AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 2003

================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                          ____________________________

                                    FORM 20-F
                          ____________________________

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

                   For the fiscal year ended December 31, 2002

                        COMMISSION FILE NUMBER: 333-83166

                          ____________________________


                               GROHE HOLDING GMBH
             (Exact name of Registrant as specified in its charter)

                          ____________________________


                           FEDERAL REPUBLIC OF GERMANY
                 (Jurisdiction of Incorporation or Organization)

                                HAUPTSTRASSE 137
                                   58675 HEMER
                           FEDERAL REPUBLIC OF GERMANY
                    (Address of Principal Executive Offices)


SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None


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: 11.5% senior notes due November 15, 2010.

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 THIS ANNUAL
REPORT: n/a

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.

                           YES       X        NO
                                    ---                ---

INDICATE BY CHECK MARK WHICH FINANCIAL STATEMENT ITEM THE REGISTRANT HAS ELECTED
TO FOLLOW.

                         ITEM 17     ___    ITEM 18    X
                                                      ---

================================================================================


<PAGE>

<TABLE>
<CAPTION>
                                TABLE OF CONTENTS

                                                                                                               PAGE

<S>                                                                                                            <C>
PART I   ........................................................................................................1


ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS...................................................1


ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE.................................................................1


ITEM 3.  KEY INFORMATION.........................................................................................1

         3.A.        Selected Financial Data.....................................................................1
         3.B.        Capitalization and Indebtedness.............................................................4
         3.C.        Reasons for the Offer and Use of Proceeds...................................................4
         3.D.        Risk Factors................................................................................4

ITEM 4.  INFORMATION ON THE COMPANY.............................................................................17

         4.A.        History and Development of the Company.....................................................17
         4.B.        Business Overview..........................................................................18
         4.C.        Organizational Structure...................................................................31
         4.D.        Property, Plant and Equipment..............................................................33

ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS...........................................................34

         5.A.        Operating Results..........................................................................39
         5.B.        Liquidity and Capital Resources............................................................50
         5.C.        Research and Development...................................................................55
         5.D.        Trend Information..........................................................................56
         5.E.        Off-Balance Sheet Arrangements.............................................................58
         5.F.        Tabular Disclosure of Contractual Obligations..............................................59

ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.............................................................59

         6.A.        Directors and Senior Management............................................................59
         6.B.        Compensation...............................................................................62
         6.C.        Board Practices............................................................................62
         6.D.        Employees..................................................................................62
         6.E.        Share Ownership............................................................................63

ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS......................................................63

         7.A.        Major Shareholders.........................................................................63
         7.B.        Related Party Transactions.................................................................64
         7.C.        Interests of Experts and Counsel...........................................................66

ITEM 8.  FINANCIAL INFORMATION..................................................................................66

         8.A.        Consolidated Statements and Other Financial Information....................................66
         8.B.        Significant Changes........................................................................68

ITEM 9.  THE OFFER AND LISTING..................................................................................69

         9.A.        Offer and Listing Details..................................................................69
         9.B.        Plan of Distribution.......................................................................69
         9.C.        Markets....................................................................................69
         9.D.        Selling Shareholders.......................................................................69
         9.E.        Dilution...................................................................................69
         9.F.        Expenses of the Issue......................................................................69


                                      -i-

<PAGE>

ITEM 10. ADDITIONAL INFORMATION.................................................................................69

         10.A.       Share Capital..............................................................................69
         10.B.       Memorandum and Articles of Association.....................................................69
         10.C.       Material Contracts.........................................................................72
         10.D.       Exchange Controls..........................................................................91
         10.E.       Taxation...................................................................................92
         10.F.       Dividends and Paying Agents................................................................96
         10.G.       Statements by Experts......................................................................96
         10.H.       Documents on Display.......................................................................96
         10.I.       Subsidiary Information.....................................................................96

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.............................................96


ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES................................................107


PART II  ......................................................................................................108


ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.......................................................108


ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS..........................108


ITEM 15. CONTROLS AND PROCEDURES...............................................................................108


ITEM 16. [RESERVED]............................................................................................108


PART III ......................................................................................................109


ITEM 17. FINANCIAL STATEMENTS..................................................................................109


ITEM 18. FINANCIAL STATEMENTS..................................................................................109


ITEM 19. EXHIBITS..............................................................................................109


SIGNATURES.....................................................................................................112
</TABLE>


                                      -ii-

<PAGE>

                           FORWARD-LOOKING STATEMENTS

         This annual report includes forward-looking statements. All statements
other than statements of historical fact included in this annual report,
including the statements under the headings "Information on the Company" and
"Operating and Financial Review and Prospects" and elsewhere in this annual
report regarding our financial condition or plans to increase revenues and
statements regarding other future events or prospects, are forward-looking
statements. The words "may", "will", "expect", "anticipate", "believe",
"future", "aim", "continue", "help", "estimate", "plan", "intend", "should",
"shall" or the negative or other variations of them as well as other statements
regarding matters that are not historical fact, are or may constitute
forward-looking statements. We have based these forward-looking statements on
management's current view with respect to future events and financial
performance. These views reflect the best judgment of our executives but involve
a number of risks and uncertainties which could cause actual results to differ
materially from those predicted in our forward-looking statements and from past
results, performance or achievements. Although we believe that the estimates and
the projections reflected in the forward-looking statements are reasonable, such
estimates and projections may prove to be incorrect, and our actual results may
differ from those described in our forward-looking statements as a result of the
following risks, uncertainties and assumptions, among others:

o        risks associated with our significant debt and our ability to meet our
         obligations;

o        our ability to respond timely to technological advances and emerging
         industry standards and practices;

o        our ability to obtain brass and brass-related products at commercially
         reasonable prices;

o        the impact of exchange rate fluctuations;

o        our ability to manage our growth and geographic market expansion;

o        our future capital needs;

o        increased competition from other sanitary products manufacturers;

o        general local and global economic conditions; and

o        the other factors described under "Risk Factors".

         We do not intend to update or revise any forward-looking statements
whether as a result of new information, future events or otherwise. All
subsequent written or oral forward-looking statements attributable to us or
persons acting on our behalf, are expressly qualified in their entirety by the
cautionary statements contained throughout this annual report. As a result of
these risks, uncertainties and assumptions, you should not place undue reliance
on these forward-looking statements.


                                     -iii-

<PAGE>


                 PRESENTATION OF FINANCIAL AND OTHER INFORMATION

PRESENTATION OF FINANCIAL INFORMATION

         You should read the financial statements and the notes to the financial
statements included elsewhere in this annual report in conjunction with
"Operating and Financial Review and Prospects".

         The consolidated balance sheet of Grohe Holding and subsidiaries as of
December 31, 2002 and the related statements of operations, cash flows and
changes in shareholders' equity for the year then ended included in this annual
report have been audited by Ernst & Young AG Wirtschaftsprufungsgesellschaft,
independent public accountants, as indicated in their reports with respect
thereto, and are included in this annual report in reliance upon their authority
as experts in giving those reports.

         The financial statements of Grohe Holding and subsidiaries as of
December 31, 2001 and for the years ended December 31, 2001 and 2000 included in
this annual report were audited by other auditors who have ceased operations as
a foreign associate of the Securities and Exchange Commission Practice Section
of the American Institute of Certified Public Accountants. Those auditors
expressed an unqualified opinion on those financial statements in their report
dated April 23, 2002. The predecessor auditor has not reissued the report.

         As used in this annual report, "Grohe", "Grohe group", "Grohe Holding",
"us", "we" or "our" means Grohe Holding GmbH and its consolidated subsidiaries
and controlled partnerships, except as otherwise indicated; "the predecessor"
means Friedrich Grohe AG and its consolidated subsidiaries and controlled
partnerships before July 31, 1999; "Friedrich Grohe AG" means Friedrich Grohe
AG, our principal operating company, before its conversion from a stock
corporation to a limited partnership under German law; "Friedrich Grohe" means
Friedrich Grohe AG & Co. KG, our principal operating company, after its
conversion from a stock corporation to a limited partnership under German law;
"Grohe Beteiligungs" means Grohe Beteiligungs GmbH & Co. KG, a limited
partnership in which we are the general partner.

CURRENCY

         For the purposes of this annual report, (1) "US dollars" or "US$" means
the lawful currency of the United States of America, (2) "deutsche mark" or "DM"
means the lawful currency of the Federal Republic of Germany for the period
prior to January 1, 1999 and a national currency unit of the euro used as legal
tender in the Federal Republic of Germany for the period from January 1, 1999
until December 31, 2001 and (3) "(euro)" OR "euro" means the single currency
introduced at the start of the third stage of European Economic and Monetary
Union on January 1, 1999, pursuant to the Treaty of Rome establishing the
European Economic Community, as amended by the Treaty on the European Union,
signed at Maastricht on February 7, 1992, and the lawful currency of the Federal
Republic of Germany on and after January 1, 1999.

         Effective January 1, 1999, Germany and ten other member states of the
European Union introduced the euro as their common currency and established
fixed conversion rates between their existing sovereign currencies and the euro.
These countries now form a new "euro zone" which includes Greece as the twelfth
country since January 1, 2001. The euro is a fully convertible currency.

         We changed our reporting currency from deutsche mark to euro effective
January 1, 2001. Accordingly, the financial statements presented for periods
ending after January 1, 2001 are stated in euro. The financial statements for
periods ended prior to January 1, 2001 have been restated from deutsche mark
into euro at an exchange rate of DM 1.95583 to (euro)1, the fixed exchange rate
of January 1, 1999. The comparative financial statements reported in euro depict
the same trends as would have been


                                      -iv-

<PAGE>

presented if we had continued to present financial statements in the currency
that was previously used. Financial information for periods prior to January 1,
1999 will not be comparable to the financial information of other companies that
report in euro and that restated amounts from a currency other than the deutsche
mark.

         On April 28, 2003, the noon buying rate in New York City for cable
transfers in foreign currencies as certified for customs purposes by the Federal
Reserve Bank of New York (the "noon buying rate") for the euro was US$1.10 per
(euro)1.00. For information regarding recent rates of exchange between the euro
and the US dollar, see "Exchange Rates".

ROUNDING

         Certain numerical figures included in this annual report have been
subject to rounding adjustments; accordingly, numerical figures shown as totals
in certain tables may not be an arithmetic aggregation of the figures which
precede them.

                                 EXCHANGE RATES

         The following table sets out, for the periods indicated, certain
information concerning the noon buying rates of euro per US dollar. These rates
differ from the actual rates used in the preparation of the financial statements
and other financial information appearing in this annual report. We make no
representation that the euro or US dollar amounts referred to in this annual
report could have been or could be converted into US dollars or euros, as the
case may be, at any particular rate or at all. On April 28, 2003, the noon
buying rate between the euro and the US dollar was (euro)0.91 per US$1.00.

<TABLE>
<CAPTION>
                                                     HIGH             LOW              AVERAGE          PERIOD END
                                                     ----             ---              -------          ----------
<S>                                                  <C>              <C>              <C>              <C>
Year ended December 31
----------------------
1998                                                   0.95           0.82               0.90(1)              0.85
1999                                                   1.00           0.85               0.94(1)              0.99
2000                                                   1.21           0.97               1.09(1)              1.06
2001                                                   1.19           1.05               1.12(1)              1.12
2002                                                   1.16           0.95               1.06(1)              0.95
October 2002                                           1.03           1.01                --                  1.01
November 2002                                          1.01           0.99                --                  1.01
December 2002                                          1.01           0.95                --                  0.95
January 2003                                           0.97           0.92                --                  0.93
February 2003                                          0.93           0.92                --                  0.93
March 2003                                             0.95           0.90                --                  0.92
April 2003 (through April 28)                          0.95           0.91                --                  0.91
</TABLE>

----------

(1)      The average of the noon buying rates on the last business day of each
         month during the relevant period.


                                      -v-

<PAGE>
                                     PART I

ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

         Not applicable.

ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE

         Not applicable.

ITEM 3.  KEY INFORMATION

3.A.     SELECTED FINANCIAL DATA

         The following table sets out selected US GAAP historical financial
information:

o        of Friedrich Grohe AG for the seven months ended July 31, 1999, derived
         from its audited consolidated financial statements; and

o        of Grohe Holding for the period from inception to December 31, 1999 and
         the years ended December 31, 2000, 2001, and 2002, derived from its
         audited consolidated financial statements.

as well as selected German GAAP historical financial information:

o        of Friedrich Grohe AG for the year ended December 31, 1998 and the
         seven months ended July 31, 1999, derived from its audited consolidated
         financial statements; and

o        of Grohe Holding for the period from inception to December 31, 1999 and
         the years ended December 31, 2000, 2001 and 2002, derived from its
         audited consolidated financial statements.

         As a foreign registrant, Grohe Holding has filed financial statements
with the SEC in accordance with accounting principles generally accepted in the
United States, or US GAAP, for the first time in February 2002. Accordingly,
Grohe Holding has been required to provide selected financial data in accordance
with US GAAP for fiscal years beginning after December 31, 1998. Nonetheless,
selected financial data still needs to be presented for five years, even though
the data for the fiscal year ended December 31, 1998 need not be reconciled to
US GAAP. It is not practicable for Grohe Holding to provide selected financial
data in accordance with US GAAP for the fiscal year ended on or before December
31, 1998. Accordingly, selected financial data for five years is presented in
accordance with accounting principles generally accepted in Germany, or German
GAAP.

         You should read the selected historical financial information in
conjunction with "Operating and Financial Review and Prospects" and the
consolidated financial statements and the related notes included elsewhere in
this annual report.




                                       1
<PAGE>

<TABLE>
<CAPTION>
                                                             US GAAP STATEMENT OF OPERATIONS INFORMATION
                                           FRIEDRICH
                                           GROHE AG                                GROHE HOLDING GMBH
                                           --------                                ------------------
                                                           PERIOD FROM
                                         SEVEN MONTHS       INCEPTION        YEAR ENDED         YEAR ENDED        YEAR ENDED
                                          ENDED JULY       TO DECEMBER      DECEMBER 31,       DECEMBER 31,        DECEMBER
                                           31, 1999          31, 1999           2000               2001          31, 2002(1)
                                           --------          --------           ----               ----          -----------
                                                       (euro in thousands, except ratios and per share data)
<S>                                          <C>                 <C>           <C>               <C>                <C>
Sales.................................       464,046             304,914       855,474           880,781            898,262
Income from operations................        57,625               2,875        46,419            64,871            102,096
Income (loss) before
  extraordinary items.................        26,323             (29,008)      (18,932)          (30,113)            23,551
Extraordinary loss, net of
  taxes...............................             0                   0        (3,008)                0                  0
Net income (loss).....................        26,323             (29,008)      (21,940)          (30,113)            23,551
Weighted average number of
  common shares outstanding (2)(3)....    44,200,000                 N/A           N/A               N/A                N/A
Dividends declared per share (2)......             0                 N/A           N/A               N/A                N/A

Net income per common
  share outstanding (2)...............             0.33              N/A           N/A               N/A                N/A
Income before extraordinary
  items per common share
  outstanding (2).....................             0.33              N/A           N/A               N/A                N/A
Ratio of earnings to fixed
  charges (4)(5)......................            31.0                (0.2)          0.5               0.6              1.6
</TABLE>


<TABLE>
<CAPTION>
                                                               US GAAP BALANCE SHEET INFORMATION

                                                                       GROHE HOLDING GMBH
                                                                       ------------------
                                                 DECEMBER 31,     DECEMBER 31,   DECEMBER 31,     DECEMBER 31,
                                                     1999             2000           2001             2002
                                                     ----             ----           ----             ----
                                                                      (euro in thousands)
<S>                                                 <C>             <C>              <C>             <C>
Goodwill, net of accumulated
   amortization...............................      509,928         487,146          452,555         445,011
Other intangible assets, net of
   accumulated amortization...................      285,615         271,313          253,270         238,245
Total assets..................................    1,540,082       1,500,988        1,353,117       1,322,897
Total debt (6)................................      930,492         885,673          793,261         731,040
Net assets....................................      157,436         168,024          139,768         151,368
Shareholders' equity..........................      157,436         168,024          139,768         151,368
</TABLE>



                                       2
<PAGE>

<TABLE>
<CAPTION>
                                                           GERMAN GAAP STATEMENT OF OPERATIONS INFORMATION
                                         FRIEDRICH GROHE AG                                    GROHE HOLDING GMBH
                                         ------------------                                    ------------------
                                                                            PERIOD
                                                                             FROM
                                                       SEVEN MONTHS        INCEPTION         YEAR          YEAR
                                     YEAR ENDED         ENDED JULY            TO             ENDED         ENDED        YEAR ENDED
                                    DECEMBER 31,            31,            DECEMBER         DECEMBER      DECEMBER      DECEMBER 31,
                                        1998               1999             31, 1999         31, 2000      31, 2001         2002
                                        ----               ----             --------         --------      --------         ----
                                                          (euro in thousands, except ratios and per share data)
<S>                                      <C>                 <C>              <C>           <C>            <C>             <C>
 Sales..........................         718,945             463,606          303,349       850,860        878,868         901,750
 Income (loss) from operations..          89,763              65,702          (16,899)        4,890          43,154         61,698
 Profit (loss) from ordinary              92,346              66,822
    activities..................                                              (39,067)      (70,412)       (27,280)          2,224
 Net income (loss)..............          50,357              39,168          (30,210)      (50,820)       (38,485)        (21,228)

 Weighted average number of
    common shares outstanding
    (2)(3)(7)...................       1,700,000          44,200,000              N/A           N/A             N/A            N/A
 Dividends declared per
    share(2)....................           11.76                0.00              N/A           N/A             N/A            N/A

 Net income (loss) per common
   share outstanding (2)........           16.56                0.49              N/A           N/A             N/A            N/A
 Profit from ordinary
    activities per common share
    outstanding (2).............           30.56                0.85              N/A           N/A             N/A            N/A

 Ratio  of   earnings  to  fixed
 charges (4)(8).................            20.6                29.7             (0.5)          0.2             0.7            1.0
</TABLE>

<TABLE>
<CAPTION>
                                                                  GERMAN GAAP BALANCE SHEET INFORMATION
                                              FRIEDRICH
                                              GROHE AG                               GROHE HOLDING GMBH
                                              --------                               ------------------
                                           DECEMBER 31,        DECEMBER 31,    DECEMBER 31,     DECEMBER 31,      DECEMBER 31,
                                               1998                1999            2000             2001              2002
                                               ----                ----            ----             ----              ----
                                                                           (euro in thousands)
<S>                                                <C>             <C>              <C>             <C>              <C>
Goodwill, net of
  accumulated amortization...............          264             499,518          474,509         439,751          404,968
Other intangible assets, net of
  accumulated amortization...............        2,685             282,708          253,210         222,081          194,740
Total assets.............................      575,114           1,506,374        1,439,584       1,288,509        1,234,338
Total debt (6)...........................       40,266           1,037,960        1,036,202         935,013          868,408
Net assets (liabilities).................      291,434             105,978           46,562           8,068         (18,911)
Shareholders' equity (deficit)...........      291,434             105,978           46,562           8,068         (18,911)
</TABLE>

___________

(1)      Beginning January 1, 2002, we ceased goodwill amortization in
         accordance with the new Statement of Financial Accounting Standard No.
         142, "Goodwill and other Intangible Assets". Therefore, income for the
         year 2002 is not directly comparable to income of the preceding years.

(2)      Since Grohe Holding is a GmbH, according to the German Limited
         Liability Companies Act our equity is not represented by a number of
         equal shares. Accordingly, we have not indicated per share amounts for
         Grohe Holding.

(3)      No dilutive potential common shares were issued or outstanding for
         Friedrich Grohe AG.

(4)      Ratio of earnings to fixed charges is computed by dividing earnings by
         our fixed charges. Our fixed charges consist of interest expense,
         including amortization of debt issuance costs, plus one third of rental
         expenses, the portion that has been deemed by management to be
         representative of the interest included in rental expenses.

(5)      Earnings were insufficient to cover fixed charges by approximately
         (euro)33,311, (euro)44,886 and (euro)34,651 for the period from
         inception to December 31, 1999 and the years ended December 31, 2000
         and 2001, respectively.

(6)      Total debt is comprised of debt to banks, long-term debt to related
         parties and shareholders, notes and capital leases.


                                       3
<PAGE>

(7)      In 1999, 1,700,000 shares of common stock at par value of DM 50 per
         share were exchanged for 44,200,000 shares of common stock at par value
         of (euro)1 per share.

(8)      Earnings were insufficient to cover fixed charges by approximately
         (euro)39,065, (euro)70,990 and (euro)26,913 for the period from
         inception to December 31, 1999 and the years ended December 31, 2000
         and 2001, respectively.

3.B.     CAPITALIZATION AND INDEBTEDNESS

          Not applicable.

3.C.     REASONS FOR THE OFFER AND USE OF PROCEEDS

         Not applicable.

3.D.     RISK FACTORS

OUR SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS COULD AFFECT OUR BUSINESS
ADVERSELY, AND CHANGES IN INTEREST RATES MAY RESULT IN INCREASED PAYMENTS TO
SERVICE OUR DEBT.

         As of December 31, 2002, we had total debt of (euro)731.0 million of
which (euro)358.4 million was senior or structurally senior to our 11.5% senior
notes due November 15, 2010, which notes we refer to in this annual report as
the notes. In addition, our primary operating subsidiary, Friedrich Grohe, which
was a borrower under our senior credit facility (which we refer to as the senior
credit facility or senior facility and which we describe in greater detail in
Item 10.C. below) and is a borrower under our new credit facility (which we
refer to as the new senior credit facility or new senior facility and which we
also describe in greater detail in Item 10.C below), had undrawn credit
facilities, excluding guarantee facilities, of approximately (euro)59.4 million
as of that date. Certain of our other subsidiaries had, as of December 31, 2002,
approximately (euro)10.7 million of additional availability under their
respective undrawn credit facilities.

         Our annual debt service consists of principal and interest payments on
bank debt, the notes, and capital lease obligations. For the year ended December
31, 2002, our annual debt service amounted to (euro)129.1 million. Based upon
the current repayment schedule of the new senior facility, the notes and our
other debt, and assuming that interest rates remain at the same level as at the
year end 2002, our annual debt service will be approximately (euro)101 million
for the year 2003, approximately (euro)105 million for the year 2004,
approximately (euro)99 million for the year 2005 and approximately (euro)111
million for the year 2006. Approximately (euro)335.4 million of our debt bore
interest at a variable rate as of December 31, 2002. If interest rates increase
by 1%, our debt service would increase to approximately (euro)106 million for
the year 2003, approximately (euro)110 million for the year 2004, approximately
(euro)104 million for the year 2005 and approximately (euro)116 million for the
year 2006. To mitigate the risk of changes in interest rates we have entered
into interest rate swaps and collars. We cannot assure you that we will be able
to continue to mitigate interest rate risks by concluding economic hedging
transactions for these risks.

         Our high level of debt could have important consequences to holders of
the notes, including the following:

o        we may have difficulty borrowing money in the future for working
         capital, capital expenditures, acquisitions, research and development,
         general corporate purposes or other purposes;

o        we will need to use a large portion of our cash flow from operations to
         pay principal and interest on the new senior credit facility, the notes
         and any other debt which will reduce the amount of cash available to us
         to finance our operations and other business activities;



                                       4
<PAGE>

o        debt under the new senior credit facility is secured and structurally
         senior to the notes and will mature prior to the notes;

o        we may have a much higher level of debt than certain of our competitors
         which may put us at a competitive disadvantage and may make it
         difficult for us to pursue our business strategy, and our debt level
         makes us more vulnerable to economic downturns and adverse developments
         in our business.

         We and our subsidiaries and controlled partnerships may be able to
incur substantial additional debt in the future. The terms of the new senior
credit facility and the indenture governing the notes, which indenture we refer
to in this annual report as the indenture, and which we describe in greater
detail in Item 10.C. below, restrict, but do not fully prohibit, us and our
subsidiaries and controlled partnerships from doing so. In particular, the
indenture specifically permits Friedrich Grohe and certain wholly-owned
subsidiaries of Friedrich Grohe to borrow the full (euro)50.0 million that is
available to it under the revolving facility of the new senior credit facility
and the full (euro)8.3 million available to it under its other existing credit
facilities. If new debt is added to our consolidated debt described above, the
related risks which we now face could intensify.

TO SERVICE OUR DEBT, WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH, WHICH WE MAY
NOT BE ABLE TO RAISE OR GENERATE. OUR ABILITY TO GENERATE CASH DEPENDS ON MANY
FACTORS BEYOND OUR CONTROL.

         While we believe that we will be able to meet our obligations, our
ability to make scheduled payments on, to refinance and to satisfy our
obligations under our indebtedness will depend upon our future operating
performance. Our ability to implement successfully our business strategy, as
well as general economic, financial, competitive, regulatory, business and other
factors beyond our control, will affect our future operating performance. If our
operating cash flows are not sufficient to meet our operating expenses, capital
expenditures and debt service requirements as they become due, we may be forced,
in order to meet our debt service obligations, to any or all of the following:

o        delay or reduce capital expenditures or the introduction of new
         products;

o        sell assets; and

o        forego business opportunities including acquisitions, research and
         development and design enhancements.

         If we were unable to meet our debt service obligations, we could
attempt to restructure or refinance our existing debt or to seek additional
funding. However, due to our substantial leverage and annual debt service
obligations and because substantially all of our assets have been pledged to
secure the new senior credit facility, we may not be able to do so on
satisfactory terms, if at all. In addition, subject to the existing restrictions
on our ability to incur indebtedness, we may choose to incur additional
indebtedness in the future. This could adversely affect our operating cash flows
and our ability to service our indebtedness, including the notes.

WE ARE A HOLDING COMPANY WITH NO REVENUE-GENERATING OPERATIONS OF OUR OWN. YOU
WILL NOT HAVE ANY DIRECT CLAIMS AGAINST ANY OF OUR OPERATING SUBSIDIARIES.

         Grohe Holding is a holding company and does not directly conduct any
business operations. Our operations are carried out by several operating
companies, which include subsidiaries of Friedrich Grohe, our indirect, primary
operating subsidiary. Our principal direct assets consist of (1) our partnership


                                       5
<PAGE>

interests in Grohe Beteiligungs, which itself is a holding company, and (2) our
subordinated loan to Grohe Beteiligungs, which is subordinated to the
obligations of Grohe Beteiligungs to the lenders under the new senior credit
facility.

         Grohe Holding will have to rely upon repayment of its intercompany loan
to Grohe Beteiligungs and distributions or other payments from Grohe
Beteiligungs to generate the funds necessary to pay the principal of, premium,
if any, and interest on the notes. Except for Grohe Beteiligungs' obligations
under the intercompany loan, none of our subsidiaries has any obligations,
contingent or otherwise, to pay amounts due pursuant to the notes or to make
funds available for these payments, whether in the form of loans, dividends,
distributions or otherwise. In the event of any bankruptcy, liquidation,
winding-up, reorganization or other similar proceeding relating to Grohe
Beteiligungs, your right to participate in a distribution of its assets, based
on our claims under the intercompany loan, is expressly subordinated to the
claims of the lenders under the new senior credit facility. In the event of any
bankruptcy, liquidation, winding up, reorganization or similar proceeding
relating to a subsidiary other than Grohe Beteiligungs, your right to
participate in a distribution of the assets of that subsidiary based on any
claim we may have as an equity holder is subordinate to the right of that
subsidiary's creditors, including trade creditors and preferred equity holders,
if any. Any direct claim that we may have against any of our subsidiaries,
including claims under the intercompany loan, may be further limited or excluded
by operation of German law, including the doctrine of equitable subordination.

         As of December 31, 2002, Grohe Holding's subsidiaries had approximately
(euro)787.0 million of consolidated total liabilities, excluding the
intercompany loan. Of this amount, approximately (euro)335.4 million consisted
of secured loans under the senior credit facility. Although the indenture limits
the ability of our subsidiaries to incur debt and issue preferred equity
interests, there are certain significant qualifications and exceptions to those
limits.

         The senior credit facility restricted, and the new senior credit
facility restricts, Grohe Holding's and Grohe Beteiligungs' ability to access
cash generated by our operating subsidiaries. The partnership agreement of
Friedrich Grohe, our primary operating subsidiary, provides that distributions
of any available profit only may be made on November 30 and June 30 of each
year. Grohe Beteiligungs intends to make withdrawals of distributable profits on
these dates at least in amounts sufficient to make all payments in respect of
the new senior credit facility, the intercompany loan and tax, costs and other
expenses on the level of Grohe Beteiligungs or Grohe Holding, which become due
before the next profit distribution date. If between the two withdrawal dates,
Grohe Beteiligungs has to make unforeseen payments, it may not be possible to
cover these payments and all debt service obligations from amounts which were
previously withdrawn and additional funding may not be available on acceptable
terms, if at all, and would require consent of the lenders under the new senior
credit facility. In addition, if sufficient funds are not available for
distribution on a certain withdrawal date, the next distribution can only be
made on the following withdrawal date.

WE ARE LIABLE FOR ALL DEBTS OF GROHE BETEILIGUNGS.

         Our subsidiary, Grohe Beteiligungs, through which we hold our interests
in the operating company Friedrich Grohe, is not a corporation with limited
liability but a limited partnership, organized under the laws of Germany. As
general partner of that partnership, Grohe Holding is liable for any
indebtedness incurred by Grohe Beteiligungs, including any indebtedness under
the new senior credit facility. At any time, creditors of Grohe Beteiligungs may
choose to demand payment from Grohe Holding for money due and owing by Grohe
Beteiligungs without demanding payment from or suing Grohe Beteiligungs. This
right is available to the creditors regardless of whether Grohe Beteiligungs has
sufficient assets to satisfy the claims of its creditors. Claims against Grohe
Holding by creditors of Grohe Beteiligungs rank equally with your claims under
the notes. In the event of bankruptcy, liquidation,



                                       6
<PAGE>

winding-up, reorganization or other similar proceeding relating to Grohe
Holding, creditors of Grohe Beteiligungs have the same right to participate in
the distribution of our assets as you have and the dividend payable to the
creditors on their respective claims will be calculated on the basis of the
aggregate senior indebtedness of Grohe Holding and Grohe Beteiligungs. In the
future, if we acquire or establish limited partnerships in which Grohe Holding
or Grohe Beteiligungs is a general partner, claims of creditors of those
partnerships would rank equally with your claims under the notes.

WE ARE SUBJECT TO RESTRICTIVE DEBT COVENANTS.

         The indenture governing our notes contains, among other things, certain
provisions which may restrict our ability and the ability of our subsidiaries to
do any of the following:

o        incur additional indebtedness;

o        pay dividends or distributions on, or redeem or repurchase, our capital
         stock or junior indebtedness;

o        make investments;

o        create liens;

o        engage in sale and leaseback transactions;

o        create restrictions on the payment of dividends or other amounts to us
         from our restricted entities;

o        enter into transactions with affiliates; or

o        sell assets or consolidate or merge with or into other companies.

         All of these limitations are subject to exceptions and qualifications
which may be important.

         In addition, our subsidiaries are subject to the restrictive covenants
contained in the new senior credit facility. These covenants restrict, among
other things, the ability of our subsidiaries, including Grohe Beteiligungs and
Friedrich Grohe, to make any payments to us in order to enable us to pay any
principal of the notes while debt under the new senior credit facility is
outstanding. The new senior credit facility also requires our subsidiaries to
maintain specified financial ratios and satisfy financial condition tests. The
ability of our subsidiaries to meet those financial ratios and tests can be
affected by events beyond our control, and we cannot assure you that our
subsidiaries will meet them. A breach of any of those covenants, ratios, tests
or restrictions could result in an event of default under the new senior credit
facility. Upon the occurrence of any event of default under the new senior
credit facility, the lenders could elect to declare all amounts outstanding
under the new senior credit facility, together with accrued interest, to be
immediately due and payable. If our subsidiaries were unable to repay those
amounts, the lenders could proceed against the collateral granted to them to
secure repayment of those amounts. If the lenders under the new senior credit
facility accelerate the payment of those amounts, we cannot assure you that the
assets of our subsidiaries would be sufficient to repay in full those amounts,
to satisfy all other liabilities of our subsidiaries which would be due and
payable and to make payments to us to enable us to repay the notes in full.



                                       7
<PAGE>

         The new senior credit facility restricts Grohe Holding's subsidiaries
from making distributions, loans or other payments, except to enable it to make
certain limited payments, including payments of interest but not principal on
the intercompany loan. Those facilities also prohibit certain payments,
including payments of interest on the intercompany loan if there is a payment
default continuing, or if a payment blockage period has been instituted under
the senior credit facility. Subject to limited exceptions, a payment blockage
period with respect to the intercompany loan may be instituted upon an event of
default under the new senior credit facility. Furthermore, the ability of Grohe
Holding's subsidiaries to pay dividends and make other payments to it may in the
future be restricted by, among other things, other agreements. Although the
indenture limits the ability of Grohe Holding's subsidiaries to enter into such
agreements, those restrictions are subject to significant qualifications and
exceptions. Our subsidiaries may agree to such restrictions in certain
circumstances. Furthermore, the payment of interest and principal on the
intercompany loan as well as the payment of dividends by our subsidiaries may be
subject to taxes.

DUE TO FACTORS SUCH AS OUR COMPLEX STRUCTURE AND GEOGRAPHIC SCOPE OF OPERATIONS,
WE MAY HAVE TO PAY MORE TAX THAN WE EXPECT.

         We realized, and we continue to realize, tax benefits from the
conversion of Friedrich Grohe AG to Friedrich Grohe AG & Co. KG and the
conversion of five subsidiaries from limited liability companies to limited
partnerships. Such benefits relate primarily to increases in the values of
certain assets for depreciation purposes. Furthermore, we received a corporate
income tax refund of (euro)49.3 million from the conversion. We cannot assure
you that the German tax authorities will accept the valuation and the
depreciation period allocation. Those benefits partially depend upon, among
other things, whether we can establish to the satisfaction of the tax authority
that the former shareholders of Friedrich Grohe AG paid tax on their capital
gains. We and our German subsidiaries are currently subject to a tax field audit
which will cover the benefits resulting from the conversion, among other things.
If the results of the audit contradict our calculation on which the tax benefits
and the tax refund are based, we may be required to return a portion of the tax
refund and our expected future tax benefits resulting from the re-valuation of
certain assets may be affected adversely.

         In connection with the offering of the original notes, we reorganized
the Grohe group and formed Grohe Beteiligungs as a partnership under Grohe
Holding, to which we contributed our partnership interest in Friedrich Grohe.
Although we received a preliminary special notice of assessment issued by the
German tax authorities which permits us to deduct 50% of our interest payments
on our long-term debt for determining trade tax on income, this assessment can
be challenged and ultimately overruled. The inability to claim these deductions
would effect our net income adversely.

         We have obtained a favorable ruling from the German tax authorities
with respect to the continued deductibility of interest payments relating to the
financing amounts withdrawn or to be withdrawn from Friedrich Grohe to repay
loans that we incurred for the acquisition of Friedrich Grohe AG. Although this
ruling does not apply to our partnerships, our tax position in this regard also
may be applicable to our partnerships. The lack of a favorable ruling with
respect to our partnerships could effect our net income adversely.

         In addition, German tax rules have been amended effective from 2001
onwards to reduce the debt/equity ratio for allowable interest deductions from
long-term debt to related parties and shareholders granted by foreign
shareholders for corporate income tax purposes. Pursuant to these rules,
interest on long-term debt to foreign related parties and shareholders made to
us may not be deductible to the extent such loans exceed our newly applicable
debt/equity ratio. In this case, we will have fewer deductions and higher
taxable income for corporate income tax purposes.



                                       8
<PAGE>

         In addition, we operate in many countries, most of which have complex
tax regimes. The nature of our operations and our significant reorganizations in
recent years result in our tax affairs and those of our subsidiaries being
complex. In addition, some major subsidiaries have not been subject to a tax
field audit for a number of years. As a result, there are areas where potential
disputes with the various tax authorities could arise in the future.

         We have assumed that there are no limitations in duration and size
regarding loss carry forwards for corporate income tax purposes as well as trade
tax on income purposes. We cannot, however, assure you that the tax laws will
not be changed in this respect. If the tax laws change in this respect, this
change would affect our net income adversely. The German government proposed a
change in tax laws that would limit the amount of taxable income that can be
offset against tax loss carry forwards to 50% insofar as taxable income exceeds
(euro)100,000. This change, if finally adopted in Germany, would not impair our
ability to utilize our tax loss carryforwards if we generate sufficient taxable
income but would delay the time when we could utilize these loss carry forwards.

WE MAY NOT BE ABLE TO FINANCE A CHANGE OF CONTROL OFFER REQUIRED BY THE
INDENTURE.

         Upon a change of control, as defined under the indenture, you are
entitled to require us to offer to purchase all of the notes then outstanding at
101% of their principal amounts, plus accrued and unpaid interest, if any, to
the date of repurchase. If a change of control were to occur, we cannot assure
you that we would have sufficient funds to pay the purchase price of the
outstanding notes. We expect that we would require third party financing to do
so. We cannot assure you that we would be able to obtain this financing. In
addition, the new senior credit facility imposes restrictions on payments by our
subsidiaries which will restrict our ability to repurchase the notes, including
pursuant to an offer in connection with a change of control. A change of control
may result in an event of default under the new senior credit facility and may
cause the acceleration of other indebtedness which may be senior to the notes or
rank equally with the notes. Our future indebtedness also may contain
restrictions on repayment requirements with respect to certain events or
transactions which could constitute a change of control under the indenture. The
inability to repay senior indebtedness, if accelerated, to commence a change of
control offer when required and to purchase the tendered notes each would
constitute an event of default under the indenture.

YOU MAY NOT BE ABLE TO SERVE PROCESS ON US OR OUR DIRECTORS, AND YOU MAY NOT BE
ABLE TO ENFORCE JUDGMENTS OBTAINED FOR US SECURITIES LAW VIOLATIONS.

         Grohe Holding is a limited liability company formed under the laws of
Germany. All of its directors and executive officers named in this annual report
reside outside the United States, and all of Grohe Holding's directly owned
assets and substantially all of the assets of those persons are located outside
the United States. You may not be able to effect service of process on Grohe
Holding or such persons within the United States, or to enforce in German or
English courts, judgments obtained in US courts against Grohe Holding or such
persons, based on civil liability provisions of the US Federal and state
securities laws or other laws. CMS Cameron McKenna, our English counsel, has
informed us that English courts will enforce the provisions of the Trust
Indenture Act included in the indenture and the notes, subject to the general
legal and equitable principles of English law and the general supervisory powers
and discretion of the English courts. CMS Cameron McKenna and CMS Hasche Sigle,
our English and German counsel, have advised us that there is a doubt as to the
direct enforceability in England and Wales and in Germany of civil liabilities
predicated upon the Federal securities laws of the United States.



                                       9
<PAGE>

THE ABSENCE OF PRE-TRIAL DISCOVERY PROCEEDINGS AND THE LIMITATIONS ON THE POWERS
OF COURTS UNDER GERMAN LAW MAY ADVERSELY AFFECT YOUR ABILITY TO ENFORCE YOUR
RIGHTS WITH RESPECT TO THE NOTES.

         We and most of our subsidiaries have our principal places of business
in Germany. Therefore, much of the evidence likely to be relevant in a dispute
regarding the enforcement of your rights with respect to the notes, such as
witnesses and documents, is likely to be located in Germany. United States and
English law and the laws of several other jurisdictions based on common law
provide for pre-trial discovery, which is a process under which parties to the
proceedings may prior to trial compel production of documents by adverse or
third parties and deposition of witnesses. Evidence obtained in this manner may
be decisive as to the outcome of any proceeding. No such pre-trial discovery
process exists under German law. In addition, at trial the coercive powers of
the courts with respect to evidence are limited under German law and are further
limited by privileges and rights not to give evidence which are broader than in
common law jurisdictions.

         Any coercive action required in Germany in connection with pre-trial
discovery proceedings outside Germany only may be effected by requesting legal
assistance from the German authorities. Germany has made a declaration under
Article 23 of the Hague Convention on Evidence pursuant to which it will not
comply with a request for legal assistance with respect to pre-trial discovery
of documents in common law jurisdictions, except as permitted by a regulation
promulgated for this purpose and defining the requirements and procedures.
However, no such regulation has yet been promulgated. Article 10 of the
convention provides that the only coercive measures available in connection with
legal assistance are those existing under the laws of the state providing legal
assistance. Therefore, any legal assistance provided by German courts will be
within the narrow limits of the coercive powers that German courts have under
German civil procedure. Such legal assistance also will be subject to the
wide-ranging privileges and rights not to give evidence which exist under German
law.

         Accordingly, although we have irrevocably submitted to the jurisdiction
of the courts of England and Wales regarding the enforcement of the indenture
and the notes, these features of German law may limit your ability to enforce
your rights with respect to the indenture and the notes because much of the
evidence likely to be relevant to a dispute regarding the indenture and the
notes is likely to be located in Germany.

A LARGE PART OF OUR FINANCIAL PERFORMANCE IS DEPENDENT UPON A HEALTHY GERMAN AND
EUROPEAN ECONOMY.

         For the year ended December 31, 2002, Germany, our largest market,
accounted for 25.2% of total sales and the rest of our European markets
accounted for 48.2% of total sales. As a result, our business is affected by
general economic conditions and other factors in Germany and the rest of Europe,
including fluctuation in GDP, interest rates, market demand, labor costs and
other factors beyond our control. The demand for our products is directly
affected by such fluctuations. We cannot assure you that events having an
adverse effect on the sanitary products industry will not occur or continue,
such as a downturn in the German, European or world economies, continued
increases in interest rates, unfavorable currency fluctuations or a slow down in
the construction industry. For example, approximately 30% of our annual sales
are attributable to the new construction segment of the construction industry,
while the remainder is attributable to the replacement and renovation segments
of the construction industry, which we believe is less cyclical than the new
construction segment. Nevertheless, stagnation in the new construction industry
or a general recession in Germany or Europe would affect adversely our sales and
profitability. Moreover, these factors could be exacerbated by economic
conditions resulting from events such as the war in Iraq. Such conditions could
have a further impact on our sales, our profitability, our supply chain, our
production capability and our ability to deliver products and services to our
customers.



                                       10
<PAGE>

WE OPERATE IN A HIGHLY COMPETITIVE INDUSTRY.

         The sanitary products industry and the markets for our products are
highly competitive. We compete primarily on the basis of the quality and design
of our products and service and, to a lesser extent, on price. In 2002, over 25%
of our revenues came from products brought to market after January 1, 2000. As a
result, our future operating performance is dependent upon our ability to
develop and bring to market additional new products. Our competitors can be
expected to continue to improve the design and performance of their products and
to introduce new products at competitive prices and with attractive performance
and design characteristics. We cannot assure you that we will have sufficient
resources to continue to make adequate investments in our products or that we
will be successful in maintaining our competitive position. If we do not
anticipate and respond to evolving market demands, including for new products,
we will not be able to compete successfully in our markets.

         We compete with numerous regional and specialized competitors. Some of
our competitors are divisions or subsidiaries of larger companies which have
greater financial and other resources than we do. We also experience price
pressure from competitors in certain product lines and markets. The integration
and harmonization of construction and sanitary standards in the European Union
and the rest of the world may expose us to greater competition in those markets.
If we do not compete successfully in those markets, our business, financial
condition or results of operations may be adversely affected.

WE ARE EXPOSED TO LOCAL BUSINESS RISKS IN MANY DIFFERENT COUNTRIES.

         We manufacture and distribute our products in many countries around the
world. One of our strategies is to expand outside of our core European markets.
Accordingly, our business is subject to risks related to the differing legal,
political, social and regulatory requirements and economic conditions of many
jurisdictions. These risks include, among other things:

o        political and economic conditions;

o        differences and unexpected changes in regulatory environments;

o        varying tax regimes;

o        exposure to different legal standards, including insolvency regimes;
         and

o        difficulties in staffing and managing operations.

         Our expansion in markets outside our core European markets requires us
to respond to rapid changes in market conditions in these countries. Our overall
success as a global business depends, in part, upon our ability to succeed in
differing legal, regulatory, economic, social and political conditions. We
cannot assure you that we will continue to succeed in developing and
implementing policies and strategies which will be effective in each location
where we do business.

OUR SUBSTANTIAL AMOUNT OF INTANGIBLE ASSETS COULD AFFECT OUR OPERATING RESULTS
AND OUR NET WORTH ADVERSELY.

         As a result of the acquisition of Friedrich Grohe AG, we recognized a
substantial amount of goodwill and tradename. Since the acquisition, our
consolidated earnings have been affected by charges for amortization of
tradename, and, until December 31, 2001, our consolidated earnings were also
affected by charges for amortization of goodwill. Beginning in fiscal year 2002,
we no longer amortize



                                       11
<PAGE>

goodwill in accordance with SFAS No. 142. We perform an impairment test at least
once per fiscal year. In fiscal year 2002, we recorded no goodwill impairment
charge. However, we cannot assure you that an adverse development in the
business activity of one or all of our operating segments will not result in
goodwill impairment charges in future years. As of December 31, 2002, our
goodwill net of accumulated amortization amounted to (euro)445.0 million, and
our recorded tradename net of accumulated amortization amounted to (euro)226.8
million. We amortize tradename over a period of 15 years. A write-off of all or
a part of our goodwill and tradename could affect our operating results and net
worth adversely.

OUR PENSION PLANS FOR OUR GERMAN EMPLOYEES ARE UNFUNDED.

         We maintain a number of pension plans for almost all of our German
employees who joined the Company before January 1, 2001. These plans provide for
the payment of retirement benefits and certain disability and survivor benefits.
After meeting certain qualifications, an employee gets a vested right to future
benefits. In most cases, the benefits payable are determined on the basis of an
employee's length of service, earnings and ranking. All of these pension plans
are unfunded. We may not have sufficient assets to satisfy these liabilities as
and when they become due. As of December 31, 2001 and December 31, 2002, our
unfunded pension liability amounted to (euro)148.5 million and (euro)164.9
million, respectively.

WE MAY NOT BE ABLE TO MANAGE SUCCESSFULLY ANY FUTURE GROWTH.

         In recent years, we have expanded our business outside Germany and
Europe, particularly in the Far East, the Middle East and the United States. We
have made, and expect to continue to make, significant investments to expand the
geographic scope of our business. Our ability to successfully implement this
expansion strategy has been, and will continue to be, affected by differences in
the technological and competitive environment in those markets and in the market
acceptance of our products.

         Our ability to manage growth also will depend in part on our
administrative, financial and operational controls and our continued ability to
create the infrastructure necessary to exploit market opportunities for our
products and services. In order to compete effectively and to grow our business
profitably we will need to improve continuously and on a timely basis our
financial and management controls, reporting systems and procedures, to
implement new systems as necessary and to expand, train and manage our
workforce.

         In addition, our ability to pursue selected acquisitions, joint
ventures and partnerships will require that our management expend significant
time to identify acquisition targets and joint venture partners and to complete
transactions with such targets and joint venture partners. Moreover, completing
acquisitions and establishing new operations will require considerable expense
in advance of anticipated revenues. The failure of our management to respond
effectively to these challenges and to changes in business conditions could
significantly harm our business, results of operations and financial condition.

OUR PURSUIT OF SELECTED ACQUISITIONS INVOLVES SIGNIFICANT RISKS.

         We will continue to pursue selected acquisitions of related businesses
as one element of our growth strategy, to enhance our existing range of products
and to expand the geographic and industry scope of our business. Competition for
acquisition targets in the sanitary products industry is based on a number of
factors, including price, terms, size and access to capital and ability to offer
cash, stock or other forms of consideration. In order to make successful
acquisitions, we need to identify appropriate acquisition targets, to consummate
acquisitions and to integrate the operations, technologies, products and
personnel of acquired businesses. Our ability to make successful acquisitions
will be limited by our financial resources, including available cash and
borrowing capacity. We may compete for acquisition



                                       12
<PAGE>

targets with other companies with similar acquisition strategies, which
companies may have greater financial and other resources than we have. We cannot
assure you that we will be able to identify and acquire suitable target
companies on acceptable terms.

         Any acquisitions could involve substantial expenses in both acquiring
and integrating other businesses and also could divert management attention from
our other operations. We also could lose key employees of acquired businesses.
In addition, to the extent that we incur additional indebtedness in connection
with these acquisitions, cash flow available to make payments on the notes may
be reduced.

WE DEPEND ON OUR MANAGING DIRECTORS AND KEY TECHNICAL PERSONNEL.

         We believe that our future success will depend on the continued service
of our managing directors and key technical personnel and on our ability to
continue to attract, motivate and retain highly-qualified technical personnel.
If we lose one or more of our managing directors, our business, financial
condition or results of operations may be adversely affected. Highly-qualified
technical personnel required by us in various capacities are sometimes in short
supply in the labor market. We cannot assure you that we will continue to be
successful in attracting, retaining and motivating key technical personnel.

CHANGES IN DISTRIBUTION CHANNELS MAY AFFECT OUR SALES AND MARGINS ADVERSELY.

         While there has been a trend over the past few years away from sanitary
products wholesalers as the sole distribution channel in the sanitary products
industry and a trend towards the do-it-yourself, or DIY, market, traditional
wholesale channels of distribution still dominate the sanitary products
industry. The trend towards the do-it-yourself market has primarily affected
sanitary fittings such as faucets, showerheads and related accessories. We
cannot assure you that more technically-oriented products, such as flushing and
installation systems, which compete directly with our products, will not be
marketed to a larger extent through the do-it-yourself channel. If this
transition occurs, we will face increased pressure on prices, which may
adversely affect our sales and margins.

THE INTERESTS OF OUR PRINCIPAL SHAREHOLDERS MAY CONFLICT WITH YOUR INTERESTS.

         The BC Funds, if calculated together, own approximately 38.1%, and
Teabar Capital Corporation and Capital d'Amerique CDPQ, Inc. own approximately
20.9% and approximately 16.0%, respectively, of Grohe Holding. Teabar Capital
Corporation is wholly-owned by the Ontario Teachers' Pension Plan Board, which
has an interest in the BC Funds of approximately 14.4%. The Caisse de Depot
group, to which Capital d'Amerique CDPQ, Inc. belongs, has a total interest in
the BC Funds of approximately 6.4%.

         Our advisory board consists of three members, two of whom have been
appointed jointly by 13 of the 19 BC Funds, together with seven individual
investors and Teabar Capital Corporation, and one who has been appointed by 13
of the 19 BC Funds together with seven individual investors. The advisory board
has the power to appoint and dismiss our managing directors. Any actions not in
the regular course of our business must be approved by the advisory board. As a
result, nominees of the BC Funds and Teabar Capital Corporation have the power
to direct our business. Pursuant to a shareholders' agreement, our other
shareholders have agreed to support commercially reasonable proposals of 13 of
the 19 BC Funds, together with seven individual investors, in relation to our
activities. However, it may not be possible to enforce that shareholders'
agreement under German law in a timely manner if other shareholders do not
support a proposal of 13 of the 19 BC Funds together with the seven individual
investors because of differing determinations of what is commercially
reasonable.



                                       13
<PAGE>

         In addition, any action requiring shareholder approval, including the
adoption of amendments to articles of association and the approval of mergers or
of sales of all or substantially all of Grohe Holding's assets, could be
affected by the interests of the BC Funds, Teabar Capital Corporation and
Capital d'Amerique CDPQ, Inc. We cannot assure you that the interests of the BC
Funds, Teabar Capital Corporation and Capital d'Amerique CDPQ, Inc. will not
conflict with your interests. For example, the principal shareholders could vote
to cause us to voluntarily redeem the notes. This redemption could affect the
holders' yield on the notes adversely. In addition, the principal shareholders
could vote to cause us to incur additional indebtedness as permitted under the
indenture governing the notes. Incurring additional indebtedness would increase
any debt service obligations which could affect the holders adversely. See "Item
7.B. Related Party Transactions."

IF THE COST OF OUR RAW MATERIALS INCREASES OR THEIR SUPPLY DECREASES, WE MAY
EXPERIENCE SUBSTANTIAL INCREASES IN RAW MATERIAL COSTS OR HAVE DIFFICULTY IN
PURCHASING SUFFICIENT RAW MATERIALS TO MEET OUR PRODUCTION REQUIREMENTS.

         During the year ended December 31, 2002, approximately 62% of our raw
material costs related to brass and brass machining and forging parts and
approximately 32% of our raw material costs related to plastic components. We do
not expect this cost structure to change significantly in the near future. The
cost of brass generally fluctuates based on the supply of and demand for copper
and zinc as well as general economic conditions. We cannot be certain that we
will be able to continue to purchase sufficient quantities of our principal raw
materials to meet our future production requirements. Our cash flow from
operations and operating profit margins may be influenced by world market prices
for our raw materials, particularly to the extent we are unable to pass along
price increases to our customers on a timely basis.

CONFUSION WITH THE BRAND NAME HANSGROHE.

         One of our competitors, Hansgrohe AG, bears a name which is similar to
ours. Although we have entered into an agreement with Hansgrohe AG, allowing us
to use the name GROHE, end-users or other third parties may confuse the two
names. If Hansgrohe AG were to face financial or product quality problems, there
could be a corresponding adverse effect on our business, financial condition or
results of operations if third parties do not distinguish correctly between the
two companies.

WE ARE INTRODUCING A NEW INFORMATION TECHNOLOGY SYSTEM (SAP R/3).

         We are in the process of replacing our existing information technology
system with the standard software system, SAP R/3. We believe that we have taken
all precautions to introduce the new software without causing the disruption of
our production or sales activities. However, since the introduction of the
software involves the change of business processes and is a complex task, we may
face delays and other problems which could adversely affect our business,
financial condition or results of operations.

WE RELY ON TRADEMARKS, PATENTS AND CONFIDENTIALITY AGREEMENTS TO PROTECT OUR
INTELLECTUAL PROPERTY.

         Proprietary protection of our processes and other technology is
important to our business. We rely upon unpatented proprietary expertise and
continuing technological innovation and other trade secrets to develop and
maintain our competitive position. We cannot assure you that any confidentiality
agreements will not be breached, that they will provide meaningful protection
for our trade secrets or proprietary know-how or that adequate remedies will be
available in the event of an unauthorized use or disclosure of these trade
secrets or proprietary know-how. In addition, we cannot assure you that others
will not obtain knowledge of these trade secrets through independent development
or other access by legal means. The failure of our patents, trademarks or
confidentiality agreements to protect our processes, technology, trade secrets
or proprietary know-how could have a material adverse effect on our business,


                                       14
<PAGE>

financial condition or results of operations. Our actions to protect our
proprietary rights may be insufficient to prevent others from developing
products similar to ours. In addition, the laws of many foreign countries do not
protect intellectual property rights to the same extent as the laws of the
United States.

CHANGES IN FOREIGN EXCHANGE RATES COULD HAVE ADVERSE EFFECTS ON OUR OPERATIONS,
AND OUR HEDGING EFFORTS MAY NOT SUCCEED IN MITIGATING THE EFFECTS OF THESE
CHANGES.

         We transact business in approximately 130 countries outside the
European Union and in more than 10 currencies. In the future, we may acquire
interests in entities which operate in countries where the export or conversion
of currency is restricted. During the year ended December 31, 2002, we generated
approximately 30% of our revenues in currencies other than euro, and we expect
the percentage of our revenues that is generated in foreign currencies to
increase in the future. Changes in foreign currency exchange rates can affect
our ability to sell our products at satisfactory prices and can reduce the value
of our assets and revenues and increase our liabilities and costs. Even if
foreign currency revenues substantially offset expenses in the same currency,
those profits may be diminished when reported in euro. In addition, in many
jurisdictions, although our revenues are denominated in local currencies,
production costs are denominated in euro. Therefore, if the euro appreciates,
and the revenue in the local currency associated with our non-euro business
remains at the same level, the profit of that business will decline, and our
revenues, profits and margins in euro will decline. Currency risks are mainly
related to fluctuations of the US dollar to euro exchange rate. Based on a
volume of sales in US dollars for the year 2002 of (euro)196.7 million,
translated at the average exchange rate for the year 2002, a 10% increase in the
euro to US dollar exchange rate would result in an increase in sales of
approximately (euro)19.7 million. A decrease in the euro to US dollar exchange
rate of 10% would result in a decrease in sales of approximately (euro)19.7
million.

         It is our foreign exchange risk management policy to mitigate the risk
from exchange rate fluctuations on foreign currency denominated sales by
entering into hedging transactions. We reduce the risk on cash flows from
anticipated sales and accounts receivables in foreign currencies by entering
into foreign currency derivative contracts to sell the foreign currency amounts
which will be received from sales in foreign currencies at a fixed euro to
foreign currency exchange rate. This policy has been set up to enable management
to plan future euro cash flows from sales and related accounts receivables. The
maximum length of time to hedge the exposure from forecasted sales is twelve
months. The derivative contracts that we enter into may exceed this twelve
months period by the expected collection period of up to six months for the
related accounts receivables, as we may use the same contract to hedge the
currency exposure from sales transactions and the currency exposure from
accounts receivables resulting from that sales transactions. We may not always
be able to mitigate the impact of exchange rate fluctuations by entering into
economic hedging transactions. In particular, while our hedging strategy enables
us partly to mitigate the effects on our cash flows of a decline in the value of
the US dollar compared to the euro over a period of approximately one year, it
does not enable us to mitigate the effects on our cash flows of a long-term
decline in the value of the US dollar compared to the euro.

         As a majority of our foreign currency derivatives are related to future
sales, and the fair market valuation of such derivatives is highly dependent on
the exchange rate at balance sheet date, gains and losses from such derivatives
due to currency exchange rate fluctuations may be significantly higher than the
foreign currency gains and losses resulting from the settlement and valuation of
foreign currency receivables. Accordingly, fluctuations in currency exchange
rates may have a negative effect on our business, financial condition and
results of operations. Before January 1, 2003, we did not apply hedge
accounting. Accordingly, we directly included in income gains and losses
resulting from changes in fair market value of foreign currency derivative
contracts. Beginning on January 1, 2003, we have applied hedge accounting for
most of our currency derivatives used to hedge sales transactions. Generally we


                                       15
<PAGE>

will report gains and losses resulting from changes in fair market value of
derivatives specifically designated to hedge projected sales as a component of
other comprehensive income or loss, as the case may be, and reclassify them into
earnings in the same period during which the hedged forecasted sales transaction
affects earnings. Based on a notional amount of US dollar foreign currency
derivatives of (euro)135.0 million at December 31, 2002, (euro)152.1 million at
December 31, 2001 and (euro)184.8 million at December 31, 2000, a hypothetical
10% increase in the euro to US dollar exchange rate would reduce the fair value
of our US dollar foreign currency derivatives by approximately (euro)13.5
million, (euro)15.2 million and (euro)18.5 million, respectively, and would
result in corresponding losses. For the year ended December 31, 2001, we
recorded financial losses from derivative financial instruments that are
sensitive to changes in foreign exchange rates amounting to (euro)15.4 million
compared, with a net loss for that period of (euro)30.1 million. For the year
ended December 31, 2002, we recorded financial income from derivative financial
instruments that are sensitive to changes in foreign exchange rates amounting to
(euro)28.0 million compared, with a net income for that period of (euro)23.6
million.

WE MAY BE REQUIRED TO DEFEND LAWSUITS OR PAY DAMAGES IN CONNECTION WITH ALLEGED
OR ACTUAL DEFECTS OR FAILURES WITH OUR PRODUCTS.

         We make sanitary fittings, including some products such as thermostats
which are designed to protect people from scalding. Defects in our products may
result in injury to the users of our products, product recalls, adverse customer
reaction and negative publicity about us or our products. Defects also may
require expensive modifications to our products, and harm our business,
financial condition and results of operations. Users who are injured could bring
claims against us for substantial damages. Any claims asserted against us could
exceed the level of our insurance. We cannot assure you that the insurance we
carry will continue to be available on economically reasonable terms, if at all.
The successful assertion of one or more large claims against us which are not
covered under our insurance policy, exceed our insurance coverage or result in
premium increases and other changes to our insurance policies may have a
material adverse effect on our business, financial condition or results of
operations.

MINORITY LIMITED PARTNERS OF FRIEDRICH GROHE HAVE CHALLENGED THE CONVERSION OF
FRIEDRICH GROHE AG FROM A STOCK CORPORATION TO A LIMITED PARTNERSHIP AND HAVE
CHALLENGED THE APPROVAL OF THE YEAR 2000 FINANCIAL STATEMENTS OF FRIEDRICH
GROHE.

         We are involved in litigation, consisting of several interrelated
lawsuits and corresponding appeals, in relation to the March 2000 conversion of
Friedrich Grohe AG, a stock corporation, into Friedrich Grohe AG & Co. KG, a
limited partnership. If any of these lawsuits is successful, there is a risk
that the court may annul that conversion or award monetary damages to the
plaintiffs. The annulment of the conversion, among other things, could cause us
tax disadvantages and difficulties in reducing our high debt levels by
restricting our ability to use funds of Friedrich Grohe and its subsidiaries to
repay acquisition debt.

         In addition, a minority shareholder has filed a claim objecting to the
adoption of the Friedrich Grohe year 2000 financial statements. If this claim is
successful, the financial statements and withdrawals from Friedrich Grohe for
year 2000 may be declared invalid.

         For a more detailed description of these legal proceedings and their
potential consequences, please refer to Item 8.A.7. "Legal Proceedings" below.

WE ARE SUBJECT TO STRICT ENVIRONMENTAL LAWS.

         In Germany and other countries where we do business, we are subject to
laws and regulations relating to the protection of the environment and natural
resources including, among other things, the



                                       16
<PAGE>

management of hazardous substances and wastes, air emissions, water discharges
and workplace health and safety. Although we have made, and will continue to
make, significant expenditures related to our environmental compliance
obligations, we cannot be certain that we are or will be in compliance with such
requirements at all times. Compliance with these laws and regulations entails
considerable cost, and any violations of these laws could result in substantial
penalties, temporary or permanent plant closures and criminal convictions.
Moreover, the nature of our existing and historical operations exposes us to the
risk of liabilities or claims relating to releases of hazardous materials. These
claims include property damage, personal injuries and cleanup obligations. In
addition, changes in existing environmental requirements or the discovery of
presently unidentified environmental liabilities associated with our historical
operations could require us to incur material costs or suspend or scale back
operations temporarily or permanently. Refer to Item 4.B. "Business Overview --
Environmental Matters".

         We anticipate that the German government and other governments in
countries where we do business will continue to develop increasingly strict
environmental laws and regulations and to interpret and enforce more
aggressively existing laws and regulations. As compliance with these laws can be
costly to us, this trend may have an adverse effect on our business, financial
condition or results of operations.

ITEM 4.  INFORMATION ON THE COMPANY

4.A.     HISTORY AND DEVELOPMENT OF THE COMPANY

ORGANIZATION

         Grohe Holding GmbH was founded on July 5, 1999. It is entered into the
commercial register of the Local Court (AMTSGERICHT) of Iserlohn, Germany, under
file number HRB2316, as a limited liability company under the laws of the
Federal Republic of Germany. Grohe Holding has its registered office at
Hauptstrasse 137, 58675 Hemer, Germany, telephone: 011-49-2372-93-0. CT
Corporation System, 111 Eighth Avenue, New York, New York 10011, is our US agent
for service of process. Puglisi & Associates, 850 Library Avenue, Suite 204,
P.O. Box 885, Newark, Delaware 19715, is our authorized US representative.

         Grohe Holding GmbH is a holding company and does not directly conduct
any business operations. During the period from inception to December 31, 1999,
we acquired 96.9% of our predecessor, Friedrich Grohe AG. We acquired more
minority shares in the years 2000 to 2002. As of December 31, 2002, we own
approximately 99.6% of Friedrich Grohe. On February 23 and 24 of the year 2000,
at a shareholders' extraordinary meeting of Friedrich Grohe AG, the shareholders
passed a resolution to transform Friedrich Grohe AG into Friedrich Grohe AG &
Co. KG, a limited partnership. The new legal form of Friedrich Grohe AG & Co. KG
was registered in the Commercial Register of the Local Court (AMTSGERICHT) of
Iserlohn, Germany, on March 28, 2000. We refer in this annual report to the
transformation of Friedrich Grohe AG from a stock corporation into a limited
partnership and related transactions as the "conversion".

         On October 4, 2000 Grohe Beteiligungs GmbH & Co. KG was founded in
order to establish a favorable financing structure within the Grohe group. Grohe
Holding GmbH transferred almost its entire business activities including its
interest in Friedrich Grohe to Grohe Beteiligungs GmbH & Co. KG in accordance
with a contribution and transfer agreement dated October 26, 2000. The effective
date of contribution was October 1, 2000.

         On December 16, 2002, we entered into an agreement, which became
effective as of January 1, 2003, to acquire, through our subsidiary Aqua Butzke
GmbH, the remaining minority interests that we did



                                       17
<PAGE>

not then own in our subsidiaries Rotter GmbH & Co. KG and Rotter
Verwaltungsgesellschaft mbH for a total purchase price of (euro)2.2 million.

HISTORY

         Mr. Friedrich Grohe acquired our predecessor in 1936. After 1948, our
predecessor expanded as a producer of faucets through organic growth, mainly in
Germany. Broader internationalization of our sales operations began with the
founding of our first foreign subsidiary in France in 1961. The cornerstones of
our globalization activities were the formation of Grohe America Inc. in 1976,
Grohe Japan K.K. in 1991 and Grohe Pacific Pte. Ltd in 1995.

         In 1994, Friedrich Grohe AG acquired the DAL/Rost Group, a leading
producer of flushing and installation systems, which we market under our
SANITARYSYSTEMS product range, and water management systems, which we market
under our AQUA brand. We followed this acquisition in 1997 by the acquisition of
70% of the shares of ROTTER, a leading European producer of specialized sanitary
solutions for the commercial sector. These acquisitions were key steps in the
development of our water technology concept. They also expanded our business in
the commercial sector, created growth in sales and enabled us to achieve
synergies across our businesses.

         Although most of our production facilities are located in Germany,
production in Portugal, Thailand and Canada began during the second-half of the
1990s. These production plants have enabled us to manufacture our products more
cost-effectively in the lower-end faucet segment and to further penetrate local
markets by meeting local market demand.

4.B.     BUSINESS OVERVIEW

         We are Europe's largest manufacturer of sanitary fittings, based on
both volume and value, concentrating on the medium- and high-end of the sanitary
products market, according to a report by Consult GB for the year 2002, and, on
the basis of publicly available annual reports of our competitors, one of the
world's three largest manufacturers of sanitary faucets. We develop and
manufacture an extensive range of (1) sanitary fittings, such as faucets,
showerheads and related accessories, and shower systems, and (2) sanitary
technology products, such as flushing and installation systems and water
management systems. We sell our water technology products principally to
sanitary products wholesalers, who sell them to plumbers and retailers who, in
turn, sell them to private residential and commercial end-users. We have a
global presence, and we have the largest market share, by value, in Germany,
France, the Benelux countries and Austria, our core European markets. Our
extensive distribution system, including 19 marketing subsidiaries and
relationships with approximately 40 unaffiliated agent companies, which allows
us to sell our products in approximately 140 countries. Our main production
facilities are located in Germany but we also have production sites in Portugal,
Thailand and Canada as well as an assembly plant in China.

         We have evolved from being a manufacturer of faucets and showers to
being a water technology company, providing integrated solutions and systems for
all water delivery points in bathrooms and kitchens. We refer to our ability to
provide and integrate an extensive range of sanitary fittings and sanitary
technology products into sanitary systems to create additional benefits for
plumbers, installers, architects and end-users as our "water technology
concept".

         We established the GROHE brand in Germany over 50 years ago and have
since established a significant brand position in markets worldwide. We believe
that our customers associate the GROHE brand with superior quality, reliability
and premium design. For the year ended December 31, 2002, more than 90% of our
total group sales were from products marketed under the GROHE brand, using


                                       18
<PAGE>

essentially the same product lines and corporate design worldwide. We believe
that our continued success as a manufacturer of water technology products is
based on the strength of our single global brand. In 2002 we completed the
reorganization of our innovation and product development process around the
strategic product groups GROHEART, GROHETEC, SANITARYSYSTEMS (previously
GROHEDAL), SHOWERS AND SHOWER SYSTEMS, and KITCHEN FITTINGS. Our GROHEART
product range is comprised of high-end, design-oriented sanitary fittings and
related accessories. The target market for our GROHETEC product range is the
brand- and value-conscious consumer of sanitary fittings and related accessories
in the medium-end of the market. SANITARYSYSTEMS comprise flushing and
installation systems. SHOWERS AND SHOWER SYSTEMS offer a broad range of new and
innovative shower products. The strategic product groups focus on the management
of the product development and innovation processes as well as the management of
the product life cycle and supplement our functional organizational structure.
We believe that the reorganization of our product innovation and development
processes will improve the efficiency and effectiveness of our innovation
process and shorten product development time in order to meet increasing market
demands for new and innovative products with broader functionality, as product
life cycles are shortening.

                              COMPETITIVE STRENGTHS

         We believe that our strong position within the sanitary products
industry is based primarily on the following factors.

GLOBAL MARKET PRESENCE.

         We are one of a small number of companies in the sanitary products
industry which has a strong global market presence. We believe that our global
market presence allows us to benefit from the growing globalization of the
sanitary products industry, which is primarily being driven by increased
standardization of sanitary products and the convergence of local tastes and
preferences. Our global distribution network allows us to distribute our
products worldwide and helps insulate us from economic cycles and downturns in
particular geographic markets.

         Our sales by geographical markets in the past three years were as
follows:

<TABLE>
<CAPTION>
                                          YEAR ENDED                    YEAR ENDED                   YEAR ENDED
                                       DECEMBER 31, 2002            DECEMBER 31, 2001             DECEMBER 31, 2000
                                       -----------------            -----------------             -----------------
                                      SALES                        SALES                         SALES
                                    (IN (EURO)    PERCENTAGE     (IN (EURO)      PERCENTAGE    (IN (EURO)     PERCENTAGE
                                     MILLIONS)     OF SALES       MILLIONS)       OF SALES      MILLIONS)      OF SALES
                                     ---------     --------       ---------       --------      ---------      --------
COUNTRY
-----------------------------
<S>                                    <C>           <C>            <C>             <C>           <C>           <C>
Germany......................          226.0         25.2%          245.4           27.9%         264.9         31.0%
Rest of Europe...............          433.0         48.2%          410.6           46.6%         380.7         44.5%
Overseas.....................          239.3         26.6%          224.8           25.5%         209.9         24.5%
-----------------------------          -----        -----           -----          -----          -----        -----

Total Sales..................          898.3        100.0%          880.8          100.0%         855.5        100.0%
</TABLE>


MARKET LEADING POSITIONS.

         We are a market leader in sanitary faucets in our core European
markets. In 2002, sanitary faucets accounted for approximately 70% of our total
sales. Our estimate of market share in sanitary faucets, in terms of value, in
our core European markets in 2001, is set out in the following table:



                                       19
<PAGE>

<TABLE>
<CAPTION>
                                                                      MARKET SHARE         MARKET POSITION
COUNTRY                                                                (BY VALUE)            (BY VALUE)
-------                                                                ----------            ----------
<S>                                                                        <C>                   <C>
Germany...........................................................         23%                   1
The Netherlands...................................................         57%                   1
Belgium/Luxembourg................................................         47%                   1
Austria...........................................................         30%                   1
France............................................................         25%                   1
Spain.............................................................         16%                   2
Italy.............................................................         12%                   2
</TABLE>


         In addition to our strong market position in sanitary faucets, we
estimate that we are the second largest European manufacturer of flushing and
installation systems.

STRONG SINGLE GLOBAL BRAND.

         We believe that we are one of the leading global participants in the
sanitary products industry. One factor which has enabled us to reach this
position is the development of our single global brand, GROHE, under which we
market the product ranges GROHEART, GROHETEC, SANITARYSYSTEMS, SHOWERS AND
SHOWER SYSTEMS and KITCHEN FITTINGS. For the year ended December 31, 2002, more
than 90% of our total group sales were from products marketed under the GROHE
brand, using essentially the same product lines and corporate design worldwide.
We consider the GROHE brand to be our most valuable asset, and we have carefully
developed it over the past 50 years. In addition to giving us a global market
presence, we believe that our customers associate the GROHE brand with superior
quality, reliability, product innovation and design. We leverage the strength of
our single brand on a global basis and are able to position our products at the
medium- and high-end segments of the sanitary products industry.

WATER TECHNOLOGY CONCEPT.

         Through both organic growth and carefully targeted acquisitions, we
have been able to develop competencies across both the sanitary fittings and
sanitary technology product segments. We are now able to combine individual
products from our extensive product range within each of these segments to
develop integrated systems which satisfy changing private residential and
commercial end-user preferences. We believe sanitary products wholesalers,
plumbers, installers and architects favor our ability to offer a complete range
of integrated sanitary products. We also believe that we produce systems
combining sanitary fittings and sanitary technology products which are unique in
the global sanitary products industry.

EXTENSIVE PRODUCT RANGE.

         In addition to offering an extensive range of products covering both
the sanitary fittings and sanitary technology segments, we have developed
extensive product ranges within each segment. Our products marketed under the
GROHE brand include nine lines of GROHEART faucets, 38 lines of GROHETEC
faucets, six shower lines, four sanitary systems lines and, besides several
adaptations of bath room faucets, three self-contained kitchen faucet lines for
all relevant price points and design segments. Through our investment in
research and development, we continue to improve our product mix to track
changing end-user preferences in relation to both design and functionality. For
example, we are continuing to successfully develop single-lever faucets to meet
consumer requirements for functionality. In addition, we are focusing on the
development of the GROHEART product range, which was introduced seven years ago,
to address the growing demand for design-oriented sanitary fittings. Following
our



                                       20
<PAGE>

successful introduction of an innovative shower head and sidespray shower system
we continue to develop innovative shower products.

SUPERIOR QUALITY AND DESIGN.

         We have achieved a reputation for superior quality, reliability and
product innovation and design through our emphasis on research and development,
design and production. We are a recognized industry leader for our research and
development efforts, our innovation and our implementation of technological
expertise. We generally invest 2% to 3% of sales in research and development. We
have established a Design Center in Hemer, Germany, where we have a team of
highly qualified sanitary products designers, whose designs have received
numerous awards. We have technologically advanced production facilities as a
result of our investment of an average of approximately (euro)26.0 million per
year over the last five years in our production operations. "Lifetest", our
product durability test, was adopted in 1997 in the United States as a basis for
sanitary products industry testing.

GLOBAL DISTRIBUTION AND SALES NETWORK.

         We have a global sales force of approximately 1,200 employees worldwide
in our own network of 19 marketing subsidiaries. These employees and our
long-standing relationship with our unaffiliated agent companies provide
in-depth market knowledge, local management experience and a high level of local
management autonomy. We also deal on a regular basis with approximately 40
unaffiliated agent companies in markets where an independent sales subsidiary is
not appropriate due to regional variations in distribution methods. We sell
primarily through the sanitary products wholesaler, plumber and installer
distribution channel, which serves the majority of the medium- and high-end
segments of the sanitary products market. This enables us to maintain our
position as a premium brand manufacturer targeting the medium- and high-end
segments of the sanitary products market.

CUSTOMER RELATIONSHIP MANAGEMENT.

         We have established close ties with our core customer base, which
includes sanitary products wholesalers, plumbers, installers and architects who
are often the decision-makers in the purchase of sanitary products. We maintain
close contact with sanitary products wholesalers, installers and plumbers
through our focus groups. More than 26,000 plumbers and installers each year are
trained at our 25 customer training centers worldwide. Our Design Center serves
as a forum for architects and other industry participants to discuss the latest
design trends in sanitary products for the bathroom. Furthermore, since 1993, we
have created several "customer clubs" and customer relationship programs world
wide with over 13,000 members in order to support not only wholesalers,
installers and plumbers but also architects, consultants and contractors.

                                BUSINESS STRATEGY

LEVERAGE OUR SINGLE GLOBAL BRAND.

         For the year ended December 31, 2002, more than 90% of our total group
sales were from products marketed under the GROHE brand, using essentially the
same product lines and corporate design world-wide. As we expand our product
range and geographical presence and continue to build upon our water technology
concept, the GROHE brand will form an integral part of the success of these
strategies.



                                       21
<PAGE>

EXPAND WATER TECHNOLOGY CONCEPT IN OUR CORE EUROPEAN MARKETS.

         The ultimate goal of our water technology concept is to provide
compatible and complementary sanitary fittings and sanitary technology products
and to integrate them into sanitary systems to create additional benefits for
plumbers, installers and private residential and commercial end-users. We intend
to further expand our water technology concept in our core European markets by
further developing and integrating our ranges of sanitary fittings and sanitary
technology products and pursuing selected acquisitions to broaden our
competencies within and across the sanitary fittings and sanitary technology
products segments.

CAPITALIZE ON GROWTH OPPORTUNITIES OUTSIDE OUR CORE EUROPEAN MARKETS.

         We believe significant growth opportunities exist in countries outside
our core European markets, such as in the United States and the United Kingdom,
as well as in selected emerging markets.

o        UNITED STATES. As a supplier of European-style sanitary faucets at the
         high-end of the market, we have established a sound market position in
         the United States. Our strategy in the United States is to further
         increase sales of our successful products such as kitchen pull-out
         faucets, thermostatic faucets and shower systems by enhancing their
         features and increasing our market share within our existing market. In
         July 2001, we successfully launched two new product lines in the US
         upper-mass market which gained a significant sales share within a short
         time.

o        UNITED KINGDOM. The United Kingdom is one of the few remaining markets
         in western Europe where we have a relatively low market share. We
         intend to pursue further market penetration of our products by
         introducing new product lines adapted to specific market needs. For
         example, in September 2000, we began the rollout of Avensys, a new
         range of shower products also applicable for low water pressure
         specifications; this product range significantly contributed to the
         growth in our thermostat business.

o        OTHER. We continue to capitalize on growth opportunities in central and
         eastern Europe, Scandinavia, Japan, China and India. In China, we have
         established an assembly plant in Shanghai that allows us to
         significantly broaden our market position, and we are planning to open
         new sales offices. In India, we are working with our sales partners to
         launch our products on the sub-continent.

EXPLOIT INTRAGROUP SYNERGIES.

         The application of existing product-related and technological know-how
developed in connection with one GROHE product range, to other areas of the
business is expected to continue to be a major source of value and competitive
advantage. The continued transfer of know-how between AQUA and other GROHE
product ranges is expected to create significant synergies in terms of product
innovation and production. We also expect to derive advantages through
harmonization of research and development efforts and integration of overlapping
functions, as well as use of our global distribution and sales network. For
example, we plan to continue to apply AQUA and SANITARYSYSTEMS technology to
further expand use of electronic systems in products in the GROHETEC and
GROHEART product ranges. In addition, we successfully integrated the sales
forces of DAL and GROHE in Germany. The resulting synergies enhanced our market
position in a time of very difficult market conditions.

         One element of our strategy is our continued pursuit of selected
acquisitions of related businesses. Through these selected acquisitions, we aim
to further globalize our business, expand our product range



                                       22
<PAGE>

and broaden our water technology concept competency to enable us to continue to
meet changing plumber, installer, architect and private residential and
commercial end-user preferences.

         Where acquisitions are not practical, we also intend to pursue further
expansion of our existing operations through joint ventures and partnerships
with existing businesses, especially where there may be restrictions on foreign
ownership of local businesses.

PRODUCTS AND BRANDS

         We produce sanitary fittings and sanitary technology products for use
in bathrooms and kitchens. Our primary sanitary fittings for private residential
end-users are single-lever and two-handle faucets, thermostat fittings and
shower products such as hand and head showers, shower bars and shower systems.
In addition, we produce electronically-controlled and self-closing valves,
single-lever and two-handle faucets, thermostats and showers for commercial
end-users. Our kitchen products consist of single-lever and two-handle faucets
and specialized faucets for use in combination with hot-water tanks.

         Our largest and core product line is our GROHE range of sanitary
fittings. Within this product line we offer the product groups GROHEART,
GROHETEC, SANITARYSYSTEMS, SHOWERS AND SHOWER SYSTEMS, and KITCHEN FITTINGS.
GROHEART offers faucets and accessories for all relevant bathroom styles around
the world. The target group for our GROHEART products is the more
design-oriented and premium sector customers. GROHETEC, with its value for money
strategy, represents the functional bathroom faucet line and its target market
is brand-, quality- and value-conscious customers. SANITARYSYSTEMS consists of
flushing and installation systems. Grohe Showers and shower systems offer a
brought range of new and innovative shower products.

         We have reorganized our innovation and product development process
around our strategic product groups GROHEART, GROHETEC, SANITARYSYSTEMS, SHOWERS
AND SHOWER SYSTEMS, and KITCHEN FITTINGS. The strategic product groups focus on
the management of the product development and innovation processes as well as
the management of the product life cycle and supplement our functional
organizational structure. In 2002, we began the integration of the production
and the sales force of EGGEMANN into the GROHE business system to tap into
additional market potentials and to increase production efficiency. The product
lines of EGGEMANN will be integrated in the strategic product group GROHETEC.

         Other product lines include water management systems and special
equipment which are marketed under our AQUA and ROTTER brands, as well as
private label and exclusive customer brand sanitary fittings which are marketed
through our subsidiary H.D. Eichelberg & Co. GmbH.

         Our sales by product ranges for the past three years are set out in the
following table:



                                       23
<PAGE>

<TABLE>
<CAPTION>
                                         YEAR ENDED                    YEAR ENDED                   YEAR ENDED
                                      DECEMBER 31, 2002             DECEMBER 31, 2001            DECEMBER 31, 2000
                                      -----------------             -----------------            -----------------
                                      SALES                        SALES                         SALES
                                    (IN (EURO)    PERCENTAGE     (IN (EURO)      PERCENTAGE    (IN (EURO)     PERCENTAGE
                                     MILLIONS)     OF SALES       MILLIONS)       OF SALES      MILLIONS)      OF SALES
                                     ---------     --------       ---------       --------      ---------      --------
<S>                                     <C>          <C>             <C>            <C>           <C>           <C>
GROHEART..................              78           8.7%            65             7.4%          56            6.5%
GROHETEC..................             369          41.1%           374            42.5%         368           43.1%
SANITARYSYSTEMS...........              88           9.8%            89            10.1%          89           10.4%
SHOWERS AND
   SHOWER SYSTEMS.........             142          15.8%           130            14.8%         119           13.9%
KITCHEN FITTINGS..........             104          11.5%            98            11.2%          94           11.0%
Other.....................             117          13.1%           125            14.0%         129           15.1%
--------------------------             ---          ----            ---            ----          ---           ----

Total Sales...............             898         100.0%           881           100.0%         855          100.0%
</TABLE>

GROHEART

         Our GROHEART product range consists of design-oriented sanitary
fittings for bathrooms, as well as a variety of coordinated bathroom accessories
which share the same design elements. GROHEART sanitary fittings have features
such as hand-ground bodies, nickel-and chromium-plated brass castings, 23-carat
scratch-resistant gold finishes and crystal handles. GROHEART products typically
retail for between (euro)150 and (euro)400. For the year ended December 31,
2002, our GROHEART product range accounted for 8.7% of our total sales.

GROHETEC

         Our GROHETEC product range represents the functional bathroom faucet
line marketed worldwide. Most of these products are positioned in the
medium-price segment of the core European sanitary products market. GROHETEC
faucets have achieved a reputation for high quality at affordable prices and
typically retail between (euro)75 and (euro)250. For the year ended December 31,
2002, our GROHETEC product range accounted for 41.1% of our total sales.

SANITARYSYSTEMS

         Our SANITARYSYSTEMS (previously GROHEDAL) product range is comprised of
flushing and installation systems. Flushing systems consist of devices designed
to deliver water to toilets and urinals. A flushing system for a toilet or
urinal includes a sanitary valve to release water and a manual or electronic
trigger mechanism. Flushing systems can be installed either behind or in front
of the bathroom wall.

         We have significantly increased our SANITARYSYSTEMS product range in
recent years to include touch-free, electronically-controlled flushing systems
to address the growing demand for hygienic public toilet and urinal facilities.
Electronically-controlled flushing systems include systems controlled by radar
or infra-red electronic devices. An added benefit of radar-controlled systems is
that they are difficult to vandalize.

         Installation systems are available for both renovation and new
construction projects. Alongside the Rapid and Uniset lines, we have
successfully established the Rapid "Pro" modular system. The Rapid installation
system does not need any masonry. For new construction projects, the system does
not have to be integrated into the bathroom wall when it is built and can be
installed at a later stage of the construction project. It also makes renovation
projects easier because the bathroom infrastructure can be modified without
having to build new walls or change existing walls. For new building
construction, we



                                       24
<PAGE>

offer our Uniset lines, an installation system with integral masonry. For the
year ended December 31, 2002, SANITARYSYSTEMS accounted for 9.8% of total sales.

SHOWERS AND SHOWER SYSTEMS

         SHOWERS AND SHOWER SYSTEMS offer a brought range of new and innovative
shower products, such as hand and head showers, shower bars and shower systems.
Hand and head showers are offered with up to five spray patterns. Shower systems
include the Freehander which features two shower heads on a sturdy tabular arm
which pivots and the Aquatower 3000, a modern shower unit, equipped with our
high-end headshower, an adjustable hand shower and four individually adjustable
side showers. For the year ended December 31, 2002, the SHOWERS AND SHOWER
SYSTEMS product range accounted for 15.8% of our total sales.

KITCHEN FITTINGS

         KITCHEN FITTINGS consist of single-lever and two-handle faucets and
specialized faucets for use in combination with hot-water tanks. Some kitchen
faucets are equipped with an extractable rinsing spray or aerator. For the year
ended December 31, 2002, KITCHEN FITTINGS accounted for 11.5% of our total
sales.

WATER MANAGEMENT SYSTEMS AND SPECIAL EQUIPMENT

         We market our water management systems to commercial end-users using
the AQUA brand name. Major products under the AQUA brand include:

o        self-closing fittings which consist of automatic or manual components
         which regulate the flow of water in toilets, urinals, lavatories and
         showers;

o        specialized sanitary fittings for use in laboratories which regulate
         the flow of water, gas, air and steam;

o        central water management systems which control the flow of water in
         larger-scale commercial buildings; and

o        drinking water treatment systems which are used to disinfect drinking
         water through electrolysis, ultra-violet or thermal processes.

         Under the ROTTER brand, we market customized sanitary solutions to
commercial end-users. Products include toilets, urinals and wash basins for
businesses, schools and hospitals, sanitary equipment for prisons and wash room
equipment for sports centers and production plants.

         For the year ended December 31, 2002, AQUA and ROTTER accounted for
5.5% of our total sales.

EICHELBERG

         Our brand strategy with respect to the sanitary fittings market in the
private label segment, which focuses on low-end demand, is based on our
ownership of EICHELBERG. Products produced by EICHELBERG consist of private
label sanitary fittings for bathrooms and kitchens. Through EICHELBERG, we are
Germany's largest specialized producer of private label sanitary fittings for
bathrooms and kitchens.



                                       25
<PAGE>

         For the year ended December 31, 2002, EICHELBERG accounted for 2.1% of
our total sales.

                           DISTRIBUTION AND CUSTOMERS

         Our distribution system generally follows the three-step process common
to the sanitary products industry in most developed markets: from the
manufacturers to the sanitary products wholesalers, from the sanitary products
wholesalers to the installers and retailers and from the installers and
retailers to private residential and commercial end-users. In some markets, for
example in Japan, we use different distribution systems because they are more
appropriate to the local market. For the sanitary products industry as a whole,
approximately 80% of sales are made through sanitary products wholesalers. This
form of distribution is even more important for us; 94% of our distribution is
through sanitary products wholesalers. The remaining 6% of our distribution
comprises, as to 5%, original equipment manufacturer business and, as to 1%,
direct deliveries to larger-scale projects in the Far East. Although difficult
to quantify, we believe that do-it-yourself channels account for no more than 4%
of our distribution.

         There is no significant concentration in our customer base. Our top ten
customers accounted for less than 30% of our total sales in 2002, and our
largest single sanitary products wholesaler customer accounted for less than 10%
of our total sales in 2002. As a consequence of the trend in consolidation in
the sanitary products wholesale sector, sanitary products wholesalers are
seeking to reduce the number of manufacturers with which they do business. The
number of our sanitary products wholesaler customers will decline, and the
degree of sanitary products wholesaler customer concentration will gradually
increase over time. We believe that our sanitary products wholesaler customers
will be increasingly looking for strong brands from manufacturers who are
capable of offering broad value-added services, such as efficient logistics and
a broad product range. We believe we are well placed to benefit from this trend.

                                    LOGISTICS

         To allow for maximum flexibility in serving our customers' needs, we
have 16 warehouses world-wide, three in Germany and 13 abroad. We have a
fully-automated stock warehousing system which allows us to store a complete
range of parts and products at our warehouses in Germany and enables us to
deliver products to our sanitary products wholesale customers within 24 hours of
their initial request. In order to integrate all supply chain activities
worldwide, our local warehouses are centrally controlled by an electronic data
processing assisted continuous replenishment system allowing just-in-time
delivery as well as optimization of the respective stock.

                               MARKETING AND SALES

         Depending on the type of sanitary product being purchased, purchase
decisions are made either by ultimate end-users or by plumbers, installers and
architects. Decisions to purchase sanitary fittings are typically made by
end-users. However, decisions to purchase sanitary technology products are
usually made by plumbers, installers and architects, because these products are
not visible in the bathroom.

         In general, our marketing strategy follows a two pronged, "push" and
"pull", approach, aimed at establishing close relationships with these
decision-makers in purchases of sanitary products.

o        "PUSH" MARKETING STRATEGY. The basis of our "push" marketing strategy
         is to encourage sanitary products wholesalers to stock and actively
         sell our range of products by offering promotional schemes and benefit
         programs. We organize forums in Germany with sanitary products
         wholesalers to exchange views on the latest developments in the
         sanitary products industry. In addition, we have bonus programs for
         wholesale showroom personnel and provide marketing



                                       26
<PAGE>

         support through design consultants, who provide advice to sanitary
         products wholesalers on how to display and sell our products.

o        "PULL" MARKETING STRATEGY. The basis of our "pull" marketing strategy
         is to generate demand for our products through marketing to plumbers,
         installers and architects. We promote and facilitate the direct
         exchange of information with plumbers and installers through focus
         groups and more than 26,000 plumbers and installers each year are
         trained at our 25 customer training centers worldwide. Our Design
         Center in Hemer, which serves as a forum for architects and other
         industry participants to discuss the latest design trends in sanitary
         products for the bathroom, is a key component of this strategy. Our
         "pull" marketing strategy is also aimed at further increasing brand
         awareness among private residential and commercial end-users.

         We implement our marketing strategy through our global sales force,
which numbers approximately 1,200 employees worldwide. These employees and our
long-standing relationships with our unaffiliated agent companies provide
in-depth market knowledge, local management experience and a high level of local
management autonomy. We sell our products in approximately 140 countries through
19 marketing companies and our relationships with approximately 40 unaffiliated
agent companies. In all markets, the sales of all products under the GROHE brand
are organized by our common global sales organization.

                                   PRODUCTION

         Our main production facilities are located in Germany, but we also have
production sites in Portugal, Thailand and Canada as well as an assembly plant
in China. We have developed a high standard of production technology and
effective workflow processes. Examples of the results of our investments include
utilization of robots, automatic manufacturing cells and rapid prototyping on a
three dimensional Computer Aided Design/Computer Aided Manufacturing basis.

         All our major production facilities are certified according to ISO 9001
or ISO 9002, the internationally acknowledged standards for quality management
systems. For all German production facilities of the GROHE brand, a
re-certification according to the latest updated ISO 9001:2000 standard was
completed in the first half of 2002. This recertification will be extended to
the plants in Thailand and Portugal that manufacture the GROHE brand in 2003.

         In 2002 our management approved a new international manufacturing
strategy aimed at cutting costs and further streamlining operations. This
strategy will involve all our plants. We expect that the strategy will allow our
plants to focus on their core competencies and improve the workflow within and
among our plants. We intend to shift production volume of some of our smaller
production sites in Germany to our larger manufacturing facilities. We have
already integrated the production volume of our subsidiary H.D. Eichelberg at
our plant in Hemer, and we expect to move the production from our plant in
Haldensleben to Hemer and Lahr during the first half of 2003. Additionally, we
expect to integrate the production of our subsidiary Eggemann at our plant in
Hemer in the second half of 2003.

                                  RAW MATERIALS

         The primary raw materials we purchase are brass, brass machining,
forging parts, deep-drawing parts, plastic components and rubber parts. For the
year ended December 31, 2002, raw material costs consisted primarily of
(euro)44.0 million to purchase brass, (euro)20.0 million to purchase brass
machining, forging parts and deep-drawing parts, (euro)28.0 million to purchase
plastic components and (euro)5.0 million to purchase rubber parts.



                                       27
<PAGE>

         We are one of the largest processors of brass in Europe with an annual
total consumption of approximately 22,000 tons of brass-related products like
brass rods, tubes and ingots as well as smaller amounts of the primary metals
zinc and copper.

         Brass prices generally fluctuate based on supply and demand for copper
and zinc as well as general economic conditions. For example, during 2002, the
price of copper varied by approximately 11% and the price of zinc varied by
approximately 10%. Approximately 95% of the brass which we use in our production
process is produced from brass scrap. Scrap prices are generally lower than
virgin brass prices. Nearly 75% of our copper requirements are covered by
recycled material. About 80% of our total brass consumption consists of brass
rods and tubes (made from scrap) for our machining and forging shops.

         To ensure quality, flexibility and timely shipments, we obtain
approximately 80% of our requirements for semi-finished products from European
suppliers. We obtain the remaining 20% of our requirements through purchases in
the global markets.

         We outsource certain machining, forging parts and deep-drawing parts
for economic reasons. We purchase 4,000 tons per year of these parts from up to
20 specialized suppliers who typically sell to us under fixed price contracts
and whose terms vary between one and two years.

         Our purchases of plastic components consist primarily of
Acryl-Butadien-Styrol ("ABS") and other plastics based products. Plastic
components are lighter and less expensive than metal components and are
available from a large number of international producers, who typically sell to
us under fixed price contracts. For our most important ABS products, we enter
into supply contracts for up to one year. We buy rubber parts from up to ten
suppliers internationally, under twelve-month fixed price contracts.

                            RESEARCH AND DEVELOPMENT

         As we compete primarily on the basis of quality and design of our
products, our future operating performance is dependent upon our ability to
develop and bring to market additional new products. In 2002, over 25% of our
total revenues came from products launched after January 1, 2000. Accordingly,
we spend a significant amount of our total sales for research and development.
In the year ended December 31, 2002, our research and development expenditures
represent approximately 2.7% of total sales. Total research and development
expenditures have increased over the last ten years and reached approximately
(euro)24.2 million for the year ended December 31, 2002. Our research and
development department had 187 employees in 2002.

         Our research and development efforts concentrate on:

o        creating new and innovative products;

o        improving or expanding existing product lines;

o        developing new components;

o        using innovative materials and processes; and

o        obtaining any relevant approvals and patents.



                                       28
<PAGE>

         We have divided the development process into pre-development and series
development. This division allows us to "pre-develop" new technologies and
materials and the related techniques until they are ready for use independently
of the actual series and product development process. Also, we have moved toward
a more process-oriented research and development strategy designed to improve
the time-to-market of our products. In order to facilitate this move, we have
organized the research and development department around five product-oriented
innovation units for GROHEART, GROHETEC, SANITARYSYSTEMS, SHOWERS AND SHOWER
SYSTEMS, and KITCHEN FITTINGS, as well as our Water Technology Competence Center
which is responsible for the pre-development. Locally operating development
groups will help us to meet growing requirements around the world.

                                   COMPETITION

         Our main competitors in the sanitary fittings segment of the sanitary
products industry in Germany and Europe are the Hansa Group, Hansgrohe AG, the
Ideal Standard Group and the Kludi Group. Our main competitors in the Spanish
and Italian markets are Roca Radiadores SA and Zucchetti Rubinetteria SpA,
respectively. Outside Europe, our main competitors are Masco Corporation, Moen
Inc. and Kohler Co. in the United States and Toto Ltd. in Japan. As the sanitary
products industry is still relatively fragmented, we also compete with numerous
regional competitors, many of which are well established in their respective
markets.

         We have the second largest market share in flushing and installation
systems in Germany and western Europe behind our main competitor, Geberit. Our
main competitors for automatic and semi-automatic products in water management
systems are Les Robinets Presto SA, Mira PLC, Schell GmbH & Co. KG, the Hansa
Group and Kuhfuss Sanitar-Vertriebsgesellschaft GmbH.

                          INTELLECTUAL PROPERTY RIGHTS

         The GROHE brand is material to our business and maintains our
competitive position. As of December 31, 2002, we had approximately 750
registered trademarks worldwide. Our most important trademarks are GROHE,
GROHEART, GROHETEC and GROHEDAL.

         We have a policy of protecting our inventions and innovations by making
patent applications in the relevant markets. We are not aware of any legal
proceedings that have been brought against us for infringement of a patent or
trademark.

                             INFORMATION TECHNOLOGY

         We are in the process of replacing our existing information technology
systems with the standard software system SAP R/3. This system uses the
client-server model and provides the ability to store, retrieve, analyze, and
process corporate data for financial analysis, production operation, human
resource management, and most other business processes. To minimize risks we
implement the software step by step. Since January 2003, we have used the
finance and controlling modules and intend to install the complete logistic
chain, including purchasing, productions operations and material management by
the end of 2003. We expect the system to make our business processes more
efficient, unified, transparent and streamlined. We believe that we have taken
all precautions to introduce the new software without causing disruptions of our
production or sales activities. However, since the introduction of the software
involves the change of business processes and is a complex task, we may face
delays and other problems which could affect our business, financial condition
or results of operations adversely.



                                       29
<PAGE>

                              ENVIRONMENTAL MATTERS

         In Germany and other jurisdictions where we do business, we are subject
to strict environmental laws and regulations. For example, Germany's
environmental laws give federal and state environmental agencies broad authority
to promulgate and enforce rules concerning water, land, air and noise pollution,
as well as the management, transportation, disposal and international trade of
hazardous substances and wastes. Violators of these and other laws and
regulations can be subject to substantial criminal and civil penalties, and
temporary or permanent plant closures.

         In 2000, we completed environmental assessments for each of our
production facilities. These assessments, which included investigations into
soil and groundwater quality, revealed contamination at six of our current or
former properties. As a result of these assessments, we estimated our total
maximum possible remediation costs at (euro)3.4 million as of December 31, 2000.
We took remedial actions and conducted further evaluations of environmental
remediation issues in 2001 and 2002, and, as a result, by the end of 2002, we
had reduced the contamination to the extent required at two sites. In addition,
we sold one site in 2002, and, as a condition to the sale, the purchaser assumed
the costs for any further needed remediation measures related to this site.
Although the purchaser has assumed the remediation obligations as a condition to
the sale, under German law, the environmental authorities still have the ability
to assert claims against us with respect to this site. At the remaining three
sites, we are continuing to conduct further investigation or remediation
activities as appropriate. We believe that our remediation activities in 2001
and 2002 have significantly reduced our exposure to environmental risks such as
clean up costs and government actions. However, we are not in the position to
estimate our maximum possible remediation costs due to factors beyond our
control such as potential changes to, and uncertainties surrounding,
environmental laws and regulations and the possible discovery of additional
contamination. We establish reserves for environmental risks when a loss is
probable and reasonably estimable. We provided for probable remediation costs in
our financial statements of (euro)0.1 million and (euro)0.3 million at December
31, 2002 and 2001, respectively.

         Due to the ongoing globalization of our operations, we have expanded
the responsibility of our corporate quality department to include environmental
management issues to ensure that environmental issues are addressed
appropriately on the corporate and local, i.e., plant, level. In 2001 we started
a global project to introduce ISO 14001 environmental management structures
which we expect will upgrade all of our production facilities to a certified
environmental management system by the end of 2004. We expect certification of
our principal German plants and our plant in Portugal to be accomplished by the
end of 2003.



                                       30
<PAGE>

4.C.     ORGANIZATIONAL STRUCTURE

         Grohe Holding is a holding company and does not directly conduct any
business operations. Our operations are carried out by our primary operating
subsidiary Friedrich Grohe and by several of Friedrich Grohe's subsidiaries.

         To streamline our organizational and corporate structure, we merged our
German production subsidiaries Grohe Thermostat GmbH & Co. KG and Herzberger
Armaturen GmbH & Co. KG into our main operating subsidiary Friedrich Grohe AG &
Co. KG as of January 1, 2003. Grohe Thermostat GmbH & Co. KG and Herzberger
Armaturen GmbH & Co. KG were wholly-owned subsidiaries of Friedrich Grohe AG &
Co. KG before the merger into Friedrich Grohe AG & Co. KG. Accordingly, this
merger has no impact on our consolidated financial statements except for the
related expenses which are recognized in the consolidated statement of income.

         The following diagram shows our corporate structure as of April 30,
2003.


                               [GRAPHIC OMITTED]


----------
  (1)    Grohe Consult GmbH has only a registered liability for Grohe
         Beteiligungs of (euro)1.00 and no interest in Grohe Beteiligungs.
         Friedrich Grohe Geschaftsfuhurungs AG has only a nominal interest in
         Friedrich Grohe of approximately .0001%.


                                       31
<PAGE>

The following is a list of the subsidiaries of Grohe Holding GmbH as of April
30, 2003.

<TABLE>
<CAPTION>
                                                                     COUNTRY OF         GROHE OWNERSHIP
SUBSIDIARY                                                         INCORPORATION           INTEREST
----------                                                         -------------           --------
<S>                                                                <C>                    <C>
Grohe Consult GmbH, Hemer...................................       Germany                       100.0
Grohe Beteiligungs GmbH & Co. KG, Hemer.....................       Germany                       100.0
Grohe Geschaftsfuhrungs AG, Hemer...........................       Germany                       100.0
Friedrich Grohe AG & Co. KG, Hemer..........................       Germany                        99.6
DAL GmbH & Co. KG, Porta Westfalica.........................       Germany                        99.6
AQERO Vertriebs GmbH, Ludwigsfelde..........................       Germany                        99.6
GROHEDAL Sanitarsysteme GmbH & Co. KG,
  Porta Westfalica..........................................       Germany                        99.6
DAL Sanitartechnologie GmbH, Zwochau........................       Germany                        99.6
Eggemann Armaturenfabrik GmbH & Co. KG, Iserlohn............       Germany                        99.6
Grohe International GmbH, Hemer.............................       Germany                        99.6
Grohe Nederland B.V., Zoetermeer............................       Netherlands                    99.6
Grohe America, Inc., Bloomingdale, Illinois.................       USA                            99.6
Grohe Canada, Inc., Mississauga.............................       Canada                         99.6
Grohe Espana, S.A., Barcelona...............................       Spain                          99.6
Grohe Ltd., Barking.........................................       Great Britain                  99.6
Grohe Verwaltungs-GmbH, Hemer...............................       Germany                        99.6
Schmole GmbH & Co., Menden..................................       Germany                        99.6
H.D.  Eichelberg & Co. GmbH, Iserlohn.......................       Germany                        99.6
AQUA Butzke GmbH, Ludwigsfelde..............................       Germany                        99.2
Carl Sandmann GmbH, Iserlohn................................       Germany                        99.2
Rotter GmbH & Co. KG, Berlin................................       Germany                        99.5
Kurt Baege GmbH, Berlin.....................................       Germany                        99.5
Rotter Verwaltungsgesellschaft m.b.H., Berlin...............       Germany                        99.5
Grohe Gesellschaft mbH, Wien ...............................       Austria                        99.6
Grohe Hungary Kft., Budaors ................................       Hungary                        99.6
Grohe S.A.R.L., Issy-les-Moulineaux ........................       France                         99.6
Grohe S.p.A., Cambiago .....................................       Italy                          99.6
Grohe N.V., Winksele........................................       Belgium                        99.6
Grohe Japan K.K., Tokyo ....................................       Japan                          99.6
Grohe A/S, Vaerloese........................................       Denmark                        99.7
Grohe Pacific Pte.  Ltd., Singapore ........................       Singapore                      99.6
Tempress Ltd., Mississauga .................................       Canada                         99.6
Grohe Polska Sp.zo.o, Warsaw................................       Poland                         99.6
Grohe Switzerland S.A., Wallisellen ........................       Switzerland                    99.6
Grohe Deutschland Vertriebs GmbH, Porta Westfalica..........       Germany                        99.6
Friedrich Grohe Portugal, Componentes Sanitarios, Lda.,
  Albergaria-a-Velha........................................       Portugal                       99.6
Grohe Siam Ltd., Klaeng.....................................       Thailand                       73.7
Grome Marketing (Cyprus) Ltd., Nicosia......................       Cyprus                         49.8
Grome Ltd., Istanbul........................................       Turkey                         49.8
Grohe (Shanghai) Sanitary Products Co. Ltd., Shanghai.......       China                          99.6
</TABLE>



                                       32
<PAGE>

4.D.     PROPERTY, PLANT AND EQUIPMENT

         We own all of our major production facilities. In addition, we lease
administrative, technical and sales office space in various locations in the
countries in which we operate. In 2002 our management approved a new
international manufacturing strategy aimed at cutting costs and further
streamlining operations. This strategy will involve all our plants. We intend to
shift production volume of some of our smaller production sites in Germany to
our larger manufacturing facilities. We have already integrated the production
volume of our subsidiary H.D. Eichelberg, Iserlohn, at our plant in Hemer, and
we will move the production from our plant in Haldensleben to Hemer and Lahr
during the first half of 2003. Additionally, we will integrate the production of
our subsidiary Eggemann, Iserlohn, at our plant in Hemer in the second half of
2003. We also plan to increase production volume at our plant in Portugal.

         The location, type of production and approximate size of our principal
properties are set out in the following table:

<TABLE>
<CAPTION>
                                                                                                 APPROXIMATE SIZE
LOCATION                               USE                                                       (SQUARE METERS)
--------                               ---                                                       ---------------
<S>                                    <C>                                                       <C>
Hemer, Germany                         Grohe Headquarters                                              2,170

Hemer, Germany                         Manufacture of faucets                                         36,800
                                       (single-lever, two handle faucets, thermostats)

Lahr, Germany                          Manufacture of faucets,                                        59,700
                                       colored faucets, showers,
                                       plastic and other components,
                                       valves, kitchen faucets

Herzberg, Germany                      Manufacture of shower systems and faucets                      21,300
                                       (single-lever, components)

Porta Westfalica, Germany              Manufacture of flushing and                                    28,200
                                       installation systems, electronic
                                       faucets, self-closing valves

Ludwigsfelde, Germany                  Manufacture of water management                                15,700
                                       systems, flushing systems,
                                       other special fittings

Berlin, Germany                        Manufacture of specialized                                      2,600
                                       sanitary solutions for commercial
                                       users

Albergaria-a-Velha, Portugal           Manufacture of faucets                                         10,300
                                       (single-lever and two-handle)

Rayong Province, Thailand              Manufacture of faucets                                          5,800
                                       (single-lever and two-handle for the
                                       Asian market), components for
                                       German plants

Mississauga, Canada                    Manufacture of pressure balance                                 3,800
                                       valves and kitchen faucets
</TABLE>


         All of our German properties listed above, except the property in
Berlin, are pledged to the financing banks to secure our new senior credit
facilities. Additionally, some of these properties and the property in Berlin
are pledged to secure bank loans on the operating company level.



                                       33
<PAGE>

ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS

         THE DISCUSSION AND ANALYSIS BELOW PROVIDES INFORMATION THAT WE BELIEVE
IS RELEVANT TO AN ASSESSMENT AND UNDERSTANDING OF OUR CONSOLIDATED FINANCIAL
POSITION AND RESULTS OF OPERATIONS. THIS DISCUSSION AND ANALYSIS SHOULD BE READ
IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES.

         THE FOLLOWING DISCUSSION AND ANALYSIS CONTAINS STATEMENTS REFLECTING
OUR VIEWS ABOUT OUR FUTURE PERFORMANCE AND CONSTITUTES "FORWARD-LOOKING
STATEMENTS". THESE VIEWS MAY INVOLVE RISKS AND UNCERTAINTIES THAT ARE DIFFICULT
TO PREDICT AND MAY CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE
RESULTS DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS. READERS SHOULD CONSIDER
THAT VARIOUS FACTORS, INCLUDING CHANGES IN GENERAL ECONOMIC CONDITIONS, NATURE
OF COMPETITION, DEVELOPMENTS IN DISTRIBUTION, INDUSTRY TRENDS, INFLUENCE OF
CURRENCY FLUCTUATIONS AND INFLATION, AND OTHER FACTORS DISCUSSED BELOW, MAY
AFFECT OUR PROJECTED PERFORMANCE. FOR EXAMPLE, EVENTS SUCH AS THE WAR IN IRAQ,
AND ANY FURTHER ACTIONS WHICH MAY ENSUE, COULD INFLUENCE THE GLOBAL ECONOMICAL
ENVIRONMENT SUBSTANTIALLY AND THEREFORE COULD HAVE A SIGNIFICANT IMPACT ON OUR
PROJECTED PERFORMANCE. WE UNDERTAKE NO OBLIGATION TO UPDATE PUBLICLY ANY
FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS OR OTHERWISE.

         THE FOLLOWING DISCUSSION AND ANALYSIS IS BASED ON HISTORICAL FINANCIAL
STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000, WHICH WE
PREPARED IN ACCORDANCE WITH US GAAP.

         ALL REFERENCES TO EURO IN THE FOLLOWING DISCUSSION ARE IN THOUSANDS
EXCEPT WHERE STATED.

                                    OVERVIEW

OUR BUSINESS

         We are Europe's largest manufacturer of sanitary fittings, based on
both volume and value, concentrating on the medium- and high-end of the sanitary
products market, according to a report by Consult GB for the year 2002, and, on
the basis of publicly available annual reports of our competitors, one of the
world's three largest manufacturers of sanitary faucets. We design, manufacture
and market an extensive range of (1) sanitary fittings, such as faucets,
showerheads and related accessories, and shower systems, and (2) sanitary
technology products, such as flushing and installation systems and water
management systems. We sell our water technology products principally to
sanitary products wholesalers who sell them to plumbers and retailers who, in
turn, sell them to private residential and commercial end-users. We have a
global presence, and we have the largest market share, by value, in Germany,
France, the Benelux countries and Austria, our core European markets. Our
extensive distribution system includes 19 marketing subsidiaries and
relationships with approximately 40 unaffiliated agent companies and allows us
to sell our products in approximately 140 countries. Our main production
facilities are located in Germany, but we also have production sites in
Portugal, Thailand and Canada as well as an assembly plant in China.

         We sell most of our products worldwide. Due to different dynamics
across geographic areas, management segments our business into the following
individual geographic regions.

o        GERMANY AND DIRECT EXPORTs. This segment comprises our activities in
         Germany and direct exports through our German subsidiary Friedrich
         Grohe AG & Co. KG to foreign customers mainly in eastern Europe and the
         Middle East.

o        EUROPEAN SUBSIDIARIES. This segment covers operations in Europe outside
         Germany where we have subsidiaries.



                                       34
<PAGE>

o        OVERSEAS SUBSIDIARIES. This segment comprises our activities outside
         Europe where we have subsidiaries.

FORMATION OF GROHE HOLDING

         Grohe Holding was formed in 1999 and acquired 96.9% of its predecessor
Friedrich Grohe AG in that year. In 2000, subsequent to the acquisition,
Friedrich Grohe AG was converted from a stock corporation into a limited
partnership carrying on business under the name Friedrich Grohe AG & Co. KG. By
December 31, 2002, Grohe Holding increased its shareholding in Friedrich Grohe
AG & Co. KG to 99.6%.

         Since the date of the acquisition, our consolidated earnings have been
affected by interest on the acquisition financing and by charges for
amortization of goodwill, tradename and depreciation of the fair value step-up
of fixed assets. Due to the change in tax status from the conversion of
Friedrich Grohe AG and five of our other subsidiaries, certain expenses for
amortization and depreciation are tax-deductible in Germany. Since January 1,
2002, we have not recognized goodwill amortization in accordance with SFAS No.
142. This accounting change does not have an impact on the amortization of
goodwill for tax purposes.

         We received corporate income tax refunds amounting to (euro)49.3
million on July 24, 2001 as a result of the conversion of Friedrich Grohe AG and
five subsidiaries into limited partnerships which we recognized as a current
asset in the course of the purchase price allocation for Friedrich Grohe AG. We
used these tax refunds to repay principal on our senior credit facility in July
and August 2001.

IMPACT OF NEW ACCOUNTING STANDARDS ON OUR FINANCIAL STATEMENTS AND RESULTS OF
OPERATIONS

         We adopted the provisions of SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets" as of July 1, 2001 and
January 1, 2002, respectively. SFAS No. 142 required us to evaluate our existing
intangible assets and goodwill and to make any necessary reclassifications in
order to conform with the new separation requirements at the date of adoption.

         SFAS No. 142 also prohibits the scheduled amortization of goodwill and
indefinite life intangible assets. Instead, goodwill and indefinite life
intangible assets will be tested for impairment at least annually and on an
interim basis when an event occurs or circumstances change between annual tests
that would more likely than not result in impairment. Under SFAS No. 142,
goodwill is assessed for impairment by using a fair value based method. We
determine fair value by utilizing discounted cash flows. The fair value test
that SFAS No. 142 requires for goodwill and indefinite lived intangible assets
includes a two-step approach. Under the first step, companies must compare the
fair value of a "reporting unit" to its carrying value. A reporting unit is the
level at which goodwill impairment is measured, and it is defined as an
operating segment or one level below it if certain conditions are met. If the
fair value of the reporting unit is less than its carrying value, goodwill is
impaired and companies must proceed with step two. Under step two, the amount of
goodwill impairment is measured by the amount that the reporting unit's goodwill
carrying value exceeds the "implied" fair value of goodwill. The implied fair
value of goodwill can only be determined by deducting the fair value of all
tangible and intangible net assets, including unrecognized intangible assets, of
the reporting unit from the fair value of the reporting unit as determined in
step one. In the second step, companies must allocate the fair value of the
reporting unit to all of the reporting unit's assets and liabilities as in a
hypothetical purchase price allocation.

         We amortized goodwill acquired in business combinations completed
before July 1, 2001 through December 31, 2001. As of January 1, 2002, we stopped
amortizing goodwill. In connection with the transitional impairment evaluation
required by SFAS No. 142, we performed an assessment of whether



                                       35
<PAGE>

there was an indication that goodwill was impaired as of January 1, 2002. We
completed the first step of the transitional assessment for all of our reporting
units and determined there was no indication that goodwill had been impaired as
of January 1, 2002. Accordingly, no transitional goodwill impairment charge was
necessary. We performed the first annual goodwill impairment test required by
SFAS No. 142 as of July 1, 2002, and there was no indication of goodwill being
impaired as of that date. An adverse development of operations in any of our
reporting units or in the business environment in which the reporting units
operate could require us to revise our expectations about future cash flows on
which the computation of fair value is based. In that case, there may be an
impairment charge in future periods that could affect our operating income and
financial position significantly. As of the date of this report, we are not
aware of any events or circumstances that could result in the recognition of an
impairment charge in any of our reporting units.

         Since we ceased amortizing goodwill as of January 1, 2002 due to the
changes in the accounting principles described above, our results for the year
ended December 31, 2002 are not directly comparable with our results for the
years ended December 31, 2001 and 2000, in which we recorded charges for
goodwill amortization in the amount of (euro)35,758 and (euro)35,397,
respectively. Taking into account income tax effects of (euro)5,105 each year,
our net loss would have improved by (euro)30,653 and (euro)30,292 to net income
of (euro)540 and (euro)8,352 for the years ended December 31, 2001 and 2000,
respectively, if SFAS No. 142 had been in effect in those years.

                          CRITICAL ACCOUNTING POLICIES

         We prepare our financial statements in accordance with US GAAP. US GAAP
requires us to make estimates and assumptions which underlie the preparation of
our financial statements. These estimates and assumptions, and the accounting
methods that we select, affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. We regularly review our estimates and assumptions
underlying the reported amounts, which are based on historical experience and on
various other factors and assumptions which results could differ from those
estimates. For a summary of our significant accounting policies, please refer to
note 3 to our consolidated financial statements. In addition to the accounting
for goodwill described above, we believe that the following critical accounting
policies are affected by significant judgments and estimates that we use in
preparing our consolidated financial statements. You should consider the related
judgments and uncertainties affecting the application of these policies when
evaluating our results of operations and our financial condition.

IMPAIRMENT OF OTHER LONG-LIVED ASSETS

         SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets", requires us to recognize an impairment loss when the carrying amount of
long-lived assets to be held and used is not recoverable from their expected
undiscounted future cash flows. SFAS No. 144 requires all long-lived assets to
be disposed of by sale to be recorded at the lower of their carrying amount or
fair value less cost to sell and to cease depreciation or amortization. We
evaluate the recoverability of the carrying amount of long-lived assets whenever
events or changes in circumstances indicate that the carrying amount of a
long-lived asset may not be recoverable. In 2002 management approved a new
international manufacturing strategy described below under "Trend information -
Manufacturing". One element of the new manufacturing strategy is to centralize
production of some smaller plants at our larger facilities. We have tested for
impairment in accordance with SFAS No. 144 three properties that we will no
longer use for production. We classified these properties as held and used, as
we still use the properties to some extent, and SFAS No. 144 does not allow
classification of these properties as held for sale until they are available for
immediate sale in their present condition subject only to terms that are usual
and customary



                                       36
<PAGE>

for sales of such assets. We recorded an impairment loss of (euro)2,328 on two
of these properties in the year 2002. We determined the fair values of these
properties on the basis of expert appraisals.

ACCOUNTING FOR INCOME TAXES

         We account for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". In accordance with SFAS No. 109, deferred taxes
are provided for temporary differences between the respective accounting and tax
base for assets and liabilities. Further, we recognize deferred tax assets for
net operating loss carryforwards and tax credit carryforwards, and, if it is
more likely than not that such deferred tax assets will not be realized in
future periods, we reduce them by a valuation allowance. Particularly in
Germany, we have accumulated significant loss carryforwards for corporate income
tax purposes.

         We realized, and we continue to realize, tax benefits from the
conversion of Friedrich Grohe AG to Friedrich Grohe AG & Co. KG and the
conversion of five other subsidiaries from limited liability companies to
limited partnerships. Such benefits relate primarily to increases in the tax
base of certain assets for amortization and depreciation purposes. We cannot
assure you that the German tax authorities will accept the valuation and the
amortization and depreciation period allocation. We and our German subsidiaries
are currently subject to a tax field audit by German tax authorities which will
cover, among other things, the benefits resulting from the conversion. If the
expected tax benefits from the conversion are not fully realized, this change
ultimately would result in reduced loss carryforwards for corporate income tax
purposes and require us to write down the deferred tax asset set up for these
loss carryforwards. Currently, there is no limitation on the length of time and
the amount of losses that may be carried forward in Germany for corporate income
tax purposes. Should the tax laws be changed in that respect, this change also
may require us to write down our deferred tax assets that we established for
loss carryforwards in Germany and could affect our income adversely.

PENSION AND SIMILAR OBLIGATIONS

         We maintain a number of unfunded pension plans covering substantially
all our German employees who joined the Company before January 1, 2001. As of
that date, new hires are not entitled to participate in these plans. The plans
provide for the payment of retirement benefits and certain disability and
survivor benefits. After meeting certain qualifications, an employee acquires a
vested right to future benefits. Generally, the benefits payable are determined
on the basis of an employee's length of service, earnings and ranking. In
addition, we maintain a funded pension plan for our employees in the United
States. The actuarial computation of pension liabilities recognized in our
consolidated balance sheet for our German pension plans is based on assumptions
about discount rates, rates of compensation increase, increases in the social
security ceiling, increases in the cost of living, mortality rates and
retirement rates. Changes in the actuarial assumption can have a significant
impact on the projected benefit obligation which amounted to (euro)167,309 as of
December 31, 2002. For instance, a reduction in the discount rate would result
in a significant increase in the projected benefit obligation. According to SFAS
No. 87, "Employers' Accounting for Pensions", the assumed discount rate reflects
the rates at which the pension benefits could be settled effectively. While we
used a discount rate of 6.0% in the actuarial calculations for German pension
plans in 2001, we used a discount rate of 5.5% in 2002. The reduction reflects
the general decline in interest rates in the capital markets. This change, as
well as the other changes in actuarial assumptions, resulted in actuarial losses
of (euro)7,715 in the year 2002. In accordance with SFAS No. 87, we defer gains
and losses resulting from changes in actuarial assumptions. Our total
unrecognized actuarial losses at December 31, 2002 amounted to (euro)13,729. We
amortize any unrecognized gain or loss as a component of our net periodic
pension cost for a year if, as of the beginning of the year, such unrecognized
net gain or loss exceeds 10% of the greater of the projected benefit obligation
or the market-related value of a plan's assets. If amortization is required, the
amount of



                                       37
<PAGE>

amortization that we recognize is the resulting excess divided by the average
remaining service period of active employees expected to receive benefits under
the plan.

         Our total net periodic pension cost for the years ended December 31,
2002, 2001 and 2000 recognized in the income statement amounted to (euro)14,206,
(euro)8,543 and (euro)13,509, respectively. In 2001 net periodic pension cost
included a one-time curtailment gain of (euro)5,358. Excluding this one-time
gain, our net periodic pension cost for 2001 would have been (euro)13,901.
Service cost included in net periodic pension cost amounted to (euro)4,975,
(euro)5,151 and (euro)5,233 in the years ended December 31, 2002, 2001, and
2000, respectively. Interest cost included in net periodic pension cost amounted
to (euro)9,096, (euro)8,770 and (euro)8,367 for the years ended December 31,
2002, 2001, and 2000, respectively.

CONTINGENCIES

         We recognize accrued liabilities for contingencies when we incur an
obligation to a third party, the payment is probable, and we can reasonably
estimate the amount of the liability.

         Due to the conversion of Friedrich Grohe AG into Friedrich Grohe AG &
Co. KG, some minority shareholders have appealed the conversion into a limited
partnership and certain resolutions of the shareholders meeting of Friedrich
Grohe AG and Friedrich Grohe AG & Co. KG. However, we consider it unlikely that
these claims will prevail. Refer to Item 8.A.7. "Legal Proceedings" below. Also,
some minority shareholders are seeking to have the amount of the cash settlement
offer examined in an arbitration procedure. If the court determines a higher
amount is payable, this determination would apply to 50,195 shares of minority
shareholders. The corresponding cash payment required would be deemed additional
acquisition costs for these shares of Friedrich Grohe AG and, consequently,
would result in the recognition of additional goodwill.

         We believe that the remediation activities in the years 2001 and 2002
significantly reduced identified environmental risks. However, we are not in a
position to estimate total maximum possible remediation costs as of the date of
this report due to changes in environmental laws, uncertainties surrounding the
nature and application of environmental regulations, and the possible discovery
of previously unidentified contamination. Refer to Item 4.B. "Business Overview
- Environmental Matters" above. Please also refer to note 17 or our consolidated
financial statements.


                                       38
<PAGE>

5.A.     OPERATING RESULTS

         The following table sets out certain information with respect to our
net income (loss):

<TABLE>
<CAPTION>
                                                                        GROHE HOLDING GMBH
                                                                        ------------------
                                                       YEAR ENDED          YEAR ENDED           YEAR ENDED
                                                      DECEMBER 31,        DECEMBER 31,         DECEMBER 31,
                                                          2002                2001                 2000
                                                          ----                ----                 ----
<S>                                                     <C>                 <C>                  <C>
Sales...........................................        898,262             880,781              855,474
Cost of sales...................................       (517,321)           (512,549)            (512,163)
                                                        -------             -------              -------
Gross profit....................................        380,941             368,232              343,311
                                                        -------             -------              -------
Selling, general and administrative expenses....       (235,314)           (228,196)            (221,498)
Research and development expenses...............        (24,190)            (20,066)             (20,873)
Amortization of goodwill........................           0                (35,758)             (35,397)
Amortization of tradename.......................        (19,341)            (19,341)             (19,124)
                                                        -------             -------              -------
Operating income................................        102,096              64,871               46,419
                                                        -------             -------              -------
Interest expense, net...........................        (67,083)            (76,961)             (84,012)
Income from equity method investees.............            938                 216                  579
Financial income (loss) from derivatives........         23,696             (20,494)              (4,734)
Other expense, net..............................         (8,588)             (2,650)              (2,559)
                                                        -------             -------              -------
Income (loss) before income taxes, minority
    interests and extraordinary items...........         51,059             (35,018)             (44,307)
Income tax (expense) benefit....................        (26,332)              5,828               28,353
Income (loss) before minority interests and
    extraordinary items.........................         24,727             (29,190)             (15,954)
Minority interests..............................         (1,176)               (923)              (2,978)
Net income (loss) before extraordinary items....         23,551             (30,113)             (18,932)
Extraordinary loss, net of applicable income taxes          0                   0                 (3,008)
                                                        -------             -------              -------
Net income (loss)...............................         23,551             (30,113)             (21,940)
                                                        =======             =======              =======
</TABLE>




                                       39
<PAGE>


         The following table sets out certain information with respect to our
net income (loss) as a percentage of sales:


<TABLE>
<CAPTION>
                                                                        GROHE HOLDING GMBH
                                                                        ------------------
                                                       YEAR ENDED          YEAR ENDED          YEAR ENDED
                                                      DECEMBER 31,        DECEMBER 31,        DECEMBER 31,
                                                          2002                2001                2000
                                                          ----                ----                ----
<S>                                                     <C>                 <C>                  <C>
Sales.............................................      100.0%              100.0%               100.0%
Cost of sales.....................................      (57.6%)             (58.2%)              (59.9%)
                                                        -----               -----                -----
Gross profit......................................       42.4%               41.8%                40.1%
                                                        -----               -----                -----
Selling, general and administrative expenses......      (26.2%)             (25.9%)              (25.9%)
Research and development expenses.................       (2.7%)              (2.3%)              (2.4%)
Amortization of goodwill..........................        0.0%               (4.0%)              (4.1%)
Amortization of tradename.........................       (2.1%)              (2.2%)              (2.3%)
                                                        -----               -----                -----
Operating income..................................       11.4%                7.3%                5.4%
                                                        -----               -----                -----
Interest expense, net.............................       (7.4%)              (8.7%)              (9.8%)
Income from equity method investees...............        0.1%                0.0%                0.1%
Financial income (loss) from derivatives..........        2.6%               (2.3%)              (0.6%)
Other expense, net................................       (1.0%)              (0.3%)              (0.3%)
                                                        -----               -----                -----
Income (loss) before income taxes, minority
    interests and extraordinary items.............        5.7%               (4.0%)              (5.2%)
Income tax (expense) benefit......................       (3.0%)               0.7%                3.3%
Income (loss) before minority interests and
    extraordinary items...........................        2.7%               (3.3%)              (1.9%)
Minority interests................................       (0.1%)              (0.1%)              (0.3%)
Net income (loss) before extraordinary items......        2.6%               (3.4%)              (2.2%)
Extraordinary loss, net of applicable income taxes        0.0%                0.0%               (0.4%)
                                                        -----               -----                -----
Net income (loss).................................        2.6%               (3.4%)              (2.6%)
                                                        =====               =====                =====
</TABLE>

YEAR ENDED DECEMBER 31, 2002 COMPARED WITH YEAR ENDED DECEMBER 31, 2001

SALES

         Our total sales increased by (euro)17,481 or 2.0% from (euro)880,781 in
the year ended December 31, 2001 to (euro)898,262 in the year ended December 31,
2002. We attribute this growth in total sales to:

o        an increase in sales volume of a total of(euro)24,561 or 2.8%;

o        an increase in sales prices of(euro)6,250 or 0.7%; and

o        unfavorable currency fluctuations of(euro)13,330 or 1.5% as a
         consequence of invoicing in foreign currencies.



                                       40
<PAGE>

         Total sales in our Germany and direct exports segment decreased by
(euro)10,160 or 2.9% from (euro)356,227 in the year ended December 31, 2001 to
(euro)346,067 in the year ended December 31, 2002. Total sales in Germany
decreased by (euro)19,443 or 7.9% from (euro)245,382 in the year ended December
31, 2001 to (euro)225,939 in the year ended December 31, 2002. We attribute this
decrease to an ongoing difficult economic environment and continuing weak market
conditions. We estimate that the German sanitary products market declined by
approximately 10% in 2002. Thus, in Germany, we performed slightly better than
the market. Direct exports increased from (euro)110,845 in the year ended
December 31, 2001 to (euro)120,128 in the year ended December 31, 2002. This
increase was largely due to an increase in direct exports to eastern Europe by
(euro)8,627 or 20.7% from (euro)41,664 in the year ended December 31, 2001 to
(euro)50,291 in the year ended December 31, 2002. Total sales in eastern Europe,
including sales by our European subsidiaries, increased by (euro)9,022 or 20.3%
from (euro)44,460 in the year ended December 31, 2001 to (euro)53,482 in the
year ended December 31, 2002. Direct exports to the Middle East increased only
slightly by (euro)214 to (euro)56,784 in the year ended December 31, 2002 as
volume growth was offset by unfavorable currency fluctuations of (euro)3,831.

         Total sales in our European subsidiaries segment increased from
(euro)357,232 in the year ended December 31, 2001 by (euro)13,380 or 3.7% to
(euro)370,612 in the year ended December 31, 2002. This development was
primarilY attributable to:

o        sales increases in France by (euro)4,910 or 5.5% from (euro)88,848 in
         the year ended December 31, 2001 to (euro)93,758 in the year ended
         December 31, 2002;

o        sales increases in Spain by (euro)3,793 or 8.8% from (euro)43,192 in
         the year ended December 31, 2001 to (euro)46,985 in the year ended
         December 31, 2002;

o        sales increases in the United Kingdom by (euro)2,348 or 10.4% from
         (euro)22,488 in the year ended December 31, 2001 to (euro)24,836 in the
         year ended December 31, 2002;

o        stable sales in Italy, where sales amounted to (euro)52,511 in the year
         ended December 31, 2002 compared to (euro)52,254 in the year ended
         December 31, 2001; and

o        lower consumer confidence in economic development in certain countries
         which resulted in sales decreases mainly in:

         -        the Netherlands, by(euro)2,643 or 3.7% from(euro)71,928 in the
                  year ended December 31, 2001 to (euro)69,285 in the year ended
                  December 31, 2002; and

         -        Austria, by(euro)1,122 or 4.8% from(euro)23,266 in the year
                  ended December 31, 2001 to(euro)22,144 in the year ended
                  December 31, 2002.

         Including direct exports to European markets of (euro)62,435 in the
year ended December 31, 2002, total sales in Europe increased by (euro)22,432 or
5.5% from (euro)410,615 in the year ended December 31, 2001 to (euro)433,047 in
the year ended December 31, 2002.

         Total sales in our overseas subsidiaries segment increased by
(euro)14,261 or 8.5% from (euro)167,322 in the year ended December 31, 2001 to
(euro)181,583 in the year ended December 31, 2002. This increase was primarily
due to increases in sales in:



                                       41
<PAGE>

o        the United States of (euro)11,754 or 11.4% from (euro)103,064 in the
         year ended December 31, 2001 to (euro)114,818 in the year ended
         December 31, 2002. Sales in this period were impacted by unfavorable
         foreign currency fluctuations of (euro)5,206; and

o        the Far East, excluding Japan, of (euro)2,271 or 7.4% from (euro)30,664
         in the year ended December 31, 2001 to (euro)32,935 in the year ended
         December 31, 2002.

         Sales in overseas markets, including direct exports to this region of
(euro)57,693 in the year ended December 31, 2002, increased by (euro)14,492 or
6.4% from (euro)224,784 in the year ended December 31, 2001 to (euro)239,276 in
the year ended December 31, 2002.

         As a result of the different sales trends in Germany and abroad, sales
in foreign markets, which increased by (euro)36,924 or 5.8% from (euro)635,399
in the year ended December 31, 2001 to (euro)672,323 in the year ended December
31, 2002, represent 74.8% of our total sales in the year ended December 31, 2002
compared to 72.1% in the year ended December 31, 2001. Sales in Europe,
excluding Germany, accounted for 48.2% and in overseas markets for 26.6% of
total sales in the year ended December 31, 2002. Accordingly, sales in Germany
decreased to 25.2% of our total sales in the year ended December 31, 2002.

COST OF SALES

         Our cost of sales includes the costs of raw material, purchased parts
and direct labor, as well as manufacturing overheads and depreciation. The main
raw material that we use is brass which is also a significant component of
purchased parts.

         Cost of sales increased by (euro)4,772 or 0.9%, from (euro)512,549 in
the year ended December 31, 2001 to (euro)517,321 in the year ended December 31,
2002.

         The cost of sales to sales ratio of 58.2% for the year ended December
31, 2001 decreased to 57.6% in the year ended December 31, 2002.

         In addition to the factors described under "Sales", better fixed cost
absorption due to higher production volume, cost-cutting rationalization
measures in production and a significantly lower brass price compared to the
year 2001 favorably influenced the cost of sales to sales ratio. Also reduced
step-up depreciation in the six months ended December 31, 2002 compared to the
same period in 2001 positively impacted cost of sales. Costