100*Jean-René Fourtou10,701*Pierre-Gilles de Gennes100*Igor Landau13,705*Klaus Mangold100*Aimery Langlois-Meurinne50,000*Pierre Levi14,560*Thierry de Rudder100*Hubertus Sulkowski100*Pierre de Weck100*Members of the Executive Committee (15        persons, including Mr. Tirouflet)174,578 (*) Less than 1.0%.    55
Rhodia does not report the individual shareholdings of Executive    Committee members. The individual amount held by any member of this group    is less than 1% of Rhodia’s share capital, including any shares held indirectly.

***Options***

Pursuant to a resolution adopted by the stockholders on    April 18, 2000 and May 21, 2002, the board of directors was authorized to    grant to certain salaried employees and executive officers of Rhodia options    to subscribe or to purchase up to an aggregate of 7,330,000 ordinary shares    at an exercise price of no less than 95% of the average opening price per    share for the 20 trading days preceding the date of the grant. Management    expects that the options granted under each plan will be exercisable at any    time or from time to time beginning three years and ending up to twelve years    after their respective dates of grant. 

Under the March 16, 2001 and March 2002 plan, the board    of directors granted options to acquire a maximum of 2,580,267 shares at an    exercise price of € 15.70. On March 20, 2002, the board of directors granted    options to acquire a maximum of 3,000,000 shares at an exercise price of €    12.04. Options granted under the June 24, 1998 and the February 23, 1999 plans,    became exercisable for non-French resident beneficiaries respectively on June    24, 2001 and February 23, 2002. Options granted to French resident beneficiaries    under such plans and options granted to all beneficiaries under the other    plans are not currently exercisable. For the number of options held by members    of Rhodia’s Executive Committee, see “– Compensation” above, and for a more    detailed discussion of Rhodia’s share option plan, see Note 27 to the Consolidated    Financial Statements. 

The general shareholders’ meeting held on May 21, 2002,    cancelled the April 18, 2000 authorization for the non-used part and authorized    the board to grant to certain salaried employees and executive officers of    Rhodia options to subscribe or to purchase up to an aggregate of 6 million    shares at an exercise price of no less than 95% of the average price per share    for the 20 trading days preceding the date of grant. As of the date hereof,    no options have been granted to employees pursuant to this authorization.
The table below sets forth options        granted by the board of directors.      **Share subscription plan**       **Date of Decision****Exercise Dates****Options Outstanding** **Exercise****by board of directors** **at December 31, 2001** **Price**June 24, 1998(1)June 24, 2001 to June 23, 200818,510(1) € 21.34(1)February 23, 1999February 23, 2002 to February 22, 20091,519,200 € 15.00February 23, 1999(1)March 1, 2002 to March 1, 20091,128,105 € 15.00March 30, 2000March 30, 2003 to March 29, 20102,032,275 € 17.14September 27, 2000September 27, 2003 to September 26, 2010150,000 € 16.26March 16, 2001March 16, 2004 to March 15, 20132,567,332 € 15.70March 20, 2002March 20, 2005 to March 19, 20143,000,000 € 12.04(1)Rhodia granted options under the 1999 plan        at the 1999 subscription price to holders of options under the 1998 plan,        at a ratio of three options held under the 1999 plan for every four options        held under the 1998 plan. The options held under the 1999 plan are exercisable        only by holders who irrevocably renounced, in writing and before March        31, 1999, the exercise of their options under the 1998 plan.
Options to subscribe to 300,000 shares for an average price    of € 15.70 have been granted in the course of 2001 by Rhodia to Jean-Pierre    Tirouflet, chairman and chief financial officer.

The ten wage-earners of Rhodia and other group companies    who received the most options in the course of 2001 by Rhodia were granted    options to subscribe to a total of 580,000 shares for an average price of    € 15.70. 

**Item 7. Major Stockholders and Related Party Transactions**

As of May 21, 2002, Aventis (formerly Rhône-Poulenc S.A.)    owned 45,211,662 ordinary shares of Rhodia, representing 25.2% of Rhodia’s    share capital, subject to exchange upon the exercise of 3.25% exchangeable    notes issued by Rhône-Poulenc in October 1999. These notes are in a principal    amount of € 23.22 each and are exchangeable at the election of their holder    into one share of Rhodia each through October 2003. Based on declarations    made to Rhodia, Rhodia believes that, as of May 21, 2002, the Groupe Bruxelles    Lambert held 9,850,000 shares amounting to 5.49% of Rhodia’s share capital.    Rhodia is not aware of any other person owning directly or indirectly more    than five percent of Rhodia’s share capital. To the best of Rhodia’s knowledge,    as of May 21, 2002, the
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officers and directors of Rhodia collectively owned 349,156    ordinary shares of Rhodia, representing 0.2% of its share capital. To the    best of Rhodia’s knowledge, employees of Rhodia collectively owned 5.2% of    its share capital at May 21, 2002.

To Rhodia's knowledge, at December 31, 2001, there were    179,309,188 ordinary shares issued and outstanding, of which the portion of    Rhodia's outstanding shares held by U.S. persons was approximately 7.6%. At    December 31, 2001, 2,107,349 ordinary shares were in the form of ADSs, representing    1.2% of the total share capital and held by 417 registered holders, of which    approximately 387 were U.S. persons.

In connection with receiving regulatory approval from the    antitrust directorate of the European Commission for the merger of Rhône-Poulenc    and Hoechst. Rhône-Poulenc undertook to engage an independent auditor to certify    to the European Commission on a quarterly basis the separation of the managements    of Rhodia and Rhône-Poulenc. 

In addition, Aventis appointed BNP Paribas (formerly Paribas)    in its capacity as accredited financial intermediary, to receive and verify    its instructions relating to the voting of the Rhodia shares held in Aventis’s    name. In this regard, Aventis agreed to send to BNP Paribas, on the occasion    of each general meeting of the stockholders of Rhodia, a signed blank proxy    to vote the Rhodia shares held in Aventis’s name in favor of all resolutions    proposed or approved by Rhodia’s board of directors and against all others.    BNP Paribas has agreed to verify that such signed blank proxy has been given    by Aventis in this manner and to forward it to Rhodia or its accredited financial    intermediary responsible for organizing such general meeting. BNP Paribas    has also agreed to notify the European Commission in writing each time it    receives and has verified and forwarded a blank proxy. This appointment took    effect from June 30, 2001. Aventis has agreed with the European Commission    that it will not revoke these instructions, except in certain circumstances.    In particular, upon the occurrence of an extraordinary financial event (such    as a merger or tender offer), Aventis would regain control of its voting rights,    subject to prior notification to the European Commission. BNP Paribas’s appointment    will expire once Aventis holds less than 5% of Rhodia’s share capital. The    European Commission approved the divestment plan described above on September    15, 1999.

**Related Party Transactions**

In the ordinary course of business, Rhodia purchases materials,    supplies and services from numerous suppliers throughout the world, including    from time to time companies with which members of Rhodia’s board of directors    are affiliated including Aventis. Rhodia does not consider the amounts involved    in such transactions to be material to its business and believes that these    amounts are not material to the business of the firms involved. See “Item    6. Directors, Senior Management and Employees” for information on the outside    affiliations of Rhodia’s directors.

**Agreements with Aventis**

For the purpose of governing certain of the on-going relationships    between Rhodia and Aventis at the time Rhodia was formed in 1998, Rhodia and    Aventis or their respective subsidiaries, as applicable, entered into various    agreements described below (the “Aventis Agreements”) prior to Rhodia’s initial    public offering. Because such agreements were reached while Rhodia was wholly    owned by Aventis, the Aventis Agreements and certain of the terms and transactions    provided for therein may have differed from those which could have resulted    from negotiations between fully independent parties. In connection with Aventis’s    divestiture of its interest in Rhodia, Aventis and Rhodia agreed on October    14, 1999 to certain principles set forth in a “Heads of Agreement” under which    the Aventis Agreements were to be modified or terminated. The summaries of    the Aventis Agreements set forth below describe the material provisions of    each of such agreements as modified by the terms of the Heads of Agreement.

***Environmental Indemnification Agreement for Chemicals    Activities***

Rhodia and Aventis have entered into an Environmental Indemnification    Agreement dated May 26, 1998, which provides for indemnifications between    Rhodia and Aventis principally with respect to certain environmental liabilities    that may arise in connection with Rhodia’s chemicals business at sites transferred    to Rhodia effective January 1, 1998. The indemnification obligations of Rhodia    and Aventis under the Environmental Indemnification Agreement terminate on    December 31, 2007. 

*Indemnification by Aventis.*The Environmental Indemnification Agreement provides for Aventis to    indemnify Rhodia for any direct loss (excluding loss of income and any remediation    costs due to the voluntary closure of a site) due to chemicals business liabilities    arising at a site as a result of (i) third party claims or (ii) environmental    remediation measures required by public authorities to the extent that Aventis    would have been liable for such chemicals business liabilities prior to January    1, 1998. Indemnification by Aventis will arise only if, and to the extent    that, (i) a direct loss, less any related amounts received from insurance    and the related reserves on December 31, 1997 for the relevant site
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exceeds FRF 5 million (€ 0.7 million) or, if the pollution    is not related to activities transferred to Rhodia, FRF 1 million (€ 0.2 million);    or (ii) the sum of direct losses, less any related amounts received from insurance    and the related reserves on December 31, 1997 for the several relevant sites    since the beginning of the relevant calendar year exceeds FRF 10 million (€    1.5 million) (excluding for purposes of such total any direct loss, less any    related amounts received from insurance and the related reserves on December    31, 1997, of less than FRF 2.5 million (€ 0.3 million)).

Furthermore, indemnification by Aventis will arise only    if Rhodia has implemented an annual program of investments related to environmental,    health and safety matters, consistent with the investment policy of the chemicals    segment prior to January 1, 1998, and with the customary and appropriate industrial    practices of the Aventis Group and the industry. Management believes that    Rhodia’s current annual investment program satisfies this condition. For a    description of Rhodia’s policy regarding environmental matters, as well as    a description of Rhodia’s anticipated capital expenditures on tangible and    intangible assets in the near future, including expenditures to enhance environmental    protection, see “Item 5. Operating and Financial Review and Prospects - Environmental    Matters” and “– Liquidity and Capital Resources.” 

The indemnification by Aventis will cover 80% of the amount    indemnifiable under the Environmental Indemnification Agreement. However,    if the pollution is not related to activities transferred to Rhodia, the indemnification    by Aventis will cover 90% of the indemnifiable amount, and if the pollution    began prior to January 1, 1998, and continued after such date, due to the    operations of Rhodia, the indemnification by Aventis will cover 90% of the    indemnifiable amount during the first year following January 1, 1998, and    will be reduced by 9 percentage points during each successive year.

Pursuant to the Environmental Indemnification Agreement,    the total amount of indemnification by Aventis shall not exceed FRF 800 million    (€ 122 million) in the aggregate. Rhodia has notified Aventis of claims under    the Environmental Indemnification Agreement in unspecified amounts. In 2001,    Rhodia made claims to Aventis pursuant to this agreement for several sites    and recorded a receivable for € 35 million. 

*Indemnification by Rhodia.*Pursuant to the Environmental Indemnification Agreement, in the event    that Aventis suffers any damages arising out of a claim due to activities    conducted after January 1, 1998 at a site transferred to Rhodia or at which    activities transferred to Rhodia are carried out, Rhodia will defend and indemnify    Aventis for any direct loss suffered as a result thereof. In addition, in    the event that a claim for indemnification is brought against Aventis for    damages arising out of a claim due to the conduct of activities prior to January    1, 1998 at a site transferred to Rhodia or at which activities transferred    to Rhodia are carried out, Rhodia will indemnify Aventis for any damages in    excess of the amount by which Aventis would have been obligated to indemnify    Rhodia had such claim been brought against Rhodia and indemnified pursuant    to the Environmental Indemnification Agreement. To date, no payments have    been made.

***Cross-Indemnification Obligations***

In connection with the reduction of Aventis’s ownership    interest in Rhodia in October 1999, Rhodia and Aventis agreed to include a    cross-indemnification provision in the Heads of Agreement. Pursuant to this    provision, Aventis will indemnify Rhodia against any damages incurred by Rhodia    arising out of an action or claim brought by a third party against Rhodia    to the extent such action or claim results solely from the business operations    of Aventis or those of its subsidiaries. Similarly, Rhodia will indemnify    Aventis against any damages incurred by Aventis arising out of an action or    claim brought by a third party against Aventis to the extent such action or    claim results solely from the business operations of Rhodia or of those of    its subsidiaries. These indemnification obligations, however, will not amend    or affect the terms and conditions of the Environmental Indemnification Agreement    described above.

***Financial Agreements***

Rhodia and Aventis entered into a three-year revolving credit    facility (the “Credit Facility”) dated May 26, 1998, pursuant to which Aventis    made available to Rhodia up to FRF 15 billion (€ 2.3 billion) on a short-term    basis. Pursuant to the Heads of Agreement, the Credit Facility was terminated    as of November 1, 1999. Rhodia and Aventis also agreed to terminate any other    inter-group debts no later than November 30, 1999. Pursuant to such agreement,    Rhodia has reimbursed Aventis or its subsidiaries for approximately € 1 billion,    or all of its outstanding indebtedness to Aventis. Such reimbursement was    financed principally by an increase in Rhodia’s bank debt. 

Rhodia and Aventis also entered into a Guarantee Agreement    dated May 26, 1998, pursuant to which Rhodia has agreed (i) to hold harmless    Aventis for any amounts paid by Aventis to third parties in connection with    certain guarantees (the “Guarantees”) given to such third parties by Aventis    for the performance by Rhodia or any company directly or indirectly controlled    by Rhodia (each, a “Debtor”) of certain of their obligations and (ii) to assist,    indemnify and hold harmless Aventis and any of its agents or employees for    any losses or damages suffered by them in connection with any action brought    against them as a result of the Guarantees or the Guarantee Agreement. The    Guarantee
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Agreement also provides that in the event Rhodia directly    or indirectly sells a Debtor, Rhodia must make all efforts to have the Guarantee    by Aventis with respect to such Debtor lifted and to replace such Guarantee    by another form of security. To date, the Guarantee Agreement has not been    drawn upon.

***Scientific Sharing Agreement***

Rhodia, Aventis and two Aventis subsidiaries entered into    a three-year Scientific Sharing Agreement dated May 26, 1998, in order to    optimize the application of scientific and technical knowledge among Aventis    and its subsidiaries, including Rhodia. The Scientific Sharing Agreement provided    for (i) the establishment of certain rules and procedures relative to the    sharing of such knowledge and (ii) the opportunity for each of the parties    thereto to take advantage of available information subject to certain conditions.    The licensing of patents and know-how under the Scientific Sharing Agreement    may give rise to royalty rights. Pursuant to the Heads of Agreement, Rhodia’s    general rights and obligations to receive and provide information relating    to the ongoing research programs and the scientific and technical information    available to the other parties to the Scientific Sharing Agreement have terminated.    In addition, Rhodia’s participation in the procedures relating to the sharing    of scientific and technical knowledge has also terminated. Rhodia retains    the right to use in its field of business the results and information owned    by another entity of the Aventis group, if such results or information were    already used or in the process of being industrialized by Rhodia at the time    of the reduction of Aventis’s interest in Rhodia in October 1999. Unless agreed    otherwise, the licenses regarding such results and information will be royalty-free.    The same rights will be granted to the entities of the Aventis group with    respect to information owned by Rhodia. Finally, with respect to information    owned by Rhodia or an entity of the Aventis group, as the case may be, which    was not already being used or in the process of being industrialized by Rhodia    or the relevant Aventis entity at the time of the reduction of Aventis’s interest    in Rhodia in October 1999, the right to a license set forth in the Scientific    Sharing Agreement will continue to be applicable if the request for such a    license was notified prior to January 1, 2001.

***Lease Agreement***

Rhodia and Aventis entered into a three-year renewable lease    and services agreement dated March 18, 1998 (the “Lease Agreement”) relating    to Rhodia’s and Aventis’s joint use of headquarters facilities in Courbevoie    (France). The rent paid by Rhodia to Aventis in 1998 and in 1999 pursuant    to the Lease Agreement was FRF 112.4 million (€ 17.3 million) and FRF 103.9    million (€ 15.84 million), respectively, not including charges for certain    variable services. Pursuant to the principles set forth in the Heads of Agreement,    the Lease Agreement was terminated on December 31, 2000. Rhodia paid Aventis    rent of FRF 92.6 million (€ 14.11 million) in 2000 pursuant to the Lease Agreement.

In April 1999, Rhodia entered into a lease agreement for    new headquarters facilities at 26, quai Alphonse Le Gallo, 92512 Boulogne-Billancourt    Cedex.

**Principal Transactions with Companies in the Aventis    Group**

Until October 15, 1999, Rhodia was controlled by Aventis,    and at December 31, 2000 and 2001 Aventis still held 25.2% of Rhodia’s capital.    The types of transactions and the amounts involved are summarized below.

*Administrative transactions.*The impact of administrative transactions with Aventis has progressively    become less material. The sales to and the purchases from Aventis are shown    below:
 **1999** **2000** **2001**    **(€ millions)**   Sales of services invoiced to Aventis97 51 30 Services purchased from Aventis(134) (34) (13) 
In 2001, services purchased from Aventis primarily included    research and engineering as well as administrative expenses. In 1999 and 2000,    services purchased from Aventis included research, engineering and administrative    services including rent. In 2001, as in 2000 and 1999, services sold by Rhodia    to Aventis primarily corresponded to administrative costs, research and development    and industrial services. 

*Financial transactions.*Since the relinquishment of control by Aventis over Rhodia on October    15, 1999, Rhodia is no longer a member of the Aventis cash pool and no material    amounts of related short-term deposits and borrowings remain on the consolidated    balance sheet.

In 1999, interest expense paid to Aventis amounted to €    65 million and interest income received from Aventis amounted to € 20 million.
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*Other transactions.*In accordance    with the Environmental Indemnification Agreement with Aventis (see note 24a),    Rhodia recorded a receivable from Aventis of € 35 million as of December 31,    2001.

With respect to related party transactions – transactions    with parties that have a relationship enabling them to negotiate terms of    material transactions that may not be available from other more clearly independent    parties on an arm’s-length basis – management believes that Rhodia has not    developed any material relations of this nature.

*Bonds exchangeable for Rhodia shares.*In    October 1999, Rhône-Poulenc (which became Aventis) issued approximately 44    million bonds with a face value of € 23.22, exchangeable for Rhodia shares    already held by Aventis, maturing on October 22, 2003. The exchange ratio    is one Rhodia share per bond. Holders may exchange their bonds for shares    at any time until October 2003. Furthermore, Aventis has the right to redeem    the bonds at any time commencing October 22, 2002 if Rhodia’s share price    reaches 130% of the bond’s face value plus accrued interest. As a result,    to the extent that bonds are not exchanged before redemption in cash on the    maturity date, Aventis will continue to hold an equity interest in Rhodia    as of such date.

**Item 8. Financial Information**

See “Item 18. Financial Statements” for a list of financial    statements and other financial information filed with this annual report.

**Legal Proceedings**

Rhodia is involved in certain claims and lawsuits as part    of its ordinary course of its business involving primarily claims made by    the buyers of businesses previously sold by Rhodia and civil liability compensation    claims related to chemical products sold in the marketplace. Some of Rhodia’s    North American subsidiaries have potential liabilities under the U.S. federal    “Superfund” laws and federal or state environmental regulation. However, in    light of the nature of the claims made, the number of defendants and the volume    of waste at issue, Rhodia believes that these claims will not result in significant    liabilities for Rhodia. 

Rhodia Polyamide Intermediates, a wholly-owned group subsidiary,    has been involved in arbitration proceedings with DuPont China Holding and    LYPFC (Lioyang Petrochemical Fiber Company, an affiliate of Sinopec). The    proceedings related to a joint venture formed by Rhodia and these two partners    in 1996 in Sanlong, People’s Republic of China, for the production of    nylon salt. Rhodia settled the proceedings with both DuPont China Holding    and LYPFC and has recorded a provision for the loss resulting from these proceedings.    See Note 24 to the Consolidated Financial Statements. 

Rhodia Fosfatados de Mexico is currently involved in a tax    dispute with the Mexican tax authorities concerning alleged failure by Albright    & Wilson, prior to its acquisition by Rhodia, to pay duties on certain    imported products. Rhodia is awaiting a decision from the court of first instance.    The initial claim amounted to approximately $ 24 million in December 1998,    which may be increased by penalties, surcharges and interest. Rhodia is vigorously    contesting the claim and believes that the outcome of the proceedings will    not have a material adverse effect on its financial condition or results of    operations.

Rhodia is not involved in any other legal or arbitration    proceedings, including environmental proceedings, that management expects    to have a material adverse effect on Rhodia’s business, financial condition    or results of operations, either individually or in the aggregate.

**Dividend Policy**

Rhodia has declared dividends for each of the three fiscal    years completed since its formation. The table below sets forth the dividends    declared for each of the financial years 1999, 2000 and 2001, the date of    stockholder approval, the net amount of the dividend per share in euro, and    the dollar equivalent of the net dividend per share.
**Financial year** **Date of Payment****Net amount** **Net amount**   **(in €)** **(in $)(1)** 1999 May 15, 2000€ 0.40 $0.39 2000 May 15, 2001€ 0.40 $0.39 2001(2) July 1, 2002€ 0.12 $0.12 (1)The Shareholders’ Meeting of May 21, 2002        approved payment of a dividend for fiscal year 2001.(2)Dollar amounts are provided for convenience        only and have been translated at the Noon Buying Rate in effect on June        26, 2002 (€1.00 = $0.98).  60
The dollar equivalents have been provided for convenience    only, using the Noon Buying Rate on the payment date for each dividend. Rhodia    does not represent that a stockholder, or the depositary in the case of its    ADSs, could have in fact obtained these exchange rates. In addition to the    net dividend amount, stockholders may also be eligible to receive a French    tax benefit know as an avoir fiscal. See “Item 10. Additional Information    – Taxation.” 

The payment and amount of dividends on the ordinary shares,    if any, are subject to the recommendation of Rhodia’s board of directors and    declaration by the stockholders at the stockholders’ annual meetings. Rhodia    will only be able to pay dividends if its financial performance, general business    conditions and our management’s business plans permit it. Consolidated net    income in each fiscal year (after deduction for depreciation and provisions),    as increased or reduced, as the case may be, by any income or loss of Rhodia    carried forward from prior years, less any contributions to the reserve accounts    pursuant to law or its by-laws, is available for distribution to the stockholders    of Rhodia as dividends. 

Under French corporate law, Rhodia is required to allocate    5% of its unconsolidated statutory net income in each fiscal year (after reduction    for losses carried forward from previous years, if any) to a legal reserve    fund before a dividend may be paid with respect to that year. Funds must be    allocated until the amount in such reserve funds is equal to 10% of the aggregate    nominal amount of the issued and outstanding share capital as increased or    reduced from time to time. The legal reserve constitutes a legal guarantee    for third parties dealing with Rhodia and, accordingly, they may not be distributed    to stockholders, nor used by Rhodia to purchase treasury shares. In the event    of loss, the reserve funds will be used to compensate such loss in the absence    of any other available reserve. As of May 21, 2001, Rhodia’s legal reserve    was equal to approximately 18% of the nominal value of its share capital.    This restriction on the payment of dividends also applies to each of Rhodia’s    French subsidiaries on an unconsolidated basis. 

Upon recommendation of Rhodia’s board of directors, Rhodia’s    stockholders may at the annual general meeting decide to allocate all or part    of the distributable profits of Rhodia, if any, to one or more special or    general reserves, to carry them forward as retained earnings to the next fiscal    year, or to allocate them the stockholders as dividends. Rhodia’s board of    directors may propose a dividend for approval by the stockholders at the annual    general meeting of stockholders. 

Rhodia must distribute dividends to its stockholders pro    rata according to their share holdings.

In addition, if Rhodia has earned distributable income since    the end of the preceding fiscal year, as reflected in an interim income statement    certified by Rhodia’s auditors, Rhodia’s board of directors may, without stockholder    approval, distribute interim dividends for a minimum amount of € 0.76 per    share, to the extent such distributable income is available, subject to French    corporate law and regulations. 

In addition, Rhodia’s by-laws authorize the stockholders,    in an ordinary general meeting, to authorize the grant to each stockholder    of an option to receive all or part of any annual or interim dividends in    either cash or in Rhodia’s shares. For dividends or interim dividends paid    in shares, prior authorization by a stockholders’ meeting is required.

The actual dividend payment date is decided by Rhodia’s    stockholders at an ordinary general meeting or by Rhodia’s board of directors,    if no decision is taken by its stockholders. Rhodia must pay any dividends    within nine months of the end of its fiscal year. Dividends not claimed within    five years of the date of payment revert to the French State. 

The record holders of the ADSs on the dividend record date    will be entitled to receive payment in full of the dividend declared in respect    of the year for which it is declared. Cash dividends payable to such holders    will be paid to the depositary in euro and, subject to certain exceptions,    be converted to dollars by the depositary. 

Any dividends paid to U.S. holders of shares or ADSs who    are not residents of France will generally be subject to French withholding    tax at a rate of 25% or, if such holders qualify for benefits under the applicable    U.S.-France tax treaty and comply with the procedures for claiming treaty    benefits, a reduced rate of 15%. Certain U.S. holders of shares or ADSs who    are residents of the United States may be entitled to receive a subsequent    payment representing the French avoir fiscal, or tax credit, less applicable    French withholding tax at a rate of 15%. Payment equivalent to the French    avoir fiscal, less applicable French withholding tax, will generally be made    by the French State only following receipt of a claim for such payment and,    in any event, not before January 15 of the year following the calendar year    in which the dividend is paid. Certain U.S. tax-exempt holders of shares or    ADSs will be entitled only to partial payments of the French avoir fiscal.    See “Item 10. Additional Information - Taxation” for a summary of these and    other French and U.S. tax consequences to holders of shares or ADSs. Prospective    purchasers of shares or ADSs should consult their own tax advisers with respect    to the tax consequences of an investment in the shares or ADSs.

**Item 9. The Offer and Listing**

**Markets**

The ordinary shares of Rhodia are traded on the Premier    Marché of Euronext Paris, their principal trading market, under the Euroclear    code 12013. In the United States, the ordinary shares trade in the form of    American Depositary
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Shares issued by Citibank N.A., as depositary, each representing    one ordinary share (the “ADSs”). The ADSs are listed on the New York Stock    Exchange where they trade under the symbol “RHA.”

The table below sets forth, for the periods indicated, the    reported high and low sales prices in euro for Rhodia’s ordinary shares on    Euronext Paris and the high and low sales prices in dollars for the ADSs on    the NYSE (source: Dow Jones). 
**Calendar Period****Euronext Paris** **Euronext Paris** **NYSE Price** **NYSE Price** **Price Per Share** **Price Per Share** **ADS** **ADS** **High**  **Low**  **High**  **Low**   **(€)**   **(€)**   **($)**   **($)** **Monthly**               June 2002 (through June 26) 10.28   8.11   9.58   8.00 May 2002 12.40   9.43   11.35   9.10 April 2002 12.40   10.80   11.07   9.50 March 2002 11.63   10.57   10.20   9.55 February 2002 10.70   9.76   9.40   8.65 January 2002 10.81   8.87   9.55   8.10 December 2001 10.87   8.58   9.90   7.45 **2001**              First quarter 17.00   12.60   15.95   11.50 Second quarter 15.25   11.50   13.62   10.20 Third quarter 13.00   5.75   11.40   5.75 Fourth quarter 11.72   5.01   10.25   5.60 Full year 17.00   5.01   15.95   5.60 **2000**              First quarter 23.63   16.10   24.19   16.00 Second quarter 21.95   16.83   19.75   16.25 Third quarter 18.89   11.90   18.38   10.88 Fourth quarter 16.55   12.00   15.06   10.50 Full year 23.63   11.90   24.19   10.50 1999 23.10   10.35   23.63   12.13 1998(1) 28.16   9.88   30.44   11.81 
(1) Rhodia listed on Euronext and on the NYSE on June 25,    1998.

**Stock Options**

Rhodia’s stock option plans are described in “Item 6. Directors,    Senior Management and Employees – Employee and Director Share Ownership” and    in Note 28 of the Consolidated Financial Statements included elsewhere herein.

**Trading Practices and Procedures on Euronext Paris Markets**

***Euronext Paris***

Effective September 22, 2000, after the successful completion    of an exchange offer, the ParisBourseSBF S.A.    or the “SBF,” the Amsterdam Exchanges and the Brussels Stock Exchanges merged    to create Euronext, the first pan-European stock exchange. Euronext is comprised    of Euronext Paris, Euronext Amsterdam and Euronext Brussels. Through the exchange    offer, all the stockholders of the SBF, the Brussels exchanges and the Amsterdam    exchanges contributed their shares to Euronext N.V., a Dutch holding company.    Following the creation of Euronext, the SBF changed its name to Euronext Paris    S.A. on October 27, 2000. Securities quoted on exchanges participating in    Euronext will be traded over a common Euronext platform, with central clearinghouse,    settlement and custody structures. However, these securities will remain listed    on their local exchanges. As part of Euronext, Euronext Paris S.A. retains    responsibility for the admission of shares to Euronext Paris’s trading markets    as well as the regulation of those markets. 

Securities approved for listing by Euronext Paris are traded    in one of three markets. The securities of most large public companies are    listed on the *Premier Marché,*with    the *Second Marché*available    for small and medium-sized companies. Trading on the *Nouveau    Marché*was introduced in 1996 to allow companies    seeking development capital to access the stock market. In addition, securities    of certain other companies are traded on a non-regulated over-the-counter    market, the *Marché Libre OTC.*
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***The Premier Marché***

The *Premier Marché*is    a regulated market managed and operated by Euronext Paris S.A. 

Admission to the *Premier Marché*is subject to certain capital adequacy and liquidity    requirements determined by Euronext Paris S.A. In addition, companies applying    for listing on the Premier Marché are required to publish comprehensive information    regularly and to keep the public informed of events likely to affect the market    price of their securities. 

Securities listed on the *Premier    Marché*are traded through authorized financial    institutions that are members of Euronext Paris. Trading takes place continuously    on each business day from 9:00 a.m. to 5:25 p.m. (Paris time), with a pre-opening    session from 7:15 a.m. to 9:00 a.m. and a pre-closing session from 5:25 p.m.    to 5:30 p.m. with a closing auction at 5:30 p.m. Any trade of securities that    occurs after a stock exchange session closes is recorded on the next business    day at the previous session’s closing price for that security. Euronext Paris    has introduced continuous electronic trading during trading hours for most    actively traded securities. Euronext Paris publishes a daily official price    list that includes, among other things, price information on listed securities.    

Euronext Paris places securities listed on the *Premier    Marché*in the category *“Continu”*or the category *“Fixing”,*depending on the trading volume of the securities.    Rhodia’s ordinary shares are placed in the category *Continu,*which includes the most actively traded securities.    

Trading in securities listed on the *Premier Marché*may be suspended by Euronext    Paris S.A., if quoted prices exceed certain price limits defined by the relevant    regulations. In particular, if the quoted price of a Continu security varies    by more than 10% from the *prix de référence*(reference    price, which is generally the previous day’s closing price or the opening    price of the trading session), trading may be suspended for up to 4 minutes.    Further suspensions for up to 4 minutes are also possible if the price again    varies by more than 10% from a new reference price equal to the price, which    caused the first trading suspension. If the quoted price of a *Continu*security varies by more than 2% from the last    quoted price, trading may be suspended for up to 4 minutes. On its own initiative    or upon justifiable request of the issuer, Euronext Paris S.A. may also suspend    trading of a security listed on the *Premier Marché*in certain other limited    circumstances, including, for example, the occurrence of unusual trading activity    in such security. In addition, in exceptional cases, the *Conseil    des marchés financiers*or CMF, the self-regulatory    authority over French stock exchanges, may also suspend trading. 

Since September 25, 2000, trades of securities listed on    the *Premier Marché*are settled on a cash settlement basis *(“au comptant”).*However, market intermediaries    are also permitted to offer investors for a fee a deferred settlement service    *(Ordre stipulé à réglement livraison différé, or    OSRD).*The OSRD allows stockholders to benefit    from certain leverage and other special features of the previous monthly settlement    market *(marché à règlement mensuel).*The    OSRD is only available for trades in securities that either (1) are a component    of the Index SBF 120 or (2) have both a total market capitalization of at    least € 1 billion and a daily average volume of trades of at least € 1 million    on Euronext Paris S.A. and that are cited on the list published by Euronext    Paris. Investors in shares eligible for OSRD service can elect on the determination    date *(date de liquidation),*which    is at the latest the fifth trading day before the end of the month, either    to settle by the last trading day of the month or to pay an additional fee    and postpone the settlement to the determination date of the following month.    Rhodia’s shares are eligible for the OSRD service. 

Equity securities traded on a deferred settlement basis    are considered to have been transferred only after they have been registered    in the purchaser’s account. Under French securities regulations, any sale    of securities executed with a deferred settlement basis during the month of    a dividend payment date is deemed to occur after the dividend has been paid.    If the sale takes place during the month preceding a dividend payment date,    the purchaser’s account will be credited with an amount equal to the dividend    paid and the seller’s account will be debited by the same amount. 

Prior to any transfer of securities held in registered form    on the *Premier Marché,*the    securities must be converted into bearer form and accordingly inscribed in    an account maintained by an accredited intermediary with Euroclear France    S.A., a registered clearing agency. Transactions in securities are initiated    by the owner giving instruction (through an agent, if appropriate) to the    relevant accredited intermediary. Trades of securities listed on the *Premier    Marché*are cleared and settled through Euroclear    France S.A. using a continuous net settlement system. A fee or commission    is payable to the broker-dealer or other agent involved in the transaction.

**Purchase and Trading by Rhodia in its Own Shares**

***Purchase of Rhodia’s Own Shares***

Pursuant to *Règlement*No.    98-02, as amended, of the COB, Rhodia may not issue shares to itself.
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However, Rhodia may, either directly or through a financial    intermediary acting on its behalf, purchase its shares for one of three purposes:
1.to reduce its share capital by canceling        the shares Rhodia purchases, with its stockholders’ approval at an extraordinary        general meeting,2.to provide shares to its employees under        a profit-sharing plan or stock option plan, with its stockholders’ approval        at an extraordinary general meeting, or3.to acquire up to 10% of its share capital        in connection with a corporate share repurchase program, provided Rhodia’s        shares are listed on a regulated market (e.g., the *Premier        Marché,*the *Second Marché*or        the *Nouveau Marché*)        and provided Rhodia has received the approval, or *visa*,        of the COB on a *Note d’information*and the approval of its stockholders at an ordinary general meeting.        Since December 4, 2000 French regulation allows us to file the *Note        d’information*with the COB either prior to        the general meeting granting the authorization or after the board’s decision        to launch the program, i.e. after the general meeting.
Rhodia may not cancel more than 10% of its outstanding share    capital over any 24-month period. In addition, Rhodia may not repurchase under    either option 2 or 3 listed above an amount of shares that would result in    its company holding, directly or through a person acting on its behalf, more    than 10% of its outstanding share capital, or if Rhodia has different classes    of shares, 10% of the shares in each class. 

Rhodia must hold any shares Rhodia repurchases in registered    form. These shares also must be fully paid up. Shares repurchased by Rhodia    are deemed outstanding under French law but are not entitled to dividends    or voting rights, and Rhodia may not exercise the preemptive subscription    rights attached to them. 

The stockholders, at an extraordinary general meeting, may    decide not to take these shares into account in determining the preemptive    subscription rights attached to the other shares. However, if the stockholders    decide to take them into account, Rhodia must either sell the rights attached    to the shares Rhodia holds on the market before the end of the subscription    period or distribute them to the other stockholders on a pro rata basis. 

At the general meeting on May 21, 2002, Rhodia’s stockholders    granted a share repurchase authorization to Rhodia’s board, which obtained    the visa no 02-429 dated April 22, 2002 from the COB. The board may use this    authorization for the purpose of (i) stabilizing the price of Rhodia’s shares    by systematically intervening to reverse trends; (ii) retaining the repurchased    shares or transferring them by any means, including block trades or assimilated    transactions; (iii) granting stock options to employees of Rhodia and/or its    group; (iv) canceling the repurchased shares in order to optimize management    of Rhodia’s assets and finances; (v) using shares as payment or exchange in    transactions, particularly acquisitions; and (vi) distributing shares to current    owners of Rhodia’s securities who exercise any rights they may have to acquire    additional shares. The stockholders set a price ceiling for the purchased    shares of € 45 (subject to adjustments) per share and a price floor for the    sold shares of € 5 per share (subject to adjustments). The authorization was    granted for a period until the annual general meeting that would review the    financials for the year ending December 31, 2002 and, in any event, until    no later than November 21, 2003.

***Trading in Rhodia’s Own Shares***

Pursuant to *Règlement*No.    90-04, as amended, of the COB, Rhodia may not trade in its own shares for    the purpose of manipulating the market, and trading should under no circumstance    aim at hindering the regular functioning of the market or misleading third    parties. There are three requirements for trades by a company in its own shares    to be considered valid. Specifically, in order to be valid: 
- trades must be executed on behalf of the company by only      one intermediary or, if the issuer uses its share repurchase program in      part by way of derivatives, by two intermediaries provided that the issuer      is able to ensure an appropriate coordination between these intermediaries,      in each trading session;   any block trades may not be made at a price above the      current market price; andeach trade must be made at a price that falls between      the lowest and the highest trading price of the trading session during which      it is executed.

Since Rhodia’s shares are continuously quoted *(cotation    en continu),*a trade must meet the following additional requirements to be considered    valid: 
- the trade must not influence the determination of the      quoted price before opening of trading, at the opening of trading or session,      at the first trade of the shares, at the reopening of trading following      a suspension, or, as applicable, in the last half hour of any trading session      or at the fixing of the closing price;   the trade must not be carried out in order to influence      the price of a derivative instrument relating to the company’s shares; and      64  -  the trade must not account for more than 25% of the total daily trading volume on the  Premier Marché  in the shares during            the three trading days immediately preceding the trade. This last            requirement applies only to trades in shares that are eligible for            the deferred settlement service (SRD).  However, there are two periods during which Rhodia is not permitted to trade in its own securities:   - the 15-day period before the date on which Rhodia makes        its consolidated or annual accounts public; and  
- the period beginning on the date at which Rhodia becomes        aware of information that, if disclosed, would have a significant impact        on the market price of its securities and ending on the date this information        is made public.  

This requirement does not apply to trades executed on behalf    of the issuer by an intermediary acting pursuant to a liquidity agreement    *(contrat de liquidité)*complying with a charter of ethics approved by the COB.

The use of the repurchased shares to finance an acquisition    is deemed justified to the extent the acquisition is performed after a three-month    abstention period and an independent expert has been designated to verify    the value of the shares, the value of the acquisition and the fairness of    the exchange ratio. 

After making an initial purchase of Rhodia’s own shares,    Rhodia must file monthly reports with the COB and the CMF, the self-regulatory    authority over French stock exchanges that contain specified information about    subsequent transactions. The CMF makes this information available to the public.    
  **Item 10. Additional Information**  **Ownership of Shares by Non-French Persons**  Under French corporate law, there is no limitation on the    right of non-residents or non-French stockholders to own or, where applicable,    to vote securities of a French company.  A French law dated February 14, 1996 abolished the requirement    that a person who is not a resident of the European Union (“E.U.”) obtain    an *autorisation préalable,*or    prior authorization, prior to acquiring a controlling interest in a French    company. However, both E.U. and non-E.U. residents must file a *déclaration    administrative,*or administrative notice, with    French authorities in connection with the acquisition of a controlling interest    in any French company. Under existing administrative rulings, ownership of    20 percent or more of a listed company’s share capital is regarded as a controlling    interest, but a lower percentage may be held to be a controlling interest    in certain circumstances (depending upon such factors as the acquiring party’s    intentions, its ability to elect directors or financial reliance by the French    company on the acquiring party).  **Exchange Controls**  Under current French exchange control regulations, there    are no limitations on the amount of payments that may be remitted by a French    company to non-residents. Laws and regulations concerning foreign exchange    controls do require, however, that all payments or transfers of funds made    by a French resident to a non-resident be handled by an accredited intermediary.    In France, all registered banks and substantially all credit establishments    *(établissements de crédit)*are    accredited intermediaries.  **Material Contracts**  For a summary of Rhodia’s material contracts see “Item 7.    Major Stockholders and Related Party Transactions - Agreements with Aventis.”  **Articles of Association**  Rhodia is a *société anonyme,*a form of French corporation, incorporated under    the laws of France.   Rhodia’s registered office is located at 26, quai Alphonse    Le Gallo, 92512 Boulogne-Billancourt Cedex. Rhodia is registered with the    Register of Commerce and Companies of Nanterre under the number 352 170 161.    For more information about the Company, please see “Item 4. Information on    the Company - Corporate History.”   The information below is a summary of the material information    concerning Rhodia’s share capital, together with material provisions of applicable    French corporate law and of Rhodia’s by-laws *(statuts),*as amended by Rhodia’s stockholders    on May 21, 2002. An unofficial English translation of the by-laws is included    as an exhibit to this annual report. You may obtain copies of Rhodia’s *statuts*in French from its registered office. Please refer to those full documents    for additional details.     65  
**Board of Directors**

For a discussion of directors’ powers under French corporate    law and Rhodia’s by-laws, see “Item 6. Directors, Senior Management and Employees    – Board of Directors, Chairman and/or Chief Executive Officer.”

**Stockholders’ Meetings and Voting Rights**

In accordance with French corporate law, there are three    types of stockholders’ general meetings: ordinary, extraordinary and special.    

Ordinary general meetings are required for matters such    as the election, replacement and removal of directors, the appointment of    statutory auditors, the approval of annual financial statements and consolidated    financial statements, the declaration of dividends or authorization of dividends    to be paid in shares and the issuance of debt securities. 

Extraordinary general meetings are required for the approval    of matters such as amendments to Rhodia’s by-laws, approval of mergers, the    change of Rhodia’s corporate name or its corporate purpose, increases or decreases    in share capital, the contribution of a substantial part of its assets, the    creation of a new class of equity securities and the authorization of the    issuance of investment certificates or securities convertible, exchangeable    or otherwise giving rights to subscribe equity securities and the voluntary    liquidation of the Company. 

Special meetings of stockholders of a certain category of    shares (such as, among others, shares with double voting rights or preferred    shares without voting rights) are required for any modification of the rights    derived from such category of shares. The resolutions of the stockholders’    general meeting affecting these rights are effective only after approval by    the relevant special meeting.

***Annual Ordinary General Meetings***

French corporate law requires Rhodia’s board of directors    to convene an annual ordinary general meeting of stockholders for approval    of the annual accounts. This meeting must be held within six months of the    end of each fiscal year. This period may be extended by an order of the President    of the *Tribunal de commerce*(Commercial    Court). The board of directors may also convene an ordinary or extraordinary    general meeting of stockholders upon proper notice at any time during the    year. If the board of directors fails to convene a stockholders’ meeting,    Rhodia’s statutory independent auditors or stockholders holding the majority    of the share capital or the voting rights following a block trade or a public    offer may call the meeting. In a bankruptcy, Rhodia’s liquidator or court-appointed    agent may also call a stockholders’ meeting in some instances. Any of the    following may request the court to appoint an agent:
- one or several stockholders holding at least 5% of Rhodia’s      share capital,   any interested party in emergency situations,the workers committee in emergency situations, or
- duly qualified associations of stockholders who have      held their shares in registered form for at least two years and who together      hold at least a specified percentage of the voting rights of Rhodia.  
The notice of a meeting must state the agenda for the meeting.
***Notice of Stockholders’ Meetings***
Annual stockholders’ meetings are called in accordance with    the law for the holders of fully paid-up stock, regardless of the number of    shares they own on the date of the meeting. In accordance with French corporate    law, Rhodia must announce general meetings at least 30 days in advance by    means of a preliminary notice published in the *Bulletin des Annonces Légales Obligatoires*(the “BALO”). Such preliminary notice must first be sent to the *Commission    des opérations de bourse*(the “COB”), the administrative    agency responsible for overseeing the French securities markets. The COB also    recommends that the preliminary notice be published in a newspaper of national    circulation in France. It must contain, among other things, the time, date    and place of meeting, the preliminary agenda, a draft of the resolutions to    be submitted to the stockholders, a description of the procedures that holders    of bearer shares must follow to attend the meeting and the procedure for voting    by mail or by proxy. 
At least 15 days prior to the date set for the meeting on    first call, and at least six days before any second call, Rhodia must send    a final notice containing the final agenda and other information for the meeting.    A notice must be sent by mail to all registered stockholders who have held    shares for more than one month prior to the date of publication of the final    notice in a newspaper authorized to publish legal announcements in the local    administrative county *(département)*in    which Rhodia is registered as well as in the BALO, with prior notice to the    COB.
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Typically, stockholders can only vote on matters included    in the agenda for the meeting. However, stockholders may vote on the dismissal    of directors under certain circumstances and on certain miscellaneous matters    even if they are not included on the agenda. Additional resolutions to be    submitted for approval by the stockholders at the meeting may be submitted    to the board of directors within ten days of the publication of the preliminary    notice in the BALO by one or several stockholders holding a specified percentage    of shares calculated on the basis of a formula relating to Rhodia’s share    capital, by the workers committee, or by a duly qualified association of stockholders    who have held their shares in registered form for at least two years and who    together hold at least a specified percentage of the voting rights of Rhodia.    The board of directors must submit these resolutions to a vote of the stockholders.    

In addition to rights to certain information regarding Rhodia,    any stockholder may, during the two-week preceding a stockholders’ meeting,    submit to Rhodia’s board of directors written questions relating to the agenda    for the meeting. Rhodia’s board of directors must respond to such questions    during the general meeting.

***Attendance and Voting***

Each share confers on the stockholder the right to one vote.    Participation of stockholders at a stockholders’ meeting is not restricted    in any way. In particular, a stockholder does not need to have a minimum number    of shares in order to be able to attend or be represented at a general meeting.    

Holders of registered shares may participate in a general    meeting only if they are registered in a stockholder account maintained by    Rhodia, or by Société Générale, service relations sociétés émettrices, assemblées    générales, BP 81236, 32 rue du Champ de Tir, 44312 Nantes Cedex 3, acting    as financial intermediary appointed by Rhodia, at least two days before the    meeting. A holder of bearer shares must obtain a certificate *(“certificat d’immobilisation”)*from the    financial intermediary with whom the holder has deposited its shares. This    certificate must indicate the number of bearer shares the holder owns and    must indicate that these shares are not transferable until the time fixed    for the meeting. The holder must deposit this certificate at the place specified    in the notice of the meeting at least two days before the meeting. 

Rhodia’s by-laws provide that stockholders may participate    in and vote at any general or special meetings by video-conference or any    other electronic means of telecommunication or remote transmission that permits    their identification under the conditions provided for by applicable regulations    and pursuant to terms defined by the board of directors. Stockholders are    thus deemed present at these meetings for the calculation of quorum and majority.

***Proxies and Votes by Mail***

In general, all stockholders who have properly registered    their shares or duly presented a certificate from their accredited financial    intermediary may participate in general meetings. Stockholders may participate    in general meetings either in person, by proxy or by mail or, if provided    for by the by-laws, by video conference. As mentioned above, Rhodia’s by-laws,    as recently amended, provide for the possibility of participation by video-conference    or any other means of telecommunication that allows the stockholders to be    identified. Stockholders’ votes are counted in proportion to the number of    shares they hold. 

Rhodia will send proxy forms and postal vote forms to any    stockholder on request. In order to be counted, the completed form must be    returned at Rhodia’s registered office or at any other address indicated on    the notice convening the meeting, no later than two days prior to the date    of the general meeting. French corporate law and Rhodia’s by-laws provide    that stockholders may send their proxy form and postal vote form for any general    meetings either in paper form or, subject to a prior decision of the board    of directors published in the preliminary notice of meeting and final notice,    by remote transmission. 

A stockholder may grant a proxy to his or her spouse, to    another stockholder, or, if the stockholder is a corporation, to a legal representative.    Alternatively, the stockholder may send us a blank proxy without nominating    any representative. In this case, the chairman of the meeting will vote the    blank proxies in favor of all resolutions proposed by Rhodia’s board of directors    and against all others.

***Representation of non-French residents***

A stockholder who is not a French resident may be represented    at the general meeting by an intermediary under the name of which he or she    is registered and who is acting on his or her behalf (see “– Form, Holding    and Transfer of Shares – Holding of Shares”) if: 
•          the registration of such intermediary, in        the form of a collective account or in several individual accounts, has        been made with Société Générale, as Rhodia’s accredited account administrator;
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- such intermediary has declared, when opening one or several      accounts with Société Générale, that it is an intermediary holding shares      on someone’s behalf, under conditions imposed by law; and   such intermediary represents that, upon Rhodia’s or Société      Générale’s request, it will disclose the identity of the non-resident holders      of the shares whose voting rights are exercised.   An intermediary who complies with the above-mentioned requirements,    may exercise the voting rights or transmit the relevant proxies pertaining    to the shares for which they have received a general power of attorney. However,    such voting rights or proxies will not be taken into account if the intermediary    has not registered or has not disclosed the identity of the non-resident holders    of the shares for whom such voting rights or proxies are exercised.  ***Quorum***  Under French corporate law, a quorum requires the presence,    in person, by mail or by proxy, of stockholders holding at least (i) 25% of    the shares entitled to vote, in the case of an ordinary general meeting or    an extraordinary general meeting deciding upon any capital increase by incorporation    of reserves, profits or share premiums, or (ii) 33 1/3% of the shares entitled    to vote, in the case of any other extraordinary general meeting.   If a quorum is not present at any meeting, the meeting is    adjourned. There is no quorum requirement when an ordinary general meeting    is reconvened. However, when an extraordinary general meeting is reconvened,    the quorum required is 25% of the shares entitled to vote, except where the    reconvened meeting is considering an increase in Rhodia’s share capital through    incorporation of reserves, profits or share premium. If a quorum is not present,    the reconvened meeting may be adjourned for a maximum of two months. No deliberation    by the stockholders may take place without a quorum. However, only questions    that were on the agenda of the adjourned meeting may be discussed and voted    upon.  ***Majority***  Approval of any resolution at an ordinary general meeting    or an extraordinary general meeting deciding upon any capital increase by    incorporation of reserves, profits or share premiums requires a simple majority    of the votes cast. Approval of any other resolution at an extraordinary general    meeting requires a two-thirds majority of the votes cast. Notwithstanding    these rules, any proposal to increase stockholders’ liabilities requires a    unanimous vote. Abstention from voting by those present in person or represented    by proxy or voting by mail counts as a vote against any resolution submitted    to a vote.   In general, each of Rhodia’s stockholders is entitled to    one vote per share, subject to the limitations described above and under “–    Requirements for Holdings Exceeding Certain Percentages” below.   Under French corporate law, any of Rhodia’s shares held    by Rhodia or by entities controlled directly or indirectly by us have no voting    rights and do not count for quorum or majority purposes.  **Financial Statements and Other Communications with Stockholders**  In connection with any stockholders’ meeting, Rhodia must    provide a set of documents including Rhodia’s annual report and a summary    of the results of the five previous fiscal years in French GAAP to any stockholder    who so requests.   French corporate law requires that a special report be provided    to the ordinary stockholders’ meeting regarding stock options authorized and/or    granted by the company.  **Dividends**  Rhodia may only distribute dividends to its stockholders    from its consolidated net income in each fiscal year (after deductions for    depreciation and provisions), as increased or reduced by any profit or loss    carried forward from prior years, less any contributions to the reserve accounts    pursuant to law or Rhodia’s by-laws.  ***Legal reserve***  French corporate law provides that French *sociétés    anonymes*such as Rhodia must allocate 5% of their    unconsolidated statutory net profits in each fiscal year, after reduction    for losses carried forward from previous years, if any, to a legal reserve    fund before dividends may be paid with respect to that year. Funds must be    allocated until the amount in that fund equals 10% of the aggregate nominal    amount of the issued and outstanding share capital. This restriction on the    payment of dividends also applies to each of Rhodia’s French subsidiaries    on an unconsolidated basis. The legal reserve constitutes a legal guarantee    for third party dealing with Rhodia and, in this respect, they may not be    distributed     68  
to stockholders, nor used by the us to purchase treasury    shares. In the event of loss, the legal reserve funds will be used to compensate    such loss in the absence of any other available reserve. At December 31, 2001,    Rhodia’s legal reserve was € 32 million.

***Approval of dividends***

Upon recommendation of Rhodia’s board of directors, Rhodia’s    stockholders may at the annual general meeting decide to allocate all or part    of distributable profits among special or general reserves, to carry them    forward to the next fiscal year as retained earnings, or to allocate them    to the stockholders as dividends. Rhodia’s board of directors may propose    a dividend for approval by the stockholders at the annual general meeting    of stockholders. 

Rhodia must distribute dividends to its stockholders pro    rata according to their share holdings. 

***Interim dividends***

In addition, if Rhodia has earned distributable income since    the end of the preceding fiscal year, as reflected in an interim income statement    certified by its auditors, Rhodia’s board of directors may distribute interim    dividends for a minimum amount of € 0.76 per share, to the extent of the distributable    income without stockholder approval, subject to French corporate law and regulations.

***Option to receive dividends in shares***

In addition, Rhodia’s by-laws authorize the stockholders,    in an ordinary general meeting, to authorize the grant to each stockholder    of an option to receive all or part of any annual or interim dividends in    either cash or in its shares. For dividends or interim dividends paid in shares,    prior authorization by a stockholders’ meeting is required.

***Date of payment of dividends***

The actual dividend payment date is decided by Rhodia’s    stockholders at an ordinary general meeting or by its board of directors,    if no decision is taken by its stockholders. Rhodia must pay any dividends    within nine months of the end of its fiscal year. Dividends not claimed within    five years of the date of payment revert to the French State.

***Increases in Share Capital***

As provided by French corporate law, Rhodia may increase    its share capital only with its stockholders’ approval at an extraordinary    general meeting upon the recommendation of its board of directors. Rhodia    may increase its share capital by issuing additional shares, by issuing a    new class of equity securities or by increasing the nominal value of its existing    shares. Increases in share capital by issuing additional securities may be    effected by issuing such securities:
- for cash,   subject to certain conditions, in satisfaction of Rhodia’s      indebtedness,for assets contributed in kind,
- by capitalization of Rhodia’s profits, reserves or share      premiums, in which case additional shares will be issued and delivered to      its stockholders free of charge,   upon conversion, exchange or redemption of securities      convertible, redeemable or exchangeable into Rhodia’s shares, orupon the exercise of stock options, share warrants or      other similar securities comprising rights to subscribe for Rhodia’s shares.

Decisions to increase the share capital through the capitalization    of reserves, profits and/or share premiums require the approval of an extraordinary    general meeting, acting under the quorum and majority requirements applicable    to ordinary stockholders’ meetings. Increases affected by an increase in the    nominal value of shares require unanimous approval of the stockholders, unless    effected by capitalization of reserves, profits or share premiums. All other    capital increases require the approval of an extraordinary general meeting.    See “– Stockholders’ Meetings and Voting Rights.”

Rhodia’s stockholders may delegate to its board of directors    the right to carry out any increase in share capital previously authorized    by its stockholders. Rhodia’s board of directors may further delegate these    powers to its chairman and chief executive officer.

Each time the stockholders decide on a capital increase    or decide to delegate to the board of directors the right to carry out a capital    increase, they must decide whether or not to proceed with a capital increase    reserved to employees of Rhodia and its subsidiaries or on whether or not    delegate to the board of directors the right to carry out such reserved capital    increase.
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**Decreases in Share Capital**

According to French corporate law, Rhodia may decrease its    share capital only with its stockholders’ approval at an extraordinary general    meeting. In the case of a capital reduction, other than a reduction to absorb    losses or a reduction as part of a program to purchase its own shares, all    holders of shares must be offered the possibility to participate in such a    reduction. There are two ways by which Rhodia may reduce its share capital:    by decreasing the nominal value of its outstanding shares or by reducing the    number of outstanding shares. Rhodia may reduce the number of outstanding    shares either by exchanging shares or, if the reduction is not due to losses    incurred by it, by repurchasing and canceling shares. Holders of each class    of shares must be treated equally unless each affected stockholder agrees    otherwise.

The shareholders’ meeting of May 21, 2002 after reviewing    the Board of Director’s management report and the statutory auditor’s special    report, decided to reduce the capital, for reasons other than for losses,    by an amount of€ 2,510,328,632 by reducing the nominal    value of the shares from € 15 to € 1. The amount of the capital reduction,    i.e., the difference between the former and the new nominal value, will be    recorded on the balance sheet in the “issue premium” account. Such amount    shall not be distributable but may be subsequently capitalized or serve to    write off corporate losses.

**Preferential Subscription Rights of Stockholders**

Under French corporate law, current stockholders have preferential    rights to subscribe on a pro rata basis for issuances of new shares or other    securities giving rights, directly or indirectly, to new shares issued by    us for cash. These preferential rights require Rhodia to give priority treatment    to its stockholders. Stockholders may waive their preferential rights in respect    of a particular offering, either individually or as a group at an extraordinary    general meeting. During the subscription period relating to a particular offering    of shares, stockholders may transfer their preferential subscription rights,    if they have not previously waived these rights. Also, during this period    preferential subscription rights may be quoted on Euronext Paris or any relevant    stock exchange. 

A two-thirds majority of the shares entitled to vote at    an extraordinary general meeting may vote to waive preemptive subscription    rights with respect to any particular offering. French corporate law requires    that Rhodia’s board of directors and its independent auditors present reports    that specifically address any proposal to waive preferential subscription    rights. In the event of a waiver, the issue of securities must be completed    within the period prescribed by law. If stockholders waive their preferential    rights at an extraordinary general meeting, they may authorize Rhodia’s board    of directors to grant to existing stockholders a non-transferable priority    right to subscribe for new equity securities issued during a limited period    of time. Stockholders also may notify us that they wish to waive their own    preferential rights with respect to any particular offering if they so choose.

**Form, Holding and Transfer of Shares**

***Form of Shares***

Rhodia’s by-laws provide that its shares may at the stockholder’s    option be held either (i) in bearer form and recorded in its name in an account    maintained by an accredited financial intermediary, such as a French broker,    bank or other authorized financial institution or (ii) in registered form    in its name in an account maintained by Société Générale for Rhodia and on    its behalf. It may, at its expense, change from one form of holding to the    other.

***Holding of Shares***

In accordance with French corporate law concerning dematerialization    of securities, ownership rights of stockholders are represented by book entries    instead of share certificates. Rhodia maintains a share account with Euroclear    France S.A. for all shares in registered form, which is administered by Société    Générale. In addition, Rhodia maintains separate accounts in the name of each    stockholder either directly, or, at a stockholder’s request, through the stockholder’s    accredited intermediary. Each stockholder’s account shows the name of the    holder and the number of shares held and, in the case of shares held through    an accredited intermediary, shows that they are so held. Société Générale,    as a matter of course, issues confirmations to each registered stockholder    as to shares registered in the stockholder’s account, but these confirmations    are not documents of title. 

Shares held in bearer form are held on the stockholder’s    behalf in an account maintained by an accredited intermediary and are registered    in an account maintained by such accredited intermediary with Euroclear France    S.A., which is separate from Rhodia’s share account with Euroclear France    S.A. Each accredited intermediary maintains a record of shares held through    it and will issue certificates of registration for the shares that it holds.    If this alternative is adopted,
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the shares are referred to as being in bearer form, although    no bearer document of title is issued by Rhodia or on its behalf with respect    to them. Shares held in bearer form may only be transferred through accredited    intermediaries and Euroclear France S.A.

Rhodia’s by-laws permit Rhodia to request at any time that    Euroclear France S.A. provide Rhodia with the identity of the holders of its    shares or other securities granting immediate or future voting rights, held    in bearer form, and with the number of shares or other securities so held.    In addition, according to French corporate law, shares held by any non-French    resident may be held on the stockholder’s behalf in a collective account or    in several individual accounts by an intermediary.

***Transfer of Shares***

Rhodia’s by-laws do not contain any restrictions relating    to the transfer of shares, other than those provided for by law, regulation    or statute. Registered shares must be converted into bearer form before being    transferred on Euronext Paris and, accordingly, must be inscribed in an account    maintained by an accredited intermediary. A stockholder may initiate a transfer    by giving instructions to the relevant accredited intermediary. 

For dealings on Euronext Paris, a tax assessed on the price    at which the securities were traded, called *impôt    sur les opérations de bourse,*is payable at the    rate of 0.3% on transactions of up to € 153,000 and at a rate of 0.15% on    transactions exceeding this amount, capped at € 610 per transaction. This    tax is subject to a rebate of € 23 per transaction. Non-residents of France    are not required to pay this tax. In addition, a fee or commission is payable    to the broker involved in the transaction, regardless of whether the transaction    occurs within or outside France. Normally, no registration duty is payable    in France, unless a transfer instrument has been executed in France.

**Identification of Stockholders**

With respect to shares in bearer form, Rhodia’s by-laws    permit, in accordance with applicable legislation, the use of a procedure    known as *titres au porteur identifiables,*according    to which Euroclear France (or any clearing agent that may replace Euroclear    France) will, upon the company’s request at any time, disclose all or selected    information regarding Rhodia’s stockholders, including name, date of birth    (or, in the case of a legal person, name and date of organization), nationality,    address and the amount of shares or securities that have or may in the future    have a voting right held by such stockholder which have, or may in the future    acquire, voting rights, and, as the case may be, the restrictions that may    apply to these shares or securities.

Pursuant to applicable law, the accredited intermediary    that holds shares or securities in bearer form on behalf of a stockholder    must transmit the above requested information to Euroclear France within 10    business days following the request. If the time limit is not complied with    or if the information is inaccurate or incomplete, Euroclear France may ask    French courts to compel the accredited intermediary to comply with its duties.    Within 5 days after such transmission, the information is provided by Euroclear    France to us on a confidential basis.

If Rhodia considers that in turn the holder of bearer shares    or securities whose identity has been disclosed holds shares or securities    on behalf of third parties, Rhodia may renew its request indefinitely through    Euroclear France until Rhodia finds the actual owner of the shares or securities.

With respect to shares or securities in registered form,    Rhodia may at any time request from any intermediary to disclose, within 10    business days following the request, the identity of the person its acts for.    If Rhodia considers that in turn this person whose identity has been disclosed    holds shares on behalf of third parties, Rhodia may renew its request indefinitely    until Rhodia finds the actual owner of the shares or securities.

If the person does not transmit the above requested information    in due time or transmits incomplete or inaccurate information pertaining to    its status or to the owners of the securities, the voting rights of the securities    giving immediate or future access to the share capital for which such person    is registered cannot be exercised until such date as such information has    been disclosed or rectified, and the payment of the corresponding dividend    is postponed until such date. In addition, if the person knowingly fails to    comply with the obligation to disclose the identity of the relevant security    owner, a court may, at Rhodia’s request or at the request of one or several    stockholders representing at least 5% of Rhodia’s share capital, deprive the    shares held by the security holder whose identity was not disclosed from any    voting rights and dividends, for a period not to exceed 5 years.

According to the French Commercial Code, any entity holding    more than 2.5% of Rhodia’s share capital or voting rights must disclose upon    Rhodia’s request, the identity of any individual or entity holding, directly    or indirectly, more than 33 1/3% of its share capital or voting rights attached    hereto.
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**Requirements for Holdings Exceeding Certain Percentages**

French corporate law provides that any individual or entity    (including a holder of ADSs) acting alone or in concert with others, that    directly or indirectly makes an acquisition that causes the individual or    entity to surpass an ownership threshold of 5%, 10%, 20%, 33 1/3%, 50% or    66 2/3% of the outstanding shares or voting rights of a listed company in    France, such as Rhodia, or whose holdings fall below any of these thresholds,    must notify us within 15 calendar days of crossing the threshold of the number    of shares and voting rights it holds. The individual or entity also must notify    the *Conseil des Marchés Financiers*(the    “CMF”) within five trading days of crossing any of these thresholds. The CMF    is the self-regulatory organization that has general regulatory authority    over French financial markets. A stockholder who, when increasing its stockholdings,    violates these notification requirements will lose the voting rights attached    to the undeclared shares above the relevant threshold. The stockholder will    not regain these voting rights until two years following the date that it    notifies the CMF of having crossed this threshold. Also, a stockholder who    does not comply with the notification requirements may have all or part of    its voting rights suspended for up to five years by the commercial court at    the request of Rhodia’s chairman, any of its stockholders or the COB, or may    be subject to criminal penalties, and fines. 

In addition, Rhodia’s recently amended by-laws provide that    any individual or legal entity that acquires, acting alone or jointly with    others, directly or indirectly 0.5%, or any multiple of 0.5% up to 50%, of    (i) the total number of Rhodia’s shares and/or voting rights at the time of    the acquisition; (ii) the total number of Rhodia’s shares and/or voting rights    on a fully diluted basis; or (iii) any class of other securities granting    access immediately or subsequently to Rhodia’s capital or voting rights, must    notify us within 15 days by registered mail, return receipt requested, of    the total number of current and potential shares and voting rights it holds.    The holder will also indicate the date of acquisition of such securities.    The same notification requirement applies to each subsequent increase and    to any decrease in ownership of 0.5% or any multiple of 0.5%. Mutual fund    management companies must report this information for the aggregate number    of Rhodia’s shares held by the funds they manage. 

If a person does not comply with this notification requirement,    one or more stockholders holding 0.5% or more of Rhodia’s share capital or    voting rights may, upon request recorded at a stockholders’ meeting, require    the suspension of the voting rights attached to the shares or the securities    in excess of the relevant threshold for two years following the date on which    the owner complies with the notification requirement. This loss of voting    rights shall only be effective as of the date of the acquisition of the shares    in excess of the relevant threshold. In addition, any stockholder who fails    to comply with these requirements may have all or part of its voting rights    suspended for up to five years by the Commercial Court at the request of Rhodia’s    chairman, any stockholder or the COB, and may be subject to a fine. 

To permit stockholders to give the notice required by French    law, Rhodia must publish information regarding the total number of current    and potential shares and voting rights and the number of securities granting    access immediately or subsequently to capital or voting rights available as    of the date of Rhodia’s annual general meeting in the BALO within 15 calendar    days after this meeting and inform the CMF thereof. In addition, if the number    of available votes changes by at least 5% between two ordinary general meetings,    Rhodia must publish the number of votes then available in the BALO within    15 calendar days of this change and provide the CMF with a written notice.    The CMF publishes the total number of voting rights so notified by all listed    companies in a weekly notice *(avis),*mentioning    the date each such number was last updated. In order to facilitate compliance    with the notification requirements, a holder of ADSs may deliver to Citibank    notifications regarding shares represented by ADRs and Citibank will forward    the notification to us and to the CMF as soon as practicable. 

Under French law and COB regulation no 88-02, any person    or persons, acting alone or in concert with others, who acquires more than    10% or 20% of Rhodia’s outstanding share capital or our voting rights, either    through shares or ADSs, must disclose its future intentions within fifteen    calendar days following the threshold crossing to us, the CMF and the COB.    The CMF makes the notice public and the person or persons who have acquired    the voting rights must publish a press release in a financial newspaper having    national circulation in France, stating whether or not they intend, within    the 12-month period following the acquisition, to increase their stockholdings    and to request a seat on our board of directors and whether they are acting    in concert with others. The acquirer may amend its stated intentions, provided    that it does so on the basis of significant changes in its own situation or    stockholders. Upon any change of intention, it must file a new disclosure    report. The sanctions regarding failure to comply with these rules are identical    to those regarding threshold crossings described above. 

Under the stock market regulations of the CMF, and subject    to limited exemptions granted by the CMF, any person or persons acting in    concert owning in excess of 33 1/3% of the share capital or voting rights    of Rhodia must initiate a public tender offer for the balance of its share    capital (including, for these purposes, all securities convertible into or    exchangeable for equity securities).
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**Purchase of Rhodia’s Own Shares**

Under the French Commercial Code, Rhodia may not issue shares    to itself. However, Rhodia may purchase its own shares in the limited cases    described in “Item 9. The Offer and Listing – Purchase and Trading by Rhodia    in its Own Shares.”

**Taxation**

***French Taxation***The following is a general summary of the    principal French tax consequences of purchasing, owning and disposing of Rhodia’s    shares. This summary may only be relevant to you if you are not a resident    of France and you do not hold your shares in connection with a business conducted    in France.This discussion is intended only as a descriptive    summary. It does not address all aspects of French tax laws that may be relevant    to you in light of your particular circumstances. It is based on the applicable    laws, conventions and treaties in force as of the date of this prospectus,    all of which are subject to change, possibly with retroactive effect, or different    interpretations. If you are considering buying Rhodia shares, you should consult    your own tax advisor about the potential tax effects of owning or disposing    of shares in your particular situation.

***Taxation on Sale or Disposal    of Shares***

Generally, you will not be subject to any French income    tax or capital gains tax when you sell or dispose of Rhodia shares if both    of the following apply to you: 
- you are not a French resident for French tax purposes,      and   you have held, either directly or indirectly, and as      relates to individuals, alone or with relatives, not more than 25% of Rhodia’s      dividend rights, known as *bénéfices sociaux,*at any time during the preceding five years.   If a double tax treaty between France and your country contains    more favorable provisions, you may not be subject to any French income tax    or capital gains tax when you sell or dispose of any Rhodia shares.If you transfer shares using a written agreement,    that agreement must generally be registered. You will be required to pay a    registration duty of 1% of either the purchase price or the market value of    the shares transferred, whichever is higher. The maximum duty is € 3.049 per    transfer. However, in some circumstances, if the agreement is executed outside    France, you will not be required to pay this duty.  ***Taxation of Dividends***  In France, companies may only pay dividends out of income    remaining after tax has been paid. When stockholders resident in France receive    dividends from French companies, they are generally entitled to a tax credit,    known as the *avoir fiscal.*  The amount of the *avoir fiscal*is generally equal to:     - 50% of the dividend paid for (i) individuals and (ii)      companies that own at least 5% of the capital of the French distributing      company and meet the conditions to qualify under the French parent-subsidiary      regime; or   25% of the dividend paid for the other stockholders who      use the *avoir fiscal*in      2001, and 15% of the dividend paid for such other stockholders who will      use the *avoir fiscal*as      of January 1, 2002.  In addition, if the distribution of dividends by us gives    rise to the précompte, stockholders entitled to the *avoir fiscal*at the rate of 25%, and then    15%, will generally be entitled to an additional amount of *avoir    fiscal*equal to:       - 50% of the  précompte  paid      in cash by the company for stockholders entitled to use the  avoir      fiscal  at the rate of 25%; and   70% of the *précompte*paid      in cash by the company for stockholders entitled to use the *avoir      fiscal*at the rate of 15%.   As indicated below, the précompte is a tax that is paid    by French companies when they distribute dividends out of certain profits    and such dividends carry an *avoir fiscal.*Under French domestic law, stockholders who are    not resident in France are not eligible for the *avoir    fiscal,*and French companies must normally deduct    a 25% French withholding tax from dividends paid to non-residents.Under most tax treaties between France and other countries,    the rate of this withholding tax may be reduced in specific circumstances.    The stockholder can subsequently be entitled to a tax credit in his or her    country of residence for the amount of tax actually withheld. Under some tax    treaties, the withholding tax is eliminated altogether.      73  The following countries, French overseas territories, known  as *Territoires d’Outre-Mer,*and  other territories have made treaties with France that provide for the arrangements  summarized below:AustraliaGermany(1)MalaysiaSenegalVenezuelaAustriaGhanaMaliSingapore BelgiumIcelandMaltaSouth KoreaFrench *Territoires*BoliviaIndiaMauritiusSpain*d’Outre-Mer*andBrazilIsraelMexicoSwedenOther:Burkina FasoItalyNamibiaSwitzerlandMayotteCameroonIvory CoastNetherlandsTogoNew CaledoniaCanadaJapanNew ZealandTurkey EstoniaLatviaNigerUkraineSaint-Pierre andFinlandLithuaniaNorwayUnited KingdomMiquelonGabonLuxembourgPakistanUnited States (1)According to a common statement of the French        and German tax authorities dated July 13, 2001, German resident holders        other than individuals are no longer entitled to the *avoir        fiscal*for dividends paid as of January 1,        2001. As regards German resident individuals, a supplementary agreement        to the tax treaty between France and Germany was signed by the French        Republic and the Federal Republic of Germany on December 20, 2001, which        provides that German resident holders, including German resident individual        holders, should no longer be entitled to the *avoir        fiscal.*Such supplementary agreement has not        yet been adopted but, when adopted, should apply retroactively as of January        1, 2002.
Under these treaties, a stockholder who fulfills specific    conditions may generally apply to the French tax authorities for the following:    
- a lower rate of withholding tax, generally 15%, and   a refund of the *avoir fiscal,*after deduction of withholding tax payable on      the avoir fiscal.  If these arrangements apply to a stockholder, Rhodia will    withhold tax from the dividend at the lower rate, provided that the stockholder    has previously established that he or she is entitled to the lower rate and    has complied with the filing formalities. Otherwise, Rhodia must withhold    tax at the full rate of 25%, and the stockholders may subsequently claim the    excess tax paid.   Some of the countries and territories listed above impose    additional conditions for corporate entities wishing to receive the *avoir    fiscal.*In other countries and territories, individual    residents may receive the *avoir fiscal*but    corporate entities may not.   A French company must generally pay an equalization tax    known as the *précompte*to the French tax authorities if it distributes dividends out of:     - profits which have not been taxed at the ordinary corporate      income tax rate, or   profits which have been earned and taxed more than five      years before the distribution.  The amount of the *précompte*is    50% of the net dividend before withholding tax.  A stockholder who is not a French resident may obtain a    refund of the amount of any *précompte*actually    paid in cash, net of applicable withholding tax, in two cases:      - if the stockholder is entitled to the benefits of a tax      treaty but the treaty does not provide for a refund of the  avoir      fiscal,  or   if the stockholder is entitled to the benefits of a tax      treaty but is not entitled to a refund of the *avoir      fiscal.*   ***Estate and Gift Tax***  France imposes estate and gift tax where an individual or    entity acquires shares of a French company from a nonresident of France by    way of inheritance or gift. France has entered into estate and gift tax treaties    with a number of countries. Under these treaties, residents of those countries    may be exempted from this tax or obtain a tax credit, assuming specific conditions    are met. You should consult your own tax advisor about whether French estate    and gift tax will apply to you and whether you may claim an exemption or tax    credit.  ***Wealth Tax***  You will not be subject to French wealth tax, known as *impôt    de solidarité sur la fortune,*on your Rhodia shares    if both of the following apply to you:         - you are not a French resident for the purpose of French      taxation, and   you own less than 10% of Rhodia’s share capital, either      directly or indirectly, and you shares do not enable you to exercise influence      on Rhodia.     74  
If a double tax treaty between France and your country contains    more favorable provisions, you may not be subject to French wealth tax.

**Taxation of U.S. Investors**

On August 31, 1994, the United States and France signed    a tax treaty, the Convention Between the Government of the United States of    America and the Government of the French Republic for the Avoidance of Double    Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income    and Capital (the “U.S.-France tax treaty”). The following is a general summary    of the material U.S. federal income and French tax consequences to you if    you are the beneficial owner of Rhodia shares or ADSs and all of the following    five points apply to you: 
1.You own (directly, indirectly        or through attribution) less than 10% of the outstanding share capital        of Rhodia,2.You are any one of (a), (b), (c)        or (d) below and you, the partners or the beneficiaries are subject to        U.S. federal income taxation on a net income basis: (a)an individual who is a citizen        or resident of the United States for U.S. federal income tax purposes, (b)a corporation or certain other entities        created or organized in or under the laws of the United States or any        state thereof (including the District of Columbia), (c)an estate whose income is subject to U.S.        federal income tax regardless of its source, or (d)a trust, if a court within the United States        is able to exercise primary supervision over the administration of the        trust, and if one or more United States persons have the authority to        control all substantial decisions of the trust,3.You are entitled to the benefits        of the U.S.-France tax treaty under the “limitation on benefits” article        of that treaty,4.You hold the shares or ADSs as        capital assets, and5.Your functional currency is the        U.S. dollar.
If a partnership holds shares or ADSs, the tax treatment    of a partner generally will depend upon the status of the partner and the    activities of the partnership. If you are a partner in a partnership that    holds shares or ADSs, you are urged to consult your own tax advisor regarding    the specific tax consequences of owning and disposing of your shares or ADSs.    

Special rules may apply to United States expatriates, insurance    companies, tax-exempt organizations, financial institutions, persons subject    to the alternative minimum tax, securities broker-dealers and persons holding    their shares or ADSs as part of a straddle, hedging or conversion transaction,    among others. Those special rules, except certain rules applicable to certain    tax-exempt investors, are not discussed in this summary. Furthermore, this    discussion is based upon United States and French law and practice. This summary    is subject to any changes or changes in interpretation to United States or    French law or practice occurring after the date hereof. In addition, this    summary is based, in part, upon representations made by the Depositary to    Rhodia and on the assumption that each obligation in the Deposit Agreement    and any related agreements will be performed in accordance with its terms.    You should consult your own tax advisors concerning the U.S. federal, state    or local tax consequences in light of your particular situation as well as    any consequences arising under the laws of any other taxing jurisdiction.

***Taxation of Dividends***

*Withholding Tax and Avoir Fiscal.*In France, companies may only pay dividends out of income remaining    after tax has been paid. When stockholders resident in France receive dividends    from French companies, they are generally entitled to a tax credit, known    as the *avoir fiscal.*

The amount of the *avoir fiscal*is generally equal to: 
- 50% of the dividend paid for (i) individuals and (ii)      companies that own at least 5% of the capital of the French distributing      company and meet the conditions to qualify under the French parent-subsidiary      regime; or   25% of the dividend paid for the other stockholders who      use the *avoir fiscal*in      2001, and 15% of the dividend paid for such other stockholders who will      use the *avoir fiscal*as      of January 1, 2002.   In addition, if the distribution of dividends by us gives    rise to the *précompte,*stockholders entitled to the *avoir fiscal*at the rate of 25%, and then 15%, will generally    be entitled to an additional amount of *avoir fiscal*equal to:     - 50% of the précompte paid in cash by the company for      stockholders entitled to use the  avoir fiscal       at the rate of 25%; and   70% of the précompte paid in cash by the company for      stockholders entitled to use the *avoir fiscal*at the rate of 15%.      75  
As indicated below, the *précompte*is a tax that is paid by French companies when they distribute dividends    out of certain profits and such dividends carry an *avoir fiscal.*

Under French domestic law, stockholders    who are not resident in France are not eligible for the *avoir fiscal.*

French companies normally must    deduct 25% French withholding tax from dividends paid to non-residents of    France. Under the U.S.-France tax treaty, this withholding tax is reduced    to 15% if your ownership of Rhodia shares or ADSs is not effectively connected    with a permanent establishment or a fixed base that you have in France. 

Additional provisions apply if    you are considered an “eligible” U.S. holder of shares or ADSs. You are “eligible”    if your ownership of Rhodia shares or ADSs is not effectively connected with    a permanent establishment or a fixed base that you have in France and any    one of the following four points applies to you: 
1.You are an individual        or other non-corporate holder that is a resident of the United States        for purposes of the U.S. -France tax treaty,2.You are a U.S.        corporation, other than a regulated investment company, which owns directly        or indirectly less than 10% of the capital of the French payor company,3.You are a U.S.        corporation which is a regulated investment company, which owns directly        or indirectly less than 10% of the capital of the French payor company,        provided that less than 20% of your shares or ADSs are beneficially owned        by persons who are neither citizens nor residents of the United States,        or4.          You are a partnership        or trust that is a resident of the United States for purposes of the U.S.-France        tax treaty, but only to the extent that your partners, beneficiaries or        grantors would qualify as “eligible” under point 1. or point 2. above.
If you are an eligible U.S. holder,    Rhodia will withhold tax from your dividend at the reduced rate of 15%, provided    that you have previously established that you are a resident of the United    States under the U.S.-France tax treaty in accordance with the following procedures:    
1.You        must complete French Treasury Form RF1 A EU-No. 5052 and send it to the        French tax authorities before the date of payment of the dividend. If        you are not an individual, you must also send the French tax authorities        an affidavit attesting that you are the beneficial owner of all the rights        attached to the full ownership of the shares of ADSs, including, among        other things, the dividend rights.2.If you        cannot complete Form RF1 A EU-No. 5052 before the date of payment of the        dividend, you may complete a simplified certificate and send it to the        French tax authorities. This certificate must state all of the following        five points: (a)You are a resident        of the United States for the purposes of the U.S.-France tax treaty, (b)Your ownership        of the shares or ADSs is not effectively connected with a permanent establishment        or a fixed base in France, (c)You own all the        rights attached to the full ownership of the shares or ADSs, including,        among other things, the dividend rights, (d)You fulfill all        the requirements under the U.S.-France tax treaty to be entitled to the        reduced rate of withholding tax and to be entitled to receive the *avoir        fiscal,*and (e)You claim the        reduced rate of withholding tax and payment of the *avoir fiscal.*
If you are an eligible U.S. holder    of ADSs, you can obtain the form or certificate from the Depositary and also    the U.S. Internal Revenue Service, and the Depositary will file it with French    tax authorities as long as you deliver the completed form or certificate to    the Depositary within the time period specified in the distribution to registered    U.S. holders of ADSs. 

If you are not an eligible U.S.    holder or if you have not completed Form RF1 A EU-No. 5052 or the five-point    certificate before the dividend payment date, Rhodia will deduct French withholding    tax at the rate of 25%. In that case, you may claim from the French tax authorities    a refund of any excess withholding tax.

If you are an eligible U.S. holder,    you may also claim the *avoir fiscal,*by completing Form RF1 A EU-No.    5052 and sending it to the French tax authorities before December 31 of the    second year following the year during which the dividend is paid. You will    be entitled to a payment equal to the *avoir fiscal,*less a 15% withholding    tax on the *avoir fiscal.*As noted below, you will not receive this    payment until after the close of the calendar year in which the dividend was    paid. To receive the payment, you must submit a claim to the French tax authorities    and attest that you are subject to U.S. federal income taxes on the payment    of the *avoir fiscal*and the related dividend. For partnerships or trusts,    the partners, beneficiaries or grantors must make the attestation.
    76  
Specific rules apply to the following:
- tax-exempt U.S. pension funds,      which include the exempt pension funds established and managed in order      to pay retirement benefits subject to the provisions of Section 401(a) of      the Internal Revenue Code (qualified retirement plans), Section 403(b) of      the Internal Revenue Code (tax deferred annuity contracts) or Section 457      of the Internal Revenue Code (deferred compensation plans), and  various other tax-exempt entities,      including some state owned institutions, not-for-profit organizations and      individuals with respect to dividends which they beneficially own and which      are derived from an investment retirement account.  Entities in these two categories    are eligible for the reduced withholding tax rate of 15% on dividends, subject    to the same withholding tax filing requirements as eligible U.S. holders,    except that they may have to supply additional documentation evidencing their    entitlements to these benefits.   These entities are not entitled    to the full *avoir fiscal.*They may claim a partial *avoir fiscal*equal to 30/85 of the gross *avoir fiscal,*provided that they own,    directly or indirectly, less than 10% of the Rhodia’s capital and they satisfy    the filing formalities specified in Internal Revenue Service regulations.      The *avoir fiscal*or partial    *avoir fiscal*and any French withholding tax refund are generally expected    to be paid within 12 months after you file Form RF1 A EU-No. 5052. However,    they will not be paid before January 15 following the end of the calendar    year in which the related dividend is paid.   For U.S. federal income tax purposes,    the gross amount of a dividend and any *avoir fiscal,*including any    French withholding tax, will be included in your gross income as dividend    income to the extent they are paid or deemed paid out of Rhodia’s current    or accumulated earnings and profits as calculated for U.S. federal income    tax purposes. You must include these amounts in income on the date payment    is received by you, which, if you hold ADSs, will be the date payment is received    by the Depositary. Dividends paid by Rhodia will not give rise to any dividends    received deduction. They will generally constitute foreign source “passive”    income for foreign tax credit purposes (or, for some holders, foreign source    “financial services” income).   In addition, for U.S. federal    income tax purposes, the amount of any dividend paid to you in euro, including    any French withholding taxes, will be equal to the U.S. dollar value of the    euro on the date the dividend is included in income, regardless of whether    you convert the payment into U.S. dollars. If you hold ADSs, this date will    be the date the payment is received by the Depositary. You may be required    to recognize U.S. source ordinary income or loss when you subsequently sell    or dispose of the euro. You may also be required to recognize foreign currency    gain or loss if you receive a refund of tax withheld from a dividend in excess    of the 15% rate provided for under the U.S.-France tax treaty. This foreign    currency gain or loss generally will be U.S. source ordinary income or loss.      To the extent that any dividends    paid exceed Rhodia’s current and accumulated earnings and profits as calculated    for U.S. federal income tax purposes, the distribution will be treated as    follows:     - First, as a tax-free return      of capital to the extent of your basis in your shares or ADSs, which will      reduce the adjusted basis of your shares or ADSs. This adjustment will increase      the amount of gain, or decrease the amount of loss, which you will recognize      if you later dispose of those shares or ADSs.  Second, the balance of the      distribution in excess of the adjusted basis will be taxed as capital gain.  French withholding tax imposed    on the dividends you receive on your shares or ADSs and on any avoir fiscal    at 15% under the U.S.-France tax treaty is treated as payment of a foreign    income tax. You may claim this amount as a credit against your U.S. federal    income tax liability, subject to detailed conditions and limitations, or you    may instead claim an itemized deduction for all of the foreign taxes you pay    in a particular year.   *The Précompte.*A French    company must generally pay an equalization tax known as the *précompte*to    the French tax authorities if it distributes dividends out of:       - profits which have not been      taxed at the ordinary corporate income tax rate, or  profits which have been earned      and taxed more than five years before the distribution.  The amount of the précompte is    50% of the net dividends before withholding tax.   If you are not entitled to the    full *avoir fiscal,*you may generally obtain a refund from the French    tax authorities of any *précompte*paid by Rhodia with respect to distributions    paid to you. Under the U.S.-France tax treaty, the amount of the *précompte*refunded to U.S. residents is reduced by 15% withholding tax applicable    to dividends and by the partial *avoir fiscal,*if any. You are entitled    to a refund of any *précompte*actually paid in cash, but not to any    précompte that is paid by off setting French and/or foreign tax credits. To    apply for a refund of the précompte, you should file French Treasury Form    RF1 B EU-No. 5053 before the end of the year following the year in which the    dividend was paid.     77  
The form and its instructions    are available from the Internal Revenue Service in the United States or from    the French *Centre des Impôts des Non-Résidents*whose address is 9,    rue d’Uzès, 75094 Paris Cedex 2, France. 

For U.S. federal income tax purposes,    the amount of the *précompte*will be included in your gross income as    ordinary income in the year it is received. It will generally constitute foreign    source “passive” income for foreign tax credit purposes (or, for some holders,    foreign source “financial services” income). The amount of any *précompte*paid in euro, including any French withholding taxes, will be equal to    the U.S. dollar value of the euro on the date the *précompte*is included    in income, regardless of whether you convert the payment into U.S. dollars.    If you hold ADSs, this date will be the date the payment is received by the    Depositary. You generally will be required to recognize U.S. source ordinary    income or loss when you sell or dispose of the euro.

***Taxation of Capital Gains***

If you are a resident of the United    States for purposes of the U.S.-France tax treaty, you will not be subject    to French tax on any capital gain if you sell or exchange your shares or ADSs,    unless you have a permanent establishment or fixed base in France and the    shares or ADSs you sold or exchanged were part of the business property of    that permanent establishment or fixed base. Special rules apply to individuals    who are residents of more than one country. 

In general, for U.S. federal income    tax purposes, you will recognize capital gain or loss if you sell, exchange    or otherwise dispose of your shares or ADSs equal to the difference between    the amount realized on the disposition and your tax basis in the shares or    ADSs. Any gain or loss generally will be U.S. source gain or loss, and will    be treated as long-term capital gain or loss if your holding period in the    shares or ADSs exceeds one year at the time of disposition. If you are an    individual, any capital gain generally will be subject to U.S. federal income    tax at preferential rates if you meet the specified minimum holding periods.    The deductibility of capital losses is subject to significant limitations.    

Further, any deposit or withdrawal    of shares by you for ADSs will not be subject to U.S. federal income tax.

***Passive Foreign Investment    Company Status***

A non-U.S. corporation will be    classified as a Passive Foreign Investment Company (a “PFIC”) for any taxable    year if at least 75% of its gross income consists of passive income (such    as dividends, interest, rents, royalties, or gains on the disposition of certain    minority interests), or at least 50% of the average value of its assets consist    of assets that produce, or are held for the production of, passive income.    If Rhodia were characterized as a PFIC for any taxable year, you would suffer    adverse tax consequences. These consequences may include having gains realized    on the disposition of shares or ADSs treated as ordinary income rather than    capital gains and being subject to punitive interest charges on certain dividends    and on the proceeds of the sale or other disposition of the shares or ADSs.

You should consult your own tax    advisor regarding the potential application of the PFIC rules to your ownership    of Rhodia’s shares or ADSs.

***French Estate and Gift Taxes***

Under the Convention Between the    United States of America and the French Republic for the Avoidance of Double    Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Estates,    Inheritance and Gifts of November 24, 1978, if you transfer your shares or    ADSs by gift, or if they are transferred by reason of your death, that transfer    will be subject to French gift or inheritance tax only if one of the following    applies: 
- you are domiciled in France      at the time of making the gift, or at the time of your death, or  you used the shares or ADSs      in conducting a business through a permanent establishment or fixed base      in France, or you held the shares or ADSs for that use.   ***French Wealth Tax***  The French wealth tax generally    does not apply to your shares of Rhodia if you are a resident of the United    States for purposes of the U.S.-France tax treaty.  ***United States Information    Reporting and Backup Withholding***  Distributions paid to you and    proceeds from the sale or disposal of your shares or ADSs may be required    to be reported to the Internal Revenue Service. U.S. federal backup withholding    at the current rate of 30% may be imposed on specified payments made to persons    that fail to furnish required information. Generally, backup withholding will    not     78  
apply to you if you furnish a    correct taxpayer identification number or certificate of foreign status or    make any other required certification. Backup withholding also does not apply    to you if you are exempt from backup withholding (for example, if you are    a corporation). U.S. persons who are required to establish their exempt status    generally must provide Internal Revenue Service Form W-9, (Request for Taxpayer    Identification Number and Certification). Non-U.S. holders generally will    not be subject to U.S. information reporting or backup withholding. However,    such holders may be required to provide certification of non-U.S. status in    connection with payments received in the United States or through certain    U.S.-related financial intermediaries. Backup withholding is not an additional    tax. Amounts withheld as backup withholding may be credited against your U.S.    federal income tax liability. You may obtain a refund of any erroneous amounts    withheld under the backup withholding rules by filing the appropriate claim    for refund with the Internal Revenue Service and furnishing any required information.

**Dividends and Paying Agents**

Not applicable. 

**Statements by Experts**

Not applicable. 

**Documents on Display**

The documents referred to in this    annual report can be read at the U.S. Securities and Exchange Commission’s    public reference facilities at Room 1024, 450 Fifth Street, N.W., Washington,    D.C. 20549.

Please call the SEC at 1-800-SEC-0330    for more information on the public reference room and their copy charges.    

**Subsidiary Information**

Not applicable.

**Item 11. Quantitative and Qualitative    Disclosure About Market Risk**

The information below is based    on certain assumptions and expectations that, by their nature, may prove to    be incorrect, particularly due to changes in foreign exchange rates and interest    rates, and changes in Rhodia’s exposure to these risks.

***Exchange rate exposure***

A considerable proportion of Rhodia’s    assets, liabilities, revenues and expenses are denominated in currencies other    than the euro, mainly U.S. dollars and, to a lesser extent, pounds sterling.    Changes in the value of these currencies – particularly the U.S. dollar and    currencies tied to the U.S. dollar, such as the Brazilian real – with respect    to the euro may have a significant impact on Rhodia’s financial situation.    In 2001, the net impact of currency fluctuations on Rhodia’s consolidated    net sales was marginal (a 1% increase from the dollar and a 1.8% decline from    the Brazilian real).

A depreciation in the dollar against    the euro would lessen the euro-value of sales and revenues generated in dollar-zone    countries, and could lower the competitiveness of products manufactured by    Rhodia in Europe compared to exports from the United States and other dollar    zones. This effect would be partially offset by exchange rate variations in    the euro-cost of much of the Group’s raw materials and energy purchasing requirements.

The table below indicates the    average exchange rates and percentage change for the euro with respect to    key currencies in fiscal years 1999, 2000 and 2001.
     **Average          exchange rates and changes(1)**    **Currency****1999** **% change** **% change**   **% change**  **1998/1999** **2000** **1999/2000** **2001** **2000/2001**U.S. dollar /        euro1.07 (3.6) 0.92 (14.0) 0.90 (2.2)Pound sterling        / euro0.66 (1.5) 0.61 (7.6) 0.62 1.6Brazilian real        / euro1.93 37.8 1.69 (12.4) 2.10 24.3(1)Daily exchange        rates published by the Banque de France on the 5th, 10th, 15th, 20th and        25th of every month for 1998 and 1999. Daily currency prices for 2000        and 2001, published by the European Central Bank.    79  
To reduce exposure to short-term    exchange rate changes, positions on foreign currency purchasing and sales    transactions are calculated daily and hedged against rate changes with respect    to the euro using appropriate financial instruments. Positions are recorded    at market value. Over-the-counter forward agreements are used with maturities    of generally less than six months. The foreign exchange risk exposure used    to calculate risks related to derivatives (see below) involves only exchange    positions on advance-order sales in currencies other than the euro over the    coming three-month period.

***Interest rate exposure***

Rhodia is most exposed to interest    rate risk on the euro, the U.S. dollar and the pound sterling. Swaps are used    to manage this risk and control the cost of short and medium-term debt. Interest-rate    swaps are used primarily to restructure variable-rate debt and substitute    it with fixed-rate debt until maturity. The maturities of these swaps range    from three months to five years depending on the underlying debt. The interest-rate    sensitivity of these instruments is calculated regularly.

***Exposure to commodity prices***

Rhodia’s exposure to commodity    prices relates essentially to purchases of fuel, natural gas and raw materials.    Since July 1, 2000 part of this energy-price exposure is hedged using swaps,    options and futures on the Brent and Gasoil markets. Hedging instruments do    not exceed 30% of estimated supplies for the next 18 months. These instruments,    which are listed on organized and very liquid markets, are marked to market.    On December 31, 2001, the maturity of these instruments did not exceed 12    months. The nominal value of these contracts (in Brent-based equivalents)    corresponded to the hedging of 2.9 million barrels of oil at December 31,    2001.

***Derivative financial instruments***

Rhodia’s business and financial    transactions expose it to various market risks, primarily exchange rate and    interest rate fluctuations. For several years, Rhodia’s policy has been to    systematically hedge exchange risks. A system for regularly reviewing and    anticipating market trends to hedge against interest rate risk has also been    established. Rhodia’s policy for managing market risk is based on centralizing    both systematic hedging and continuous monitoring, which enables the Group    to take advantage of the best available market conditions. In 2001, Rhodia    applied the FAS 133 standards for purposes of reconciling its primary financial    statements to U.S. GAAP, and all financial instruments have been marked to    market (see note 30 to the Consolidated Financial Statements).

***Sensitivity analysis***

Rhodia uses derivatives to hedge    its interest and exchange rate exposures. Since January 1, 2001, Rhodia has    calculated the sensitivity of these instruments to financial markets over    a one-year period on the basis of possible reasonable price fluctuations.    This method replaces the Value At Risk (VAR) method used by Rhodia from December    1997 to December 2000 to assess risks related to its hedging strategy.

Financial instruments held by    Rhodia that are sensitive to changes in interest rates include short-term    debt and financial assets, interest rate swaps and derivatives traded in organized    markets. The analysis of the sensitivity is calculated on the basis of an    instantaneous 100 basis point interest rate increase in relation to year-end    levels and all other things being equal. A 100 basis point increase on December    31, 2001 and 2000 would have resulted in increases in net interest expense    of € 29.53 million and € 25.24 million respectively.

Financial instruments held by    Rhodia that are sensitive to fluctuations in exchange rates include forward    exchange contracts, options, and payables and receivables in foreign currency.    The analysis of the sensitivity is based on an instantaneous 10% increase    in relation to year-end exchange rates, and all other things being equal.    A 10% increase in exchange rates on December 31, 2001 and 2000 would have    negatively impacted the fair value of the instruments measured by € 54.09    million and € 46.69 million respectively.

Financial instruments held by    Rhodia that are sensitive to changes in oil prices (Brent), include options    and swaps. The analysis of the sensitivity is calculated on the basis of a    10% increase in the Brent barrel price curve for the year in relation to year-end    levels, all other things being equal. In the case of a 10% increase in the    price of oil on December 31, 2001 and 2000, these financial instruments would    have had a negative impact on earnings of € 6.18    million and € 7.48 million respectively.

Financial instruments held by    Rhodia that are sensitive to changes in stock market prices were not significant    at the end of 2001 and 2000.

**Item 12. Description of Securities    Other than Equity Securities**

Not Applicable.
    80  
**PART II**

**Item 13. Defaults, Dividend    Arrearages and Delinquencies**

To Rhodia’s knowledge, there has    been no material default in the payment of principal or interest or any other    material default relating to its indebtedness not cured within 30 days.

**Item 14. Material Modifications    to the Rights of Security Holders and Use of Proceeds**

To Rhodia’s knowledge, no one    (i) has modified materially the instruments defining the rights of holders    of Rhodia’s shares or (ii) has modified materially or qualified the rights    evidenced by its registered securities by issuing or modifying any other class    of securities.

**Item 15. [Reserved]**

**Item 16. [Reserved]**
    81  
**PART III**

**Item 17. Financial Statements**

Not Applicable.

**Item 18. Financial Statements**

The following Consolidated Financial    Statements are filed as part of this annual report.
Statutory Auditors’ ReportF-1Consolidated Balance SheetsF-2Consolidated Statements of        IncomeF-4Consolidated Statements of        Stockholders’ EquityF-5Consolidated Statements of        Cash FlowsF-6NotesF-9Principal SubsidiariesF-38
**Item 19. Exhibits**

1. By-Laws of Rhodia (unofficial    English translation), as amended through May 21, 2002.

4.1. Heads of Agreement with Rhône-Poulenc    dated October 14, 1999 (incorporated by reference to Exhibit 2.2 to Amendment    No. 1 to Rhodia’s Registration Statement on Form F-3 (Registration No. 333-10832)    filed on October 14, 1999).

4.2. Environmental Indemnification    Agreement with Rhône-Poulenc dated May 26, 1998 (incorporated by reference    to Exhibit 10.1 to Amendment No. 2 to Rhodia’s Registration Statement on Form    F-1 (Registration No. 333-8850) filed on June 8, 1998).
8.          List of Subsidiaries        (incorporated by reference to the list of principal subsidiaries included        in the Consolidated Financial Statements of this annual report).
10.1. Consent of Independent Auditors.
    82  
**RHODIA AND SUBSIDIARIES**

**Report of Independent Accountants**

To the Stockholders of Rhodia,

We have audited the accompanying consolidated balance sheets    of Rhodia as of December 31, 2001 and December 31, 2000, and the related consolidated    statements of operations, stockholders' equity and cash-flows for each of    the three years in the period ended December 31, 2001 which, as described    in Note 1, have been prepared on the basis of accounting principles generally    accepted in France. These financial statements are the responsibility of the    Rhodia’s management. Our responsibility is to express an opinion on these    financial statements based on our audits.

We conducted our audits in accordance with auditing standards    generally accepted in the United States of America. Those standards require    that we plan and perform the audit to obtain reasonable assurance about whether    the financial statements are free of material misstatement. An audit includes    examining, on a test basis, evidence supporting the amounts and disclosures    in the financial statements. An audit also includes assessing the accounting    principles used and significant estimates made by management, as well as evaluating    the overall financial statement presentation. We believe that our audits provide    a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred    to above (page F-2 to F-39) present fairly, in all material respects, the    financial position of Rhodia and its subsidiaries at December 31, 2001 and    2000, and the consolidated results of their operations and their cash flows    for each of the three years in the period ended December 31, 2001 in conformity    with accounting principles generally accepted in France.

Generally accepted accounting principles in France differ    in certain respects from generally accepted accounting principles in the United    States. The effect of such differences as they apply to Rhodia's consolidated    financial statements are explained in Note 30.

Paris, France,

 January 29, 2002

***PricewaterhouseCoopers***
    F-1  **Rhodia****Consolidated Balance Sheets****As of December 31,****Assets**      **(millions of euros)** **Note** **2001** **2000****Current assets**      Cash   126 106Short-term deposits   107 59Marketable securities 13 180 94Accounts and notes receivable        – net 10 524 819Inventories – net 9 1,044 1,185Prepaid expenses and other        current assets 11 916 1,079**Total current assets**   2,897 3,342              **Investments and        other assets**     Investments accounted        for by the equity method6 185 216Deposits and long-term        receivables  98 103Other investments – net 7 75 112Deferred charges and other        assets 8 636 451**Total investments and other        assets**   994 882       **Property, plant and equipment**      At cost   8,882 8,885Less accumulated depreciation   (5,312) (5,117)**Total property, plant and        equipment** 5 3,570 3,768       **Intangible assets**      At cost   2,673 2,593Less accumulated amortization   (1,174) (1,071)**Total intangible assets** 4 1,499 1,522**TOTAL ASSETS**   8,960 9,514
*The accompanying notes are an integral part of the Consolidated    Financial Statements.*
    F-2  **Rhodia****Consolidated Balance Sheets****As of December 31,**       **Liabilities and Stockholders’        Equity**             **(millions of euros)** **Note** **2001** **2000****Current liabilities**      Bank overdrafts   233 261Accounts and notes payable   885 1,124Current portion of long-term        debt 18 331 150Short-term borrowings   473 837Other current liabilities 19 1,404 1,232**Total current liabilities**   3,326 3,604**Long-term debt**      Bonds   813 811Bank borrowings   1,136 1,266**Total long-term debt** 18 1,949 2,077**Other long-term        liabilities**     Deferred income taxes1i – 23 224 228Reserves for pension        and retirement costs16 743 655Reserves for restructuring        and environmental costs17 62 67Other reserves and        long-term liabilities17 305 203**Total other long-term liabilities**   1,334 1,153**Commitments and contingencies** 24    **Minority interests        in net assets of subsidiaries**15 84 87**Stockholders’        equity**     Common stock; par        value 15 euros; 179,309,188 shares issued in 2001 and 200014a 2,690 2,690Additional paid-in        capital14a 3 3Deficit 14b (374) (74)Cumulative translation adjustment   (52) (26)**Total stockholders’ equity** 14 2,267 2,593**TOTAL LIABILITIES        AND STOCKHOLDERS’ EQUITY**  8,960 9,514
*The accompanying notes are an integral part of the Consolidated    Financial Statements.*
    F-3  **Rhodia****Consolidated Statements of Operations****Years Ended December 31,**         **(millions of euros)** **Note** **2001** **2000** **1999****Net sales**   7,279 7,419 5,526**Operating expenses**       Production costs        and expenses  (5,166) (5,053) (3,594)Administrative and        selling expenses  (1,120) (1,138) (883)Research and development        expenses1e – 26 (197) (194) (177)Restructuring and        environmental costs17 (163) (14) (40)Depreciation of tangible        assets  (500) (450) (374)Amortization of goodwill        and other intangible assets  (117) (74) (49)**Operating income**   16 496 409**Other income/(expenses)        – net**       Equity in earnings/(losses)        of affiliated companies6 (24) 17 13Financial expense        – net20 (186) (177) (116)Gains/(losses) on        disposals of assets – net21 15 13 65Other income/(expenses)        – net22 (123) (20) (53)**Income/(loss)        before income taxes and minority interests**  (302) 329 318Provision for income taxes 23 94 (104) (96)**Income/(loss)        before minority interests**  (208) 225 222Minority interests        in net (income)/losses of subsidiaries  (5) (9) 5**Net income/(loss)**   (213) 216 227**Earnings/(loss) per share        (in euros)**        • Basic   (1.19) 1.23 1.30*Average shares outstanding* *179,103,640* *175,843,305* *174,359,024*• Diluted   (1.19) 1.23 1.30*Average shares outstanding* *179,103,640* *176,351,932* *175,263,935*
*The accompanying notes are an integral part of the Consolidated    Financial Statements.*
    F-4  
**Rhodia**

**Consolidated Statements of Stockholders’    Equity     Years Ended December 31,**
  **Additional**   **Total**  **Common** **paid-in**  **Cumulative** **Stockholders’**  **stock** **capital** **Deficit** **translation** **Equity** **(millions of euros)****(note 14a)** **(note 14a)** **(note 14b)** **adjustment** **(note 14)** **Balance, January 1, 1999**2,664 3 (442) (95) 2,130 Capital reduction(43) – 43 – – Net income for the year– – 227 – 227 Dividends paid (including equalization        tax)– – (46) – (46) (Purchases), sales and operations        on stock– – (13) – (13) Translation– – (4) 96 92 **Balance, December 31, 1999**2,621 3 (235) 1 2,390 Capital increase69 – – – 69 Net income for the year– – 216 – 216 Dividends paid (including equalization        tax)– – (70) – (70) (Purchases), sales and operations        on stock– – 16 – 16 Translation– – (1) (27) (28) **Balance, December 31, 2000**2,690 3 (74) (26) 2,593 Net loss for the year– – (213) – (213) Dividends paid (including equalization        tax)– – (85) – (85) Translation– – (2) (26) (28) **BALANCE, DECEMBER 31, 2001**2,690 3 (374) (52) 2,267 
*The accompanying notes are an integral part of the Consolidated    Financial Statements.*
    F-5  
**Rhodia****Consolidated Statements of Cash Flows****Years Ended December 31,******
 **(millions of euros)** **2001** **2000** **1999****OPERATING ACTIVITIES**      **Net income/(loss)** (213) 216 227**Adjustments to        reconcile net income/(loss)**     **to net cash provided        by operating activities**     Depreciation and        amortization of assets626 529 413Change in other long-term        reserves124 (15) (16)Net (gains)/losses        from disposals of assets(15) (13) (65)Equity in (earnings)/losses        of affiliated companies, net of dividends received62 12 (10)Unrealized exchange        differences(4) (7) (49)Minority interests in net income/(losses) of subsidiaries 5 9 (5)Deferred taxes (180) (1) 15  405 730 510 **(Increase)/decrease in operating assets and liabilities**       **(excluding net operating assets acquired/sold)**       (Increase)/decrease in accounts and notes receivable 219 272 (144) (Increase)/decrease in inventories 123 (82) 31 Increase/(decrease) in accounts and notes payable (185) 240 68 Change in other operating assets and liabilities 114 (158) – **NET CASH PROVIDED/(USED) BY OPERATING ACTIVITIES** 676 1,002 465
*The accompanying notes are an integral part of the Consolidated    Financial Statements.*
    F-6  **Rhodia****Consolidated Statements of Cash Flows****Years Ended December 31,****(millions of euros)** **2001** **2000** **1999** **INVESTING ACTIVITIES**      Additions to property,        plant and equipment(483) (503) (372) Other capital investments(102) (138) (74) Acquisition of Albright        & Wilson and ChiRex– (1,383) – Proceeds from disposals        of assets500 124 150 (Increase)/decrease        in loans and short-term investments of more than three months(69) (149) 152 **Net cash provided/(used)        by investing activities**(154) (2,049) (144) **FINANCING ACTIVITIES**      New long-term borrowings1,927 2,222 877 Repayments of long-term        borrowings(1,770) (1,697) (665) Increase/(decrease)        in bank overdrafts and short-term borrowings(535) 479 (1,508) Issuance of shares6 63 – Purchases, sales        and operations on stock– 16 (13) Dividends paid by        Rhodia(85) (70) (46) **Net cash provided/(used)        by financing activities**(457) 1,013 (1,355) Net effect of exchange        rate changes on cash3 5 21 **(Decrease)/increase        in cash and cash equivalents**68 (29) (1,013) Cash and cash equivalents        at beginning of year165 194 1,207 **CASH AND CASH        EQUIVALENTS AT END OF YEAR (NOTE 1m)**233 165 194 
*The accompanying notes are an integral part of the Consolidated    Financial Statements.*
    F-7  
**INDEX TO NOTES TO CONSOLIDATED FINANCIAL    STATEMENTS**
**Note** **Page**     1.Accounting policiesF-9 2.Significant acquisitions and        divestmentsF-12 3.Transactions with AventisF-13 4.Intangible assetsF-14 5.Property, plant and equipmentF-14 6.Investments accounted for by        the equity methodF-15 7.Other investments – netF-17 8.Deferred charges and other        assetsF-17 9.Inventories – netF-17 10.Accounts and notes receivable        – netF-17 11.Prepaid expenses and other        current assetsF-18 12.Valuation allowancesF-18 13.Marketable securitiesF-19 14.Stockholders’ equityF-19 15.Minority interests in net assets        of subsidiariesF-20 16.Pension, retirement and other        post-employment obligationsF-20 17.Reserves for restructuring,        environmental costs and other long-term liabilitiesF-22 18.Long-term debt (including current        portion)F-24 19.Other current liabilitiesF-26 20.Financial expense – netF-26 21.Gains/(losses) on disposals        of assets – netF-26 22.Other income/(expenses) – netF-27 23.Income taxesF-27 24.Commitments and contingenciesF-28 25.Information by segment and        geographical areaF-31 26.Research and development expensesF-33 27.Wages, benefits and number        of employeesF-33 28.Stock option plansF-34 29.Subsequent eventsF-35 30.Reconciliation to US GAAP and        new accounting standardsF-35  Principal consolidated subsidiaries        end of 2001F-38     F-8  
**Rhodia**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**Years Ended December 31, 2001, 2000 and    1999**
**1. ACCOUNTING POLICIES**The consolidated accounts of Rhodia are prepared in accordance  with rule n° 99-02 issued by the Comité de Réglementation Comptable relating  to consolidated financial statements of commercial companies.
Note 30 provides a reconciliation between accounting principles    generally accepted in France (French GAAP) and accounting principles generally    accepted in the United States (U.S. GAAP).

**a) Consolidation policies**

The consolidation is prepared from the accounts of Rhodia    and its subsidiaries as of December 31, 2001.

Rhodia’s consolidated financial statements include the accounts    of its significant majority-owned subsidiaries (more than 50%).

Minority investments in companies where Rhodia’s interest    is more than 20% are accounted for under the equity method. This method also    applies to 50%-owned joint ventures operationally managed by the other partner    (note 6).

All significant intercompany transactions are eliminated.

The results of companies acquired are included from their    respective date of acquisition. The results of companies sold are included    until their respective date of sale.

**b) Translation of foreign currencies**

For countries other than those with high inflation:
- transactions in foreign currencies are translated using      the exchange rate in effect at the time of the transaction or the hedging      rate, if any;   assets and liabilities denominated in foreign currencies,      which are not specifically hedged, are translated using exchange rates in      effect at the balance sheet dates;exchange differences arising from foreign currency transactions      are included in the statement of operations. However, exchange differences      arising from intercompany transactions of a long-term nature, which are      considered part of Rhodia’s net investment, are accounted for net of tax      as a separate component of stockholders’ equity (cumulative translation      adjustment);
- exchange differences from hedges of foreign currency      commitments are deferred and accounted for as part of the hedged transaction;   financial statements expressed in foreign currency are      translated as follows:statements of operations of foreign consolidated companies      are translated at average exchange rates for the year;
- balance sheets of foreign consolidated companies are      translated at the end of year exchange rate, with the exception of equity      accounts which are translated at historical rates;   gains or losses arising from the translation of the financial      statements of foreign consolidated companies are accounted for directly      in stockholders’ equity (cumulative translation adjustment);since January 1, 1999, Rhodia Poliamida Ltda. uses the      real as the functional currency, and since January 1, 2000, all other operations      in Brazil use the real as the functional currency, except Rhodia-Ster which      uses the U.S. dollar as the functional currency.
  F-9
For countries with high inflation:
- assets recorded at original cost, such as fixed assets,      investments and inventories with a carrying value equal to cost, are translated      at historical rates, as are related amounts in the statement of operations;   gains and losses arising from the translation of financial      statements of consolidated companies are included in the statement of operations      under the heading “Other income/(expenses) - net” (note 22).   **c) Intangible assets**  (i)GoodwillGoodwill represents the excess of the acquisition cost        over the fair value of net identifiable assets of businesses acquired        on the date of the transaction. Goodwill is amortized on a straight-line        basis over periods of not more than forty years. A long amortization period        is generally applied, due to the quality, importance and sustainability        of the acquired companies’ competitive positions in their respective markets.  Discounted cash flows are compared to the net book value    of tangible and intangible assets, including goodwill for each business in    which an indication of potential impairment exists. The discount rates utilized    in the goodwill recoverability test are based upon Rhodia’s Weighted Average    Cost of Capital. Projected cash flows are based on Rhodia’s near-term business    plans for each business. These business plans take into account management’s    estimates of the impact of both external economic factors and internal business    strategies. When the net book value exceeds the discounted cash flows, accelerated    amortization of goodwill is recorded for the difference between these two    amounts.  (ii)          Other intangible assetsOther intangible assets, consisting principally of patents,        trademarks and software, are carried at cost, including capitalized interest,        and are amortized on a straight-line basis over their estimated useful        lives. For patents and trademarks this period is generally twenty-five        years and for software from three to five years.  The book value of these assets is adjusted whenever events    or changes in circumstances indicate that the carrying amount of an asset    may not be fully recoverable. Rhodia assesses whether there has been a permanent    impairment in the value of the asset by comparing the value of the asset with    the anticipated undiscounted future cash flows from related operating activities.    If the carrying value exceeds the undiscounted cash flows, the asset is written    down to the amount of the discounted cash flows.  **d) Property, plant and equipment**  Land, buildings and equipment are carried at cost, including    capitalized interest. Depreciation is calculated on a straight-line basis    over the estimated useful lives of the assets.  The principal useful lives employed are:  – Buildings10 - 40 years– Plant and equipment – Machinery and equipment5 - 15 years – Other equipment3 - 15 years – Vehicles4 - 20 years – Furniture10 - 15 years  Assets leased under a long-term contract or other arrangement    that transfers substantially all of the benefits and risks of ownership to    Rhodia are capitalized based on their fair market value and depreciated as    described above. An obligation of the same amount is recorded as a liability.  The book value of these assets is adjusted whenever events    or changes in circumstances indicate that the carrying amount of an asset    may not be fully recoverable. Rhodia assesses whether there has been a permanent    impairment in the value of the asset by comparing the value of the asset with    the anticipated undiscounted future cash flows from related operating activities.    If the carrying value exceeds the undiscounted cash flows from related operating    activities, the asset is written down to the amount of the discounted cash    flows.     F-10  
**e) Research and development expenses**

Research and development expenses are recorded net of subsidies    and are expensed as incurred.

**f) Other investments**

Other investments are carried at the lower of cost or net    realizable value; such net realizable value being assessed on the basis of    the equity of the entity, forecasts and earnings projections and share price.    

**g) Inventories**

Inventories are stated at the lower of average cost or replacement    value (goods purchased from third parties), or the lower of current manufacturing    cost or net realizable value (finished products). Due to the rate of inventory    turnover, average cost approximates current cost (note 9).

**h) Investments in debt and equity securities and short-term    deposits**

Investments in debt and equity securities are stated at    the lower of historical cost or quoted market value (if publicly traded) or    net realizable value (if not publicly traded). Net realizable value is determined    by reference to various criteria, including net equity and future financial    results of the related company.

Short-term deposits are stated at the lower of cost or market.

**i) Deferred income taxes**

Deferred income taxes are determined at the level of each    tax entity or tax group when such group exists.

Deferred income taxes are recorded based on the differences    between the tax bases of assets and liabilities and their carrying values    for financial reporting purposes. Tax rates applicable to future periods are    used to calculate year-end deferred income tax amounts. Any non-recoverable    withholding taxes on undistributed earnings of French consolidated companies    are so recorded.

Deferred tax assets resulting from net operating losses    and deductible temporary differences are systematically recognized. A valuation    allowance is also recorded when their future realization is not likely.

**j) Pension, retirement and other post-employment obligations**

Rhodia accounts for commitments with respect to pension,    retirement and other post-employment obligations (note 16) based on the “projected    unit credit method” including assumptions for discount rates, expected long-term    rates of return on plan assets and rates of increase in compensation levels    which vary from country to country. Rhodia funds its obligations through pension    fund assets or, if not funded, records its obligations through balance sheet    accruals.

**k) Financial instruments**

Rhodia uses various financial instruments to manage its    exposure to interest rate and currency risks. Generally, these instruments    are valued on a mark-to-market basis with gains or losses recorded in the    income statement.

In the case of effective hedges of specific assets or liabilities,    the exchange gains or losses are included in the measurement of the related    transaction. In the case of hedging the net investment of a foreign subsidiary,    the revaluation of the investment is recorded in cumulative translation adjustments,    net of tax.

**l) Environmental and product liabilities**

Rhodia recognizes losses and accrues liabilities relating    to environmental and product liability matters if available information indicates    that the event of loss is probable and can reasonably be estimated. With respect    to environmental liabilities, Rhodia estimates losses on a case by case basis    using available information. With respect to product liabilities, Rhodia estimates    losses on the basis of current facts and circumstances, prior experience with    similar matters, the number of claims and the anticipated cost of administering,    defending and (in some cases), settling such claims. Rhodia’s policy is to    record as an asset any anticipated recoveries from third parties relating    to environmental and product liability matters, only when the realization    of the claim for recovery is deemed probable. If the event of loss is not    probable or not reasonably estimable, but is reasonably possible, Rhodia provides    appropriate disclosure in note 24a to its consolidated financial statements    if such contingency is material.
    F-11  
**m) Cash and cash equivalents in the Consolidated Statements    of Cash Flows**

“Cash and cash equivalents” include the following items:    cash on hand, cash in banks, and short-term investments with original maturity    of less than three months. The market value of these items is similar to their    book value due to their very short-term maturity.

**n) Stock options**

Rhodia accounts for commitments under stock option plans    in accordance with the intrinsic value method. This method consists of measuring    compensation expense based on the difference between the market value and    exercise price of the options at the measurement date. The impact on net income    that would have resulted from the use of the fair value approach is disclosed    in note 28b.

**o) Sales of accounts receivables**

Rhodia accounts for transfers of accounts receivables as    sales when the transferred assets have been isolated from Rhodia and are beyond    the reach of its creditors, when each transferee obtains the right, free of    conditions that constrain it from taking advantage of that right, to pledge    or exchange the transferred assets, and when Rhodia does not maintain effective    control over the transferred assets. Residual interests are recorded at fair    value.

**p) Estimates and assumptions**

The preparation of financial statements requires management    to make estimates and assumptions that affect the reported amounts of assets,    liabilities, revenues and expenses, and the disclosures of contingent assets    and liabilities. Actual amounts could differ from these estimates.

**q) Revenue recognition**

Rhodia’s policy is to recognize revenue when persuasive    evidence of an arrangement exists, delivery has occured or services have been    rendered, the customer’s price is fixed or determinable, and collectibility    is reasonably assured.

**r) Earnings per share**

Basic earnings per share are computed by dividing net earnings    by the average number of shares outstanding during the period.

Diluted earnings per share are computed by dividing net    earnings by the average number of shares outstanding during the period, increased    by the number of additional shares that would have been outstanding if the    dilutive potential common shares (corresponding primarily to stock subscription    options) had been issued. Dilutive potential common shares are determined    by calculating the number of common shares that could be purchased on the    open market using the funds obtained from the exercise of stock subscription    options.

**s) Operating income**

Operating income consists of revenues and expenses resulting    from operations. It excludes income and expenses related to investments, to    financing or tax strategies and to disposals of activities.

**t) Treasury stock**

Rhodia, the parent company of the Group, has been authorized    by the general stockholders’ meeting to trade in Rhodia’s shares on the open    market. Any shares purchased under these stockholder authorizations that are    not intended to be used for a specific purpose are deducted from stockholders’    equity. If these shares are subsequently sold on the market, the gain or loss    is credited or charged to stockholders’ equity. Any shares purchased under    stockholder authorizations that are limited to specific purposes, or to maintain    the share price, or for distribution to employees, are recorded as an asset.    If these shares are subsequently sold on the market, the gain or loss is recorded    in the Statement of Operations.
**2.****SIGNIFICANT ACQUISITIONS AND DIVESTMENTS*****Significant acquisitions and divestments in 2001*****Sales of European Surfactants and Empicryl**In April 2001, Rhodia sold Albright & Wilson’s (A&W)        European surfactants business (research, manufacturing and marketing)        to Huntsman International LLC.    F-12  
In June 2001, Rhodia sold the Empicryl lubricant additives    businesses to Group Degussa AG. Empicryl, which is used in the lubricants    industry to improve viscosity, was manufactured at Whitehaven.

Net sales of A&W’s European surfactants and Empicryl    lubricant additives businesses for the period April 1, 2000 to December 31,    2000 were 339 million euros.

***Significant acquisitions and divestments in 2000***

**Acquisition of Albright & Wilson**

In March 2000, Rhodia acquired A&W which has a global    presence in phosphates, phosphorous byproducts and surfactants. A&W has    been fully consolidated in Rhodia’s financial statements from April 1, 2000.    Total cost of acquisition was 925 million euros, including transaction expenses.    Goodwill of 596 million euros is being amortized on a straight-line basis    over 35 years. The net decrease between the provisional and final goodwill    of 18 million euros is principally due to the disposal of the European surfactants    business and the reevaluations of provisions for contingencies and restructuring.

**Acquisition of ChiRex**

In September 2000, Rhodia acquired ChiRex Inc. (ChiRex).    ChiRex has been fully consolidated in Rhodia’s financial statements from October    1, 2000. ChiRex provides high technological services to the pharmaceutical    industry: contract research and development and outsourced manufacturing of    active ingredients. ChiRex was acquired for a total cost of 569 million euros,    including transaction expenses, and has been consolidated based on the fair    values of the assets acquired and liabilities assumed. Goodwill of 461 millions    euros is being amortized on a straight-line basis over 30 years. The increase    between the provisional and final goodwill of 19 million euros is principally    due to an adjustment of the fair value of net assets acquired.

***Significant acquisitions and divestments in 1999***

In January 1999, Rhodia acquired Hoescht’s 50% interest    in the Fairway Filamentos joint venture. The joint venture has been renamed    Rhodia Poliamida and was fully consolidated over the year of 1999.

In March 1999, Rhodia acquired the Hyosung Group’s Engineering    Plastics Polyamide business.

During 1999, Rhodia sold its 50% interest in Procatalyse    and Chloralp, (previously accounted for by the equity method), and Rhodia’s    Gallium business.

Pro forma results are not presented since the overall effects    of acquisitions and divestments are not material. 
**3.****TRANSACTIONS WITH AVENTIS**Up until October 15, 1999, Rhodia was controlled by Aventis.        As of December 31, 2001 and 2000, Aventis held 25.2% of Rhodia’s capital.        The fact that Rhodia was controlled by Aventis, explains the large volume        of administrative and financial transactions carried out between the two        groups. All of these transactions were conducted at arm’s length terms.        The types of transactions and the amounts involved are summarized below: **(a)****Administrative transactions**The impact of administrative transactions with Aventis        has progressively become less material. The sales to and the purchases        from Aventis are shown below.**(millions of euros)****2001** **2000** **1999** Sales of services invoiced to Aventis30 51 97 Services purchased from Aventis(13) (34) (134) 
In 2001, services purchased from Aventis included research    and development and other administrative services. In 2000, services purchased    from Aventis included research and development and other administrative services    (including rent). In 1999, services purchased from Aventis included research    and development, data processing, insurance, legal, tax, advertising and public    communications services and Group management costs. In 2001, 2000 and 1999,    services sold to Aventis primarily corresponded to outsourcing, research and    development and administrative services.
    F-13   **(b)****Financial transactions**Since Aventis relinquished control over Rhodia on October        15, 1999, Rhodia is no longer a member of the Aventis cash pool and the        corresponding short-term deposits and borrowings no longer appear in the        consolidated balance sheet. In 1999, interest expense paid to Aventis        (related to short-term borrowings) was 65 million euros and interest income        received from Aventis (related to short-term deposits) was 20 million        euros. **(c)****Other transactions**In accordance with the Environmental Indemnification        Agreement with Aventis (see note 24a), Rhodia recorded a receivable from        Aventis of 35 million euros as of December 31, 2001.**4.****INTANGIBLE ASSETS**Intangible assets consist of the following as of December        31:      **2001**   **2000**      **Amortization**        **Gross** **and** **Net book** **Net book** **(millions of euros)**  **value** **depreciation** **value** **value** Goodwill  2,284 (942) 1,342 1,395 Patents and trademarks  128 (69) 59 60 Software  261 (163) 98 67 **Total**  2,673 (1,174) 1,499 1,522            Net goodwill as of        December 31 relates to the following acquisitions:                  **(millions of euros)**    **2001**   **2000** A&W    557   580 ChiRex    432   411 RTZ (*)    40   65 Stauffer Chemicals Inc    104   104 Kofran    26   27 Other (*)    183   208 **Total**    1,342   1,395            *(*) Includes 25        million euros relating to impairment of goodwill linked to restructuring        in 2001.*              Amortization charges        relating to intangible assets are as follows:                  **(millions of euros)**  **2001**   **2000** **1999** Goodwill  (75)   (32) (14) Patents, trademarks and software  (34)   (35) (30) Other  (8)   (7) (5) **Total**  (117)   (74) (49)           **5.****PROPERTY, PLANT AND EQUIPMENT**                     As of December 31, 2001:                     **(millions of euros)**  **France** **Outside France** **Total** Land  31   234 265 Buildings  527   807 1,334 Plant and equipment  2,423   4,464 6,887 Assets under construction  157   239 396 **Total at cost**  3,138   5,744 8,882 Less accumulated depreciation (note 1d)  (2,108)   (3,204) (5,312) **Net book value**  1,030   2,540 3,570    F-14  As of December 31, 2000:             **(millions of euros)****France****Outside France****Total** Land33 222 255 Buildings517 790 1,307 Plant and equipment2,352 4,592 6,944 Assets under construction129 250 379 **Total at cost**3,031 5,854 8,885 Less accumulated depreciation (note 1d)(2,024) (3,093) (5,117) **Net book value**1,007 2,761 3,768 
Included in the above tables are the following amounts related    to assets subject to capital leases as of December 31:
 **(millions of euros)**  **2001** **2000**        Land  2 2 Buildings  16 30 Plant and equipment  130 161 **Total at cost**  148 193 Less accumulated depreciation (note 1d)  (117) (117) **Net book value**  31 76        Movements:             **(millions of euros)****2001** **2000** **1999**        **Net book value as of January 1**3,768 2,955 2,634 Additions518 509 347 Disposals(181) (103) (54) Depreciation for the year (*)(500) (450) (374) Other (translation adjustments, changes        in structure) (**)(35) 857 402 **Net book value as of December        31**3,570 3,768 2,955        *(*) Includes (64) million        euros relating to impairment of tangible assets linked to restructuring        in 2001.**(**) Includes (81) million euros relating        to the disposal of A&W’s European surfactants business in 2001,**537**million        euros and 159 million euros, respectively, relating to the consolidation        of A&W and ChiRex**in**2000,        and 89 million euros relating to the consolidation of Rhodia Poliamida        Ltda. in 1999.*          **6.****INVESTMENTS ACCOUNTED FOR BY THE EQUITY        METHOD**        **(millions of euros)****2001** **2000** **1999** **As of January 1**216 184 215 Equity in pre-tax income/(losses)(24) 17 13 Equity in income tax (charge)/benefit(15) (9) 2 Dividends received(21) (16) (3) Effect of changes in structure (*)24 38 (51) Translation adjustments and other5 2 8 **Net book value as of December 31**185 216 184(*)Includes 22 million euros relating        to the acquisition of Teris LLC in 2001, 13 million euros and 13 million        euros, respectively, relating to the consolidation of Latexia and A&W’s        equity companies in 2000, and (25)million euros relating to the consolidation        of Rhodia Poliamida Ltda. in 1999.    F-15  
**a) Joint-ventures accounted for by the equity method**

Rhodia holds a 50% interest in Butachimie. Rhodia purchases    50% of Butachimie’s production, equivalent to its interest, and almost all    of these purchases are sold on to Rhodia companies, which produce Nylon thread.    Because Butachimie’s production is closely integrated with the industrial    process of Rhodia, the operating results of this entity are accounted for    as a reduction of production costs in the consolidated statements of operations    rather than being included in “equity in earnings/(losses) of affiliated companies”.

The main joint ventures accounted for by the equity method    in 2001 and 2000 are as follows:
**Company****% interest****Partner****Business**Nylstar50%SNIA (Italy)Nylon ThreadPrimester50%Eastman Chemicals CompanyAcetateLatexia50%Raisio (Finland)LatexTeris50%SITA (Suez Group)Eco Services
In 1999, Fairway Filamentos’s Polyester business was taken    over by Hoescht and the Polyamide business is now fully consolidated by Rhodia.

Financial information is not presented separately for each    joint venture for confidentiality reasons. Aggregate amounts are presented    below:
 Statement of operations (excluding Butachimie):               **(millions of euros)** **2001** **2000** **1999** Net sales 1,357 1,140 877 Operating income 6 69 44 Pre-tax income (34) 24 41 Dividends distributed to consolidated companies        of Rhodia 20 16 2         Balance sheet as of December 31 (including        Butachimie):               **(millions of euros)** **2001**   **2000** Current assets 740   810 Total assets 2,189   2,114 Stockholders’ equity 355   457 Total debt (*) 1,199   988        *(*) The portion guaranteed        by Rhodia was 186 million euros in 2001 and 140 million euros in 2000.*             **b)****Other affiliates accounted for by the        equity method**              Financial information for affiliates          accounted for by the equity method (note 1a) is as follows :         **(millions of euros)** **2001** **2000** **1999** Net sales 226 196 172 Total assets (as of December 31) 363 353 264 Net income/(loss) (2) 5 5 Dividends distributed to consolidated companies        of Rhodia 1 – –           **c)****Commercial transactions        between Rhodia consolidated companies and affiliates accounted**   **for by the equity method**               **(millions of euros)** **2001** **2000** **1999** Purchases (excluding Butachimie) 160 174 124 Sales (excluding Butachimie) 188 184 157    F-16  **7.****OTHER INVESTMENTS - NET**         Other investments as of December 31 follow:    **(millions of euros)****2001** **2000**      Investments in majority-owned companies45 74 Companies owned 20% or more13 12 Companies owned less than 20%17 26 **Net book value**75 112     **8.****DEFERRED CHARGES AND OTHER ASSETS**         Deferred charges and other assets as of        December 31 follow:         **(millions of euros)****2001** **2000**      Long term receivables74 52 Long term deferred tax assets128 30 Minimum pension liability adjustment (note        16)231 196 Prepaid pension cost (note 16)137 112 Other66 61 **Net book value**636 451     **9.****INVENTORIES - NET**         Inventories as of December 31 consist of:         **(millions of euros)****2001** **2000**      Raw materials and spare parts457 464 Work in progress78 79 Finished products597 728 **Gross book value**1,132 1,271 Valuation allowances(88) (86) **Net inventories**1,044 1,185
Due to the diverse nature of Rhodia’s business, certain    products sold outside and within Rhodia may be considered alternatively as    raw materials, work in progress or finished products, depending on the circumstances.

**10. ACCOUNTS AND NOTES RECEIVABLE - NET**

Accounts and notes receivable as of December 31 follow:
**(millions of euros)****2001** **2000**  Accounts and notes receivable567 863Less: allowance for doubtful accounts(43) (44)**Net receivables**524 819
In accordance with multi-year agreements entered into with    various banks related to sales of receivables, certain Rhodia companies sold    receivables during 2001 and 2000. The amount of receivables sold as of December    31, 2001 and 2000 was 718 million euros and 589 million euros, respectively,    which generated a net cash collection of 617 million euros in 2001 compared    with 506 million euros in 2000.
    F-17  
The average amount of receivables sold in 2001 was 613 million    euros compared with 423 million euros in 2000, which generated an average    net cash collection of 519 million euros in 2001 compared with 359 million    euros in 2000.

The difference between receivables sold and net cash collected    represents residual interests.
**11. PREPAID EXPENSES AND OTHER CURRENT        ASSETS**       Prepaid expenses and other current assets        as of December 31 follow:       **(millions of euros)****2001** **2000**Prepaid and recoverable taxes217 319Prepaid expenses and accrued interest36 34Short-term loans and current portion of        long-term loans71 57Assets held for sale9 14Deferred income taxes242 156Other receivables255 296Other current assets86 203**Total**916 1,079**12.**          **VALUATION ALLOWANCES**Valuation allowances as of December 31 and movements        for the years ended December 31, 2001 and 2000 follow:   **(Charged)/**       **credited to**     **December 31,** **costs and** **Change in** **Other** **December 31,****(millions of euros)****2000** **expenses** **structure** **movements (*)** **2001**Inventories(86) (1) – (1) (88)Trade accounts receivable(44) 1 (1) 1 (43)Other provisions(15) – – – (15)Deposits and long-term loans(19) (12) – (1) (32)Deferred charges, long-term            receivables and other        assets(65) (7) – (4) (76) (229) (19) (1) (5) (254)             **(Charged)/**         **credited to**       **December 31,** **costs and** **Change in** **Other** **December 31,****(millions of euros)****1999** **expenses** **structure** **movements (*)** **2000**Inventories(83) 8 (8) (3) (86)Trade accounts receivable(30) (13) – (1) (44)Other provisions(38) 23 – – (15)Deposits and long-term loans(6) (13) – – (19)Deferred charges, long-term            receivables and other        assets(53) (7) – (5) (65) (210) (2) (8) (9) (229)*(*)**Other movements relate to transfers of        allowances on long-term assets to allowances on short-term assets and        currency translation effect.*    F-18  **13.****MARKETABLE SECURITIES**As of December 31, 2001 and 2000, respectively, marketable        securities consisted of 180 million euros and 94 million euros of short-term        investments with a market value approximating book value.**14.****STOCKHOLDERS’ EQUITY****a) Common stock**As of December 31, 2001 and 2000, 179,309,188 shares        of Rhodia common stock with a par value of 15 euros were issued and outstanding        and Rhodia’s total capital amounted to 2,690 million euros. Movements        in the years ended December 31, 2001, 2000 and 1999 were as follows:        **Additional**  **Number** **Common stock** **paid-in capital** **Date****of shares** **(in millions)** **(in millions)**    **Francs** **Euros** **Francs** **Euros**Balance, January 1, 1999 174,741,041 17,474 2,664 17 3Capital reduction credited to retained earnings             (conversion of the par value             of the shares into euro)May 1999– – (43) – –Balance, December 31, 1999 174,741,041 – 2,621 – 3Employee stock issueSeptember 20004,568,147 – 69 – –Balance, December 31, 2000 179,309,188 – 2,690 – 3Balance, December 31, 2001 179,309,188 – 2,690 – 3
As of December 31, 2001 and 2000, Aventis owned 25.2% of    the capital of Rhodia. Rhodia shares owned by Aventis allow Aventis to cover    its obligation to reimburse holders of Aventis notes exchangeable for Rhodia    shares. These notes were issued by Aventis at the time of the secondary public    offering.

In accordance with the approval at the Shareholders’ Meeting    of April 18, 2000, the Board of Directors, at their June 20, 2000 meeting,    initiated a capital increase reserved for employees: maximum of 5,000,000    shares at a par value of 15 euros. The offering price was fixed at 15.36 euros    and the shares were required to be placed in the employee savings plan. The    capital increase officially occurred on September 1, 2000 with 4,568,147 new    shares being issued. The amount of the capital increase was 69 million euros.    Simultaneously, Rhodia entered into a put option with a bank that will likely    result in Rhodia purchasing 1,610,820 shares at a net price (strike price    less premium received) of 14.97 euros per share in July 2002.

As of December 31, 1999, Rhodia held 730,000 shares in treasury    stock purchased in November 1999. These shares acquired, for a total consideration    of 13 million euros, were deducted from stockholders’ equity because the related    stockholder authorization did not stipulate that shares could only be purchased    for a specific purpose (note 1t). In May 2000, Rhodia sold 530,000 of these    shares for a total of 11 million euros, which was credited to stockholders’    equity (note 1t). In September 2001, Rhodia purchased 16,599 shares for 0.1    million euros, which was directly recorded in stockholders’ equity (note 1t).

At the General Stockholders’ Meeting held on April 23, 2001,    Rhodia’s Board of Directors was given an 18-month authorization to buy back    Rhodia shares.

Additional paid-in capital represents the difference between    the par value of common stock and the price at which the stock was issued,    net of costs relating to employee stock offering of 1 million euros.

**b) Rhodia S.A. (Parent Company) distributable retained    earnings**

The Rhodia S.A. (Parent Company) distributable retained    earnings amount to 382 million euros and 256 million euros as of December    31, 2001 and 2000, respectively. Dividend equalization tax may be due in the    case of distribution of distributable reserves.
    F-19  **15.****MINORITY INTERESTS IN NET ASSETS          OF SUBSIDIARIES**Minority interests in net assets of subsidiaries as          of December 31 include the following:**(millions of euros)****2001** **2000**Rhodia-Ster71 68Other13 19**Total**84 87
 
**16.****PENSION, RETIREMENT AND OTHER POST-EMPLOYMENT        OBLIGATIONS**Consolidated companies provide pension and retirement        benefits, including a substantial number of defined benefit pension plans        which cover the majority of Rhodia employees. The specific features of        the plans (benefit formulas, funding policies and types of assets held)        vary depending on regulations and laws in the country in which the employees        are located. Defined benefit plans, covering employees in France, that        relate solely to retirement bonuses, are unfunded.
Actuarial valuations of obligations in France have been    computed as of December 31, 2001 and 2000. Similar valuations are also regularly    carried out for companies outside France. The calculations are based on:
- turnover assumptions for current personnel, mortality      assumptions for all plan participants and assumptions concerning future      salary increases;   a retirement age of 60 to 65 for French companies and      retirement assumptions reflecting economic and demographic factors for foreign      companies;discount rates, used in determining the actuarial present      value of the projected benefit obligation. These discount rates for French      plans were 6% as of December 31, 2001 and 2000. Discount rates for foreign      plans ranged from 4.25% to 7.5% as of December 31, 2001 and 5.5% to 7.75%      as of December 31, 2000;
- an expected long-term rate of return on plan assets;      these rates ranged from 4% to 10% as of December 31, 2001 and 4% to 9.5%      as of December 31, 2000.  
Effective October 1, 1988, the vested benefits of retired    and early-retired employees of French companies were irrevocably transferred    to an insurance company.
  F-20

The following tables reconcile the funded status of the    Rhodia plans with amounts recognized in the Rhodia consolidated balance sheets    as of December 31, 2001 and 2000.
 **Pension and retirement** **Other post-employment****(millions of euros)****benefits** **benefits** **2001** **2000** **2001** **2000**        **PROJECTED BENEFIT OBLIGATION**       **Benefit obligation as of January 1**2,095 1,304 37 28French companies621 573 – –Foreign companies1,474 731 37 28Service cost46 40 2 1Interest cost138 124 4 3Plan changes1 – 3 –Acquisitions and divestitures50 686 8 2Curtailments and settlements2 (34) 1 –Actuarial (gains) and losses(34) 25 11 4Benefits paid(146) (100) (4) (3)Effect of currency translation21 50 2 2**Benefit obligation as of December 31**2,173 2,095 64 37Foreign companies614 621 – –French companies1,559 1,474 64 37**PLAN ASSETS AT FAIR VALUE**               **Fair value as of January 1**1,407 667 – –Actual return on plan assets(121) 35 – –Employer contributions29 26 4 3Plan participant contributions5 3 – –Benefits paid(102) (63) (4) (3)Acquisitions and divestitures6 720 – –Curtailments and settlements– (34) – –Effect of currency translation57 53 – –**Fair value as of December 31**1,281 1,407 – –Projected benefit obligation in excess        of (less than) plan assets892 688 64 37Unamortized net gains and (losses):          Unrecognized net gains        and (losses)(455) (274) (17) (4)   Net transition (debit)        credit– (1) (9) (8)   Plan amendments(15) (20) (3) –Adjustment required to recognize minimum        liability231 196 – –**Pension liability (prepaid pension cost)**       **recognized in the consolidated balance        sheet**653 589 35 25Prepaid pension cost(137) (112) – (4)Short-term liability47 46 4 1Long-term liability743 655 31 28
  F-21

The plans for which the accumulated benefit obligation,    based on current salaries, is in excess of plan assets is summarized below:
**(millions of euros)** **2001**  **2000****Foreign companies**     Accumulated benefit obligation 497  260Projected benefit obligation 532  265Plan assets at fair value 331  103**French companies**     Accumulated benefit obligation 575  557Projected benefit obligation 614  621Plan assets at fair value –  –      Net periodic pension cost includes the        following components:           **(millions of euros)****2001** **2000** **1999** Benefits earned during the year51 40 29Interest cost on projected benefit obligation138 124 85Expected return on plan assets(128) (74) (46)Net amortization and other deferrals31 (9) 20 **Net pension expense**92 81 88                   **17. RESERVES FOR RESTRUCTURING,****ENVIRONMENTAL COSTS**    **AND OTHER LONG-TERM LIABILITIES**           **a) Reserves for restructuring and environmental        costs**           Restructuring and environmental        costs for the years ended December 31, 2001, 2000 and 1999 follow:        **(millions of euros)****2001** **2000** **1999****Reserves as of January 1,**238 188 199New measures178 32 37Changes in estimates of earlier measures(15) (18) 3Charged to operations163 14 40Expenditures charged to the reserve(113) (84) (65)Effect of changes in structure (*)15 112 –Effect of changes in exchange rates6 8 14– Long-term reserves62 67 86– Short-term reserves247 171 102**Reserves as of December 31,**309 238 188  
(*) In 2000, the effect of changes in structure principally    relates to A&W.

**Restructuring provisions**

In 2001, Rhodia launched a major reorganization plan. New    measures relating to this plan amounted to 178 million euros and mainly involve    rationalization plans and productivity improvements in the following countries:
- The United States for an amount of 51 million euros relating      mainly to:   the closing of three manufacturing sites: St Louis, Missouri      and New Brunswick, New Jersey of the Fine Organics Division, as well as      Troy, New York of the Industrial Specialties Division. The amount relating      to the closure of these three sites is 27 million euros;the closing of the Shelton, Connecticut headquarters      site together with productivity improvements in shared services at Cranbury,      New Jersey for a total amount of 13 million euros;
- productivity improvements mainly in the Consumer Specialties      Division for an amount of 8 million euros.
  F-22
- France for an amount of 62 million euros relating mainly      to:     - the cessation of the manufacturing of a product of          the Fine Organics Division at the Lille site (14 million euros);  
  - manufacturing productivity improvements of the Fine          Organics Division (12 million euros) relating to the St. Fons, Mulhouse          and Salindres sites;  
  - productivity improvements of the Polyamide Division          (12 million euros) relating to the Belle Etoile and Chalampé sites;  
  - productivity improvements of the Industrial Specialties          Division (7 million euros) relating to the St. Fons, Collonges and Ribecourt          sites;  
  - productivity improvements at the Division and Corporate          functions (12 million euros).  Other European countries for an amount of 45 million      euros relating mainly to:- England (17 million euros) primarily relating to          productivity measures at the Avonmouth site of the Fine Organics Division,          the Staveley site of the Services & Specialties Division, as well          as at the headquarters site at Watford;  
- Italy with the closure of production facilities of          the Polyamide Division (9 million euros);  
- Switzerland (7 million euros) with a competitive          improvement program at the Emmenbrucke (Polyamide) and Kreuzlingen (Consumer          Specialties) sites;  
- Spain (3 million euros) concerning the head office          in Madrid and the Huelva Consumer Specialties Division;  
- Belgium with rationalization measurements at the          Rieme site (Services & Specialties) for an amount of 3 million euros;  
- productivity measurements in other European countries          (6 million euros).  
Brazil for an amount of 13 million euros relating mainly      to:
the reorganization of South America Polyamide as          well as industrial rationalization measures (4 million euros);
the stopping of the Acetow production facilities          (Services & Specialties) at the Santo Andre site (6 million euros);
other measurements relating mainly to administrative          productivity improvements at Rhodia’s head office in Sao Paulo.

- Other countries for an amount of 7 million euros relating      mainly to the Silica activity (Industrial Specialties) in Korea with the      closing of production facilities and the rationalization of the headquarters      site and a productivity improvement plan in Mexico.  
In 2001 the changes of estimates mainly relate to reduced    environmental costs at Lille, France (7 million euros) and Pont de Claix (8    million euros).
The utilization of reorganization provisions in 2001 relate    mainly to:
France (35 million euros) relating to the implementation      of the industrial rationalization and administrative actions;
- England (25 million euros) in particular for the former      A&W sites;   the United States (36 million euros) in particular because      of the rationalizations started with the acquisition of A&W.   In 2000, following the acquisition of A&W, Rhodia launched    restructuring initiatives at several A&W sites. Restructuring provisions    linked to these plans amount to 101 million euros, principally relating to    the following measures.    - Rationalization plans:       - closure of production units at Whitehaven UK for          49 million euros, including STPP and phosphoric acid units;  
    - plant closure at Buckingham Canada (8 million euros).  Closure of A&W administrative sites:- closure of North American A&W site in Richmond,          Virginia (18 million euros);  
- closure and sale of the A&W headquarters site          in Warley UK (12 million euros).
  F-23
In 2000, new measures principally concerned plant rationalization    at several European sites in the Fine Organics and Polyamide Divisions. In    2000, changes in estimates principally concerned lower estimates of environmental    costs in North America at Mt. Pleasant, Tennessee (4 million euros) and Oil    City, Pennsylvania (7 million euros). In 2000, restructuring expenses principally    related to the A&W plant and administrative sites (20 million euros including    11 million euros relating to the closure of old headquarters) and the implementation    of plant rationalizations in France.

The new measures decided in 1999 corresponded primarily    to production rationalization plans at several phosphate and silicone production    facilities in France and the United States. Expenses charged to the reserve    in 1999 related to the reorganization of Rhodia’s European and American headquarters    and the implementation of industrial rationalization plans in the United States,    carried out at a respective cost of 15 million euros and 17 million euros,    respectively.

The reserve for restructuring and environmental costs covers    the following costs as of December 31:
**(millions of euros)****2001** **2000**    Employee termination benefits158 70Closure costs89 109Environmental costs62 59**Total**309 238
Employee termination benefits include certain early retirement,    severance and other benefits associated with termination plans. The plans    implemented by the Rhodia companies include compulsory and voluntary measures.    Compulsory severance benefits are reserved for as of the date of announcement    of the plan by the management having the appropriate authority to approve    the plan, and voluntary severance benefits are reserved for upon acceptance    by employees. Environmental costs included under this caption relate to operations    subject to restructuring measures (see also b and note 24a).
**b)****Other reserves and long-term liabilities**         Other reserves and long-term liabilities        as of December 31 follow:         **(millions of euros)****2001** **2000**      Environmental liabilities86 94 Deferred income81 33 Losses related to affiliates7 5 Contingency reserves6 9 Other post-employment benefits (note 16)31 28 Other94 34 **Total**305 203     **18.****LONG-TERM DEBT (including current portion)**        The analysis of long-term debt        as of December 31 follows:        **(million of euros)****2001** **2000****Long-term borrowings:**   Bonds813 811Other1,136 1,266**Long-term borrowings**1,949 2,077**Current portion of long-term        borrowings**331 150**Total borrowings**2,280 2,227
In 2001, Rhodia pursued the same funding policy initiated    in 2000 by renewing and negotiating new commited lines of credit and issuing    a new medium term note of 300 million euros maturing in March 2006.
  F-24
**a) Analysis by currency**
**(millions of euros)****2001** **2000** Euro1,113 1,116 U.S. dollar1,061 1,073 Other106 38 **Total**2,280 2,227 
This breakdown by currency of origin does not reflect Rhodia’s    exposure to these currencies’ interest rates. A portion of these loans are    drawn down and hedged in various other currencies, notably pounds sterling.

**b) Maturity of long-term debt as of December 31 follows**
**(millions of euros)****2001** **2000** 2001– 150 2002331 489 2003108 28 2004597 673 2005670 844 2006536 - Subsequent years38 43 **Total**2,280 2,227 
**c) Analysis by interest rate**

Long-term debt breaks down as follows between fixed and    floating rate debt (excluding the effect of interest rate swaps) see (note    24d) as of December 31 follows:
**(millions of euros)****2001** **2000** Floating rate1,386 1,650 Fixed rate894 577 **Total**2,280 2,227 
After interest rate swaps, the fixed rate portion of Rhodia’s    debt is equal to 1,422 million euros as of December 31, 2001 and 1,314 million    euros as of December 31, 2000. The annual net-financial-expense- to-average-net-debt    ratio was 5.8% in 2001 and 5.9% in 2000.

**d) Obligations under capital leases**

Obligations under capital leases as of December 31 (the    long-term portion of which is included in bank borrowings, above) can be analyzed    as follows by maturity:
**(millions of euros)****2001** **2000** 2001– 10 200213 9 20033 2 20042 1 20051 – 20062 – Subsequent years– – **Total**21 22 
**e)****Fair    value of long-term debt**

The fair value of Rhodia’s long-term debt (including current    portion) has been estimated based on market rates and terms available to Rhodia    for issues with similar maturities, which approximates book value.
  F-25
**f) Available lines of credit**

Rhodia has committed multi-currency lines of credit (medium    and 364-day term) of 2,560 million euros as of December 31, 2001. At the end    of 2001, the lines of credit were revolving in nature, and were provided by    financial institutions on a syndicated or bilateral basis. Some of these credit    lines are subject to certain financial covenants. The committed but undrawn    lines of credit at December 31, 2001 were 1,128 million euros.
**19. OTHER CURRENT LIABILITIES**               Other current liabilities as of December        31:               **(millions of euros)****2001** ****   **2000**       Payables related to fixed asset acquisitions81     73Reserves for restructuring and environmental        costs (note 17)247     171Accrued payroll costs216     233Accrued taxes178     268Current deferred income taxes14     8Reserves for pension and retirement costs        (note 16)47     46Accrued interest payable42     45Unrealized losses on financial instruments45     14Other reserves167     106Other367     268**Total**1,404     1,232        **20. FINANCIAL EXPENSE - NET**               **(millions of euros)****2001** **** **2000** **1999**        Interest expense(179)   (195) (143)Interest income24   24 41Other financial charges – net(50)   (14) (20)Capitalized interest19   8 6**Net financial expense**(186)   (177) (116)        Cash paid to third parties for        interest expense in 2001 amounted to 163 million euros (2000: 157 million        euros;1999: 140 million euros).               **21. GAINS/(LOSSES) ON DISPOSALS OF ASSETS        – NET**               **(millions of euros)****2001**   **2000** **1999**        Net gains (losses) on disposals of:       – Property, plant and equipment and intangible        assets15   (2) 42– Subsidiaries and equity method investments–   15 23**Total**15   13 65
In 2001, the net gain on sale is essentially related to    the sale of the Empicryl business and fixed assets located in Brazil.

In 2000, the net gain on sale is essentially related to    the sale of Kallo, whose sales were not significant in 1999.

In 1999, the net gain on sales primarily related to the    divestment of Rhodia Chimie’s Gallium business, Rhodia’s 50% interests in    the Procatalyse and Chloralp joint ventures and certain fixed assets located    in Switzerland.
  F-26**22. OTHER INCOME/(EXPENSES) - NET**                **(millions of euros)****2001** **2000** **1999**           Net gains (losses) on        foreign currency(7) 18 (31)    Dividends from other        investments4 4 1    Allowance for other investments(17) (9) (11)    Loss on sale of receivables(27) (17) (8)    Other income (expenses)        – net (*)(76) (16) (4)    **Total**(123) (20) (53) 
*(*) In 2001, Rhodia recorded 50 million euros relating    to certain litigation and environmental costs.*
**23.****INCOME TAXES****a) Net effect of income tax**Income tax expense may be analyzed as follows: **2001** **2000** **1999** **Income** **Income tax** **Income** **Income tax** **Income** **Income tax** **before** **(expense)/** **before** **(expense)/** **before** **(expense)/****(millions of euros)****taxes** **benefit** **taxes** **benefit** **taxes** **benefit**French companies(190) 98 102 (30) 58 8Foreign companies(112) (4) 227 (74) 260 (104)**Total**(302) 94 329 (104) 318 (96)Detail of income tax expense        – Current taxes– (86) – (105) – (81)– Deferred taxes– 180 – 1 – (15)**Income tax expense**– 94 – (104) – (96)
**b) Current income taxes**

Current income tax expense represents the amounts currently    paid or remaining due to the tax authorities for the year, calculated in accordance    with the rules and rates prevailing in the countries concerned. Cash paid    to tax administrations in 2001 amounted to 56 million euros (2000: 48 million    euros; 1999: 57 million euros).

Current income tax expense of French companies that are    more than 95%-owned by Rhodia has been calculated on a consolidated basis    in 1999, in accordance with French group relief rules. These companies have    elected for group relief for a five-year renewal period, effective from January    1, 1999.

**c) Analysis of income tax expense**

Foreign subsidiaries’ current and deferred income taxes    derive directly from the application of the specific rules and rates of the    various countries. A valuation allowance has been recorded against all net    deferred tax assets with the exception of those mentioned in d) (ii) below.

Deferred income taxes take into account the income tax rate    expected to be in effect when the temporary differences reverse. As of December    31, 2001, deferred income taxes of the French companies of Rhodia were computed    by applying a tax rate of 35.4% to all tax bases subject to tax at the standard    rate.

An analysis of the principal differences between the statutory    income tax rate in France and Rhodia’s effective income tax rate is as follows:
**(in %)****2001** **2000** **1999**Statutory tax rate in France33.3 33.3 33.3– Change in valuation allowance related to tax assets10.7 (18.5) 2.1– Impact of different tax rates and other permanent        differences (5.0) 15.8 (1.9)– Tax provision from investments accounted for by the        equity method(7.7) 1.1 (3.4)**Effective tax rate for Rhodia**31.3 31.7 30.1  F-27
**d) Deferred tax assets**

(i) Valuation allowance against deferred tax assets

Rhodia records deferred tax assets for temporary differences    and tax losses and a valuation allowance if these assets are not likely to    be recovered. In 2001, Rhodia recorded a valuation allowance of 156 million    euros (2000: 187 million euros) against deferred tax assets. They include    deferred tax assets related to tax losses (2001: 72 million euros; 2000: 85    million euros; 1999: 96 million euros) that will be forfeited if the losses    cannot be set off against taxable income within a specified period.

(ii) Consolidated companies with net deferred tax assets

Deferred tax assets not covered by valuation allowances    represent probable future savings in current taxes. Recognition of these assets,    net of valuation allowances, is limited to the amounts that are expected to    be recovered in the foreseeable future, based on each entity’s tax position.

At the end of 2001 and 2000 the net deferred tax assets    for which a valuation allowance was not recorded total 255 million euros and    107 million euros.
**24. COMMITMENTS AND CONTINGENCIES**         These include the following as of December        31:         **(millions of euros)****2001** **2000**      Capital commitments for the acquisition        of industrial assets39 30 Guarantees given by Rhodia in respect of        indebtedness of non consolidated companies260 202 Recourse on sales of receivables29 29 **Total**328 261      **a) Environmental matters**    
Rhodia’s business is subject to extensive, evolving and    increasingly stringent laws and regulations in the jurisdictions in which    it does business and maintains properties governing the release or discharge    of regulated materials into the environment or otherwise relating to the environmental    protection or human health and safety. Rhodia’s compliance with environmental    laws and regulations has resulted and will result in significant ongoing costs    for Rhodia, and could restrict its ability to modify or expand its facilities    or continue production, or require Rhodia to install costly pollution control    equipment or incur significant expenses, including remediation costs and fines    and penalties. Rhodia could also incur significant expenses in the event that    new laws, regulations or governmental policies were to require that hazardous    wastes, including radioactive wastes, currently stored on-site, be disposed    of at off-site locations.

In addition, many of Rhodia’s manufacturing sites have an    extended history of industrial use. As is typical for such businesses, soil    and groundwater contamination has occurred in the past at some sites, and    might occur or be discovered at other sites in the future. Rhodia is currently    in the process of investigating and remediating or monitoring soil and groundwater    contamination of certain of these sites. In addition, Rhodia has been and    may in the future be liable to contribute to the cleanup of disposal facilities    to which it has sent wastes for disposal, pursuant to the U.S. Comprehensive    Environmental Response, Compensation and Liability Act (commonly known as    “Superfund”) and other similar laws. Under these laws, the owner or operator    of contaminated properties and the generator of wastes sent to a contaminated    disposal facility can be jointly and severally liable for the remediation    of such properties, regardless of fault.

Rhodia may, under certain conditions, claim indemnification    from Aventis, pursuant to the Environmental Indemnification Agreement with    Aventis, dated May 26, 1998, with respect to costs that may arise from certain    unanticipated environmental liabilities. In 2001, Rhodia made a claim to Aventis    pursuant to this agreement for several sites and recorded a receivable from    Aventis of 35 million euros. The Environmental Indemnification Agreement expires    on December 31, 2007 and the aggregate amount of claims for indemnification    is limited to 122 million euros.

Based on current information and reserves established for    environmental matters, management does not believe that environmental compliance    and remediation requirements will have a material adverse effect on Rhodia’s    business, financial condition or results of operations. However, there can    be no assurances that future events,
  F-28
such as changes in existing laws, the promulgation of new    laws or the development or discovery of new facts or conditions will not cause    Rhodia to incur significant additional costs and liabilities that could have    a material adverse effect on its financial condition and results of operations.    Management estimates that based on available information as of December 31,    2001, reasonably possible losses related to environmental contingencies (net    of indemnifications from Aventis) amount to approximately 50 million euros.

**b) Operating leases**

Future minimum lease payments for operating leases as of    December 31 are as follows:
**(million of euros)** **2001** **2000** 2001 – 38 2002 61 31 2003 54 30 2004 48 25 2005 45 24 2006 29 – Thereafter 41 55 **Total** 278 203 Net present value of total future minimum        lease payments     (assumed discount rate of 6%) 232 – 
**c) Financial instruments**

Rhodia’s policy consists of systematically covering its    overall exposure to currency risks on transactions. The risk of a loss of    competitiveness and energy price fluctuations are not systematically hedged.    Interest rate risks are hedged based on Rhodia’s estimated future exposure,    which is periodically reviewed.

The financial instruments used by Rhodia are described in    the section 24d) and 24e). The nominal amounts summarized in section 24d)    do not represent the amounts exchanged between the parties, and thus are not    a measure of Rhodia’s exposure through its use of such instruments.

**d) Interest rate risk management**

Rhodia’s exposure to interest rate risk essentially relates    to its indebtedness (note 18) and to a lesser extent its interest rate management    activities.

As of December 31, 2001 and 2000, Rhodia held the following    nominal amounts of rate contracts and options (converted into euros at the    closing rates):
    **2001**  **2000**   **(millions of euros)** **Rate Contracts** **Options** **Rate Contracts** **Options** SwapsEuros 3,612 450 1,546 100  U.S.Dollars1,530 – 1,052 –  Japanese yen103 – 162 – Subtotal  5,245 450 2,760 100 Futures and optionsEuros – 3,850 100 4,130  U.S.Dollars– – 21 289  Japanese yen– 26 – – Subtotal  – 3,876 121 4,419 **Total**  5,245 4,326 2,881 4,519 
For a better understanding of its interest rate position,    Rhodia considers that its interest rate contracts and options with matching    parameters (settlement dates, notional amounts and reference rates) offset    each other. After netting, the balances in the table above would be 2,485    million euros for interest rate contracts and 3,176 million euros for options    as of December 31, 2001, and 2,425 million euros for interest rate contracts    and 1,732 million euros for options as of December 31, 2000.
  F-29
Rate contracts include both fixed rate to variable and variable    rate to fixed rate contracts, and option contracts include buy and sell contracts.    These foreign exchange contracts generally have a duration of three months    to six years.

The amount of rate contracts and options refer to the nominal    amount of these contracts and hence do not reflect the sensitivity of these    operations. The sensitivity to interest rate on such activities is controlled    regularly.

**e) Foreign exchange risk management**

Rhodia principally uses fixed or open forward exchange contracts    traded-over-the counter on organized markets to manage its foreign exchange    risk. The term of these contracts is generally less than six months.

The nominal amounts of Rhodia’s forward exchange contracts    as of December 31 are summarized below. They have been converted into euros    at the closing rate.
**(millions of euros)** **2001**   **2000**   **Buy****Sell****Buy****Sell** U.S. dollar866 1,283 1,055 1,936 Pound Sterling43 750 306 957 Japanese yen141 200 64 146 Brazilian Real53 120 78 216 Other currencies66 103 54 108 **Total**1,169 2,456 1,557 3,363 
**f) Fair value of financial instruments**

The fair value of financial instruments as of December 31    is summarized below:
  **2001**  **(millions of euros)****Market Value** **Book Value** Foreign exchange contracts(4) (1) Interest rate contracts(48) 6 **Total**(52) 5 
**g) Management of risk of oil-based commodities**

Rhodia’s exposure to oil-based commodities relates essentially    to its purchases of petrochemicals and natural gas. This exposure is hedged    using swaps, options and futures that are accounted for on a mark-to-market    basis. The nominal value of these contracts as of December 31, 2001 (in Brent    based equivalents) is equivalent to hedging 2.9 million barrels of oil.

**h) Concentration of counterparty risk**

The transactions that potentially generate a concentration    of a counterparty risk for Rhodia include short-term deposits, derivative    instruments and other financial instruments, and accounts receivable.

Rhodia places its short-term deposits and enters into interest    and currency contracts with major banks and financial institutions. Counterparty    risk related to accounts receivable is limited due to the large number of    customers, their diversification in many industries and their diverse geographic    locations. Therefore, as of December 31, 2001 and 2000, Rhodia believes that    its counterparty risk in this respect is not significant.

**i) Claims and litigation**

Rhodia is involved in certain litigation in the normal course    of business, involving primarily claims by the buyers of businesses previously    sold by Rhodia and civil liability compensation claims related to chemical    products sold in the marketplace.

Some of the North American subsidiaries have potential liabilities    under the Superfund legislation. In light of the nature of the claims made,    the number of defendants and the volume of waste at issue, Rhodia believes    that these claims will not result in significant liabilities for Rhodia.
  F-30
Rhodia Polyamide Intermediates, a wholly-owned subsidiary    of Rhodia, has been involved in proceedings with DuPont China Holding and    LYPFC (Lioyang Petrochemical Fiber Company, an affiliate of Sinopec). The    proceedings related to a joint venture formed by Rhodia and these two partners    in 1996 in Sanlong, People’s Republic of China, for the production of nylon    salt. Rhodia has settled the case with both DuPont China Holding and LYPFC.    Rhodia has recorded a provision for the loss resulting from these proceedings    in its consolidated financial statements.
**25.****INFORMATION BY SEGMENT AND GEOGRAPHICAL        AREA**Rhodia has five global divisions: Fine Organics, Consumer        Specialties, Industrial Specialties, Polyamide and Services & Specialties.        Rhodia also has some remaining business interest in the Polyester activity.
**Segment information**
**Fine****Consumer****Industrial****Services &****(millions of euros)****Organics****Specialties****Specialties****Polyamide****Specialties****Other****Eliminations****Consolidated**                **Year ended December 31, 2001**               Net sales1,099 2,153 1,181 1,418 995 433 – 7,279Intersegment revenues120 10 39 26 18 – (213) –Depreciation and amortization               (excl. goodwill amortization)(107) (119) (67) (101) (89) (59) – (542)Amortization of goodwill(38) (21) (5) (1) (9) (1) – (75)Restructuring and               environmental costs(48) (20) (12) (36) (20) (27) – (163)Operating income(72) 44 53 31 74 (114) – 16EBITDA73 184 125 133 172 (54) – 633Equity in earnings/(losses)               of affiliated companies– 7 (2) (39) 10 – – (24)Investments accounted               for by the equity method9 42 8 102 21 3 – 185Capital expenditures108 109 72 104 63 27 – 483Total segment assets1,657 2,194 904 1,180 899 (12) – 6,822Assets not directly               identifiable with segments– – – – – – – 2,138**Total assets**– – – – – – – 8,960  F-31**(millions of        euros)****FineOrganics****Consumer        Specialties****Industrial        Specialties****Polyamide****Services        &        Specialties****Other****Eliminations****Consolidated****Year ended December 31, 2000**            Net sales1,060 2,175 1,211 1,559 963 451 – 7,419Intersegment revenues125 17 27 30 21 – (220) –Depreciation and amortization               (excl. goodwill amortization)(79) (108) (63) (93) (75) (74) – (492)Amortization of goodwill(6) (17) (5) – (3) (1) – (32)Restructuring and               environmental costs1 1 – (9) (3) (4) – (14)Operating income76 83 87 178 118 (46) – 496EBITDA161 208 155 271 196 29 – 1,020Equity in earnings/(losses)               of affiliated companies– 8 (4) 5 6 2 – 17Investments accounted               for by the equity method5 31 16 157 – 7 – 216Capital expenditures94 99 62 105 67 76 – 503Total segment assets1,632 2,465 970 1,312 872 259 – 7,510Assets not directly               identifiable with segments– – – – – – – 2,004**Total assets**– – – – – – – 9,514                **Fine****Consumer****Industrial****Services &****(millions of euros)****Organics****Specialties****Specialties****Polyamide****Specialties****Other****Eliminations****Consolidated****Year ended December 31, 1999**               Net sales843 1,118 1,083 1,292 870 320 – 5,526Intersegment revenues81 7 27 21 17 – (153) –Depreciation and amortization               (excl. goodwill amortization)(63) (61) (62) (89) (64) (70) – (409)Amortization of goodwill(2) (4) (5) – (2) (1) – (14)Restructuring and               environmental costs(5) (10) (13) (4) (3) (5) – (40)Operating income80 29 85 156 94 (35) – 409EBITDA145 94 152 245 160 36 – 832Equity in earnings/(losses)               of affiliated companies5 2 – 1 3 2 – 13Investments accounted               for by the equity method5 7 1 161 5 5 – 184Capital expenditures48 64 52 99 51 58 – 372Total segment assets881 866 948 1,252 808 602 – 5,357Assets not directly               identifiable with segments– – – – – – – 1,617**Total assets**– – – – – – – 6,974
EBITDA, as defined by Rhodia, equals operating income before    depreciation and amortization. EBITDA should not be considered as an alternative    to net income, as an indicator of operating income, or as an alternative to    cash-flow, as a source of liquidity, and may not be comparable with EBITDA    as defined and reported by other companies.

Segment assets reflect assets directly identifiable with    the segments: tangible assets, intangible assets, investments accounted for    by the equity method, accounts and notes receivable and inventories. Segment    assets include accounts receivable sold which are eliminated in the “Other”    column since this activity is not considered a segment activity.

**Total assets reconciliation**

As of December 31, 2001 assets not identifiable with particular    segments correspond primarily to cash, short-term deposits and marketable    securities (413 million euros), prepaid expenses and other current assets    (916 million euros), deposits and long-term receivables (98 million euros),    other investments (75 million euros) and deferred charges and other assets    (636 million euros). Such assets are not available on a segment basis as they    are managed on either a legal entity basis or directly at the Rhodia Group    level.
  F-32
Information by geographical area of production
   **Other**   **South**         **countries** **North** **America**      **(millions of euros)****France** **in Europe** **America** **(incl. Mexico)** **Other** **Eliminations** **Consolidated****Year ended December 31, 2001**           **Revenues**2,685 2,296 1,945 1,181 656 (1,484) 7,279Long-lived assets1,700 1,194 1,811 967 262 – 5,934**Year ended December 31, 2000**           Revenues2,872 2,590 1,786 1,204 690 (1,723) 7,419Long-lived assets1,653 1,437 1,814 986 251 – 6,141**Year ended December 31, 1999**           Revenues2,502 1,868 1,311 812 436 (1,403) 5,526 Long-lived assets1,615 650 967 727 212 – 4,171
Long-lived assets reflect net tangible and intangible assets,    investments in equity method investees, other investments and other long-term    assets excluding net deferred tax assets, and long-term deposits and receivables    from Aventis companies.

Sales made by the French geographical zone include the following    export amounts:
**(millions of euros)****2001** **2000** **1999****French production zone revenues**2,685 2,872 2,502Sales to third parties in France699 729 628**Total Export**1,986 2,143 1,874   Europe – Africa1,532 1,637 1,449   North America167 180 163   South America35 45 39   Other252 281 223**26.****RESEARCH AND DEVELOPMENT EXPENSES**Research and development expenses, including depreciation        and amortization, amounted to 215 million euros in 2001 (212 million euros        in 2000 and 190 million euros in 1999). Research and development expenses        on the Consolidated Statements of Operations are shown excluding depreciation        and amortization.**27.****WAGES, BENEFITS AND NUMBER OF EMPLOYEES**Wages and benefits, including social security taxes,        amount to 1,572 million euros in 2001 (1,554 million euros in 2000, 1,280        million euros in 1999). The number of employees of the consolidated subsidiaries        amount to:**(unaudited)****2001** **2000** **1999**France9,847 10,300 10,124Other countries17,078 19,148 14,682**Total as of December 31**26,925 29,448 24,806
Compensations and benefits paid to the members of the Board    of Directors (including Directors’ fees) and the Executive Committee totaled    8.0 million euros (25 people) in 2001, 6.1 million euros (22 people) in 2000    and 4.5 million euros (25 people) in 1999. The amount reported for 1999 does    not include compensation and benefits paid directly by Aventis. Contributions    paid in 2001 with respect to pension for these persons amounted to 0.5 million    euros (0.6 million euros in 2000 and 0.4 million euros in 1999).
  F-33**28.**          **STOCK OPTION PLANS****a) Rhodia stock options plan**The options granted under the 1998, 1999/1, 1999/2, 2000/1        and 2000/2 Plans are exercisable over a ten-year period, with a five-year        vesting period for tax residents of France (three years for tax residents        of other countries) from the respective dates that the Board of Directors        approved the stock option plans. The options granted under the 2001 Plan        are exercisable over a twelve-year period, and pursuant to Article 163bis        C.I, subparagraph 1 of the General Tax Code modified by the law of May        15, 2001 relating to new economic regulations, the vesting period was        reduced to four years for tax residents of France (no change for tax residents        of other countries from the date that the Board of Directors approved        the stock option plan).
The following table summarizes the status of the stock option    plans as of December 31, 2001 and 2000:
   **2001**  **2000**    **Average**  **Average** **Number** **exercice price** **Number****exercice price** **of options** **(in euros)** **of options****(in euros)****Number of options outstanding**       **at the beginning of the period**4,935,298 15.97 2,747,852 15.04Options exercised– – – –Options granted2,580,267 15.70 2,250,000 17.08Options cancelled(100,143) 16.17 (62,554) 17.14**Number of options outstanding**      **at the end of the period**7,415,422 15.87 4,935,298 15.97**Number of options exercisable**      **at the end of the period**13,460 21.34 – –  F-34
The following table shows the main features of the stock    option plans in place as of December 31, 2001:
**Stock Option Plans****Plan 1998** **Plan 1999/1** **Plan 1999/2** **Plan 2000/1** **Plan 2000/2** **Plan 2001****Date of Shareholders’**           **meeting approval**05/13/98 05/13/98 05/13/98 05/13/98 04/18/00 04/18/00**Date of Board of Directors’ approval**06/24/98 02/23/99 02/23/99 03/30/00 09/27/00 03/16/01**Date of grant**06/24/98 02/23/99 02/23/99 03/30/00 09/27/00 03/16/01**Options granted**1,600,000 1,580,000 1,200,000 2,100,000 150,000 2,580,267Granted to the Board of Directors           and Executive Committee (a)550,000 558,000 369,000 800,000 – 925,000**Number of participants**           **at December 31, 2001**17 383 385 556 3 820Exercise price (in euros)21.34 15.00 15.00 17.14 16.26 15.70Maximum term (years)10 10 10 10 10 12Weighted average remaining           contractual life (years)6.50 7.17 7.17 8.25 8.75 11.25**Options outstanding**           **at beginning of year**18,510 1,538,700 1,145,168 2,082,920 150,000 –Options granted– – – – – 2,580,267Options cancelled– (19,500) (17,063) (50,645) – (12,935)Options exercised– – – – – –**Options outstanding at end of year**18,510 1,519,200 1,128,105 2,032,275 150,000 2,567,332Granted to the Board of Directors           and Executive Committee (b)– 443,500 264,000 767,000 – 925,000**Options exercisable at end of year**13,460 – – – – –Exercisable by the Board of Directors           and Executive Committee (b)– – – – – –(a)          Historical composition.(b)          Present composition.
The weighted average remaining contractual life of the outstanding    options at the end of 2001 was 8.91 years (8.65 years in 2000).

**b) Pro forma result**

If Rhodia had followed the fair value method for the stock    option and stock purchase plans established in 2001, 2000 and 1999, net income    would have been adjusted to (219) million euros in 2001 (212 million euros    in 2000, 225 million euros in 1999).

The fair value of Rhodia stock options granted in 2001 was    estimated under the Black-Scholes pricing model using the following assumptions:    duration of options (5-6 years), stock price volatility (34%), dividend rate    (2.5%), and risk free interest rate (4.8%).
**29.****SUBSEQUENT EVENTS**No significant transactions have occurred between December        31, 2001 and January 28, 2002 (the date when the Board of Directors approved        Rhodia 2001 consolidated financial statements).**30.****RECONCILIATION TO US GAAP AND NEW ACCOUNTING        STANDARDS**Rhodia applies French GAAP in the preparation of the        consolidated financial statements. The differences between French GAAP        and U.S. GAAP that could have a material impact on Rhodia’s consolidated        financial statements are described below:  F-35
**a) Partnership accounting**

Under French GAAP, Rhodia accounted for in a manner similar    to full consolidation its interest in the Rhône-Poulenc Surfactants &    Specialties, LP, which activity is primarily included in the North American    operations of the Consumer Specialties Division. As Rhodia did not acquire    the “General Partner” interest from Rhône-Poulenc Agro before November 1999,    under U.S. GAAP, this limited partnership would have been accounted for by    the equity method up until this acquisition date. This difference in accounting    treatment between the full consolidation and equity methods would not affect    reported stockholders’ equity or net income of Rhodia. If this limited partnership    were to be accounted for by the equity method rather than fully consolidated,    the net investment in the partnership would be recorded in the balance sheet    and accounted for by the equity method and Rhodia’s share of earnings or losses    would be recorded on the line “equity in earnings (losses) from affiliated    companies”.

The material amounts that would be deconsolidated from the    statements of operations are as follows:
**(millions of euros)****1999**Net sales288Operating expenses(262)**Operating income**26
There would be no effect from such difference in partnership    accounting on net income.

The material amounts that would be deconsolidated in the    statements of cash flows are as follows:
**(millions of euros)****1999**Net cash provided by operating activities20Net cash used by investing activities(54)Net cash used by financing activities34
Following the acquisition of the “General Partner” the difference    in accounting treatment no longer applies from December 1, 1999.

**b) Accounting for Derivative Instruments and Hedging    Activities (FAS 133)**

U.S. GAAP requires, as of January 1, 2001, that Rhodia measure    all derivatives at fair value and to recognize them in the consolidated balance    sheet as an asset or liability. Gains or losses resulting from changes in    the values of derivatives are accounted for depending on the intended use    of the derivative and whether it qualifies for hedge accounting.

The principal difference between U.S. GAAP and French GAAP    relates to the accounting for cash flow hedges. Under U.S. GAAP, Rhodia would    record the value of cash flow hedges with an offset to Other Comprehensive    Income. Under French GAAP, cash flow hedges are not recognized.

The effect on Stockholders’ Equity at December 31, 2001    of applying U.S. GAAP would be a reduction of Stockholders’ Equity. Upon realization    of cash flow hedges, Other Comprehensive Income would be reclassified into    Net Income.

The application this standard had no impact on Rhodia’s    net income for the year ended December 31, 2001.

**c) Reconciliation between French GAAP and U.S. GAAP**

A reconciliation between French GAAP and U.S. GAAP follows:
**(millions of euros)****December 31, 2001** **January 1, 2001**Stockholders’ equity (French GAAP)2,267 2,593Derivatives (cash flow hedges - net of        tax)(35) (12)Stockholders’ equity (U.S. GAAP)2,232 2,581
Approximately one-third of the cash flow hedge impact above    is expected to be reclassified into earnings in the subsequent year.
  F-36
**d) Comprehensive Income/(Loss)**

Comprehensive income/(loss) for the years ended December    31, 2001, 2000 and 1999 follows:
**(millions of euros)****2001** **2000** **1999**Net income/(loss)(213) 216 227Derivatives(35) – –Translation(28) (28) 92Comprehensive income/(loss)(276) 188 319
**e) New accounting standards for U.S. GAAP for 2002 and    2003**

Goodwill and Other Intangible Assets (FAS 142) - U.S. GAAP    requires, as of January 1, 2002 (July 1, 2001 with respect to acquisitions    after June 30, 2001), that Rhodia cease the ratable amortization of goodwill    and indefinite-lived intangible assets and replace it with periodic tests    of the impairment of goodwill and indefinite-lived intangible assets. Other    than in a period, in which Rhodia would record an impairment of goodwill and    indefinite-lived intangible assets, Rhodia expects that the application of    this standard will result in increased net income, under U.S. GAAP, resulting    from the cessation of the amortization of goodwill and indefinite-lived intangible    assets.

Accounting for Asset Retirement Obligations (FAS 143) -    U.S. GAAP requires, as of January 1, 2003, that Rhodia recognize the fair    value of a liability for an asset retirement obligation in the period in which    it is incurred if a reasonable estimate of the fair value can be made. Rhodia    is currently evaluating the impact of the application of this standard.

Accounting for the Impairment or Disposal of Long-lived    Assets (FAS 144) - U.S. GAAP requires, as of January 1, 2002, that Rhodia    account for the impairment or disposal of long-lived assets pursuant to a    revised standard. The application of this standard is not expected to have    a significant impact on Rhodia’s financial statements.
  F-37
**PRINCIPAL CONSOLIDATED SUBSIDIARIES END OF 2001**
**Globally integrated subsidiaries****Countries****% owned**RhodiaFrance100Rhodia ParticipationsFrance100Rhodia RecherchesFrance100Rhodia BelgiumBelgium100Rhodia Brasil LtdaBrazil100Rhodia Italia SpaItaly100Rhodia ChimieFrance100RhoditechFrance100Rhodia EnergyFrance100Rhodia DeutschlandGermany100Rhodia GmbHGermany100Rhodia Holding LtdUnited Kingdom100Rhodia Iberia SASpain100Rhodia IncUnited States100Rhodia de MexicoMexico100Rhodia JapanJapan100Rhodia LtdUnited Kingdom100Rhodia Silica Korea Co LtdKorea100Rhodia NederlandNetherlands100Rhodia Malaysia Sdn BhdMalaysia100Rhodia ServicesFrance100Rhodia China Holding Co LtdChina100Rhodia Mexicana SA de CVMexico100Rhodia OrganiqueFrance100Rhodia IntermédiairesFrance100Rhodia Chirex Inc.United States100Rhodia Chirex Holding LtdUnited Kingdom100ICMDFrance100Rhodia Thai Industries LtdThailand74Holmes Chapel Trading LtdUnited Kingdom100Rhodia Fine Organics LtdUnited Kingdom100Meyhall AGSwitzerland100Rhodia GeronazzoItaly100Rhodia FoodFrance100Rhodia Consumer Specialties LtdUnited Kingdom100Rhodia Holding IncUnited States100Rhodia Consumer Specialties Asia Pacific        Pte LtdSingapore100Rhodia HPCII SASFrance100Rhodia HPCII LtdUnited Kingdom100Rhodia HPCII EspanaSpain100Rhodia PPMCFrance100Rhodia IberlatexSpain100Rhodia SiliconesFrance100Rhodia Siliconas EspanaSpain100Rhodia Siliconi Italia SpaItaly100Rhodia Silica QingdaoChina100Rhodia SilicesFrance100Rhodia Syntech GmbHGermany100Rhodia Suzhou Anli SCChina70Rhodia IndolatexIndonesia100Rhodia Specialty Chemicals WuxiChina70Rhodia Industrial Specialties LtdUnited Kingdom100  F-38**Globally integrated subsidiaries****Countries****% owned**Rhodia Engineering Plastics SAFrance100Rhodia Engineering Plastics SRLItaly100Rhodia Engineering Plastics CorpUnited States100Rhodia Engineering Plastics IncCanada100Rhodia P.I. ChalampeFrance100Rhodia P.I. Belle EtoileFrance100Rhodia FiltecFrance100Rhodia Industrial Yarns AGSwitzerland100Rhodia Industrial Yarns SIALatvia100Rhodia Industrial Yarns SlovakiaSlovakia100Rhodia Polyamide Intermediates SASFrance100Rhodia Performances FibresItaly100Rhodia Performances FibresGermany100Rhodia Performances Fibres SASFrance100Rhodia Poliamida LtdaBrazil100Rhodia Polyamide Co LtdKorea100Rhodianyl SNCFrance100Rhodiaster SABrazil88AcetcoVenezuela100Anan KaseiJapan67OrelisFrance100Rhodia AcetolFrance100Rhodia Acetow GmbHGermany100Rhodia Chemie NVBelgium100Rhodia Eco Services BVNetherlands100Rhodia Electronics & Catalysis Inc.United States100Rhodia Baotou Rare Earths Co LtdChina55Rhodia Electronics & CatalysisFrance100Sertow SerpukhovRussia97Rhodia Eco ServicesFrance100Rhodia Acetow Brasil LtdaBrazil100  **Subsidiaries accounted for on the equity        method****Countries****% owned**GelymarChile50Albright & Wilson Chemicals AustraliaAustralia50Hindustan GumIndia50LatexiaBelgium50Jade Fine Chemicals Wuxi Co LtdChina60ButachimieFrance50NylstarItaly50Ying LongChina73Rhodia Hengchang (Zhangjiagang) Specialty        Chemicals Co LtdChina50CycleonFrance50TerisFrance50Teris LLCUnited States50PrimesterUnited States50  F-39
**SIGNATURE**

The registrant hereby certifies that it meets all of the requirements    for filing on Form 20-F and that it has duly caused and authorized the undersigned    to sign this annual report on its behalf.
 
**Rhodia**

By: /s/ Pierre PROTPierre Prot
Senior Vice-President and Chief Financial Officer          (Vice-President in charge of Finance Function)

Date: June 27, 2002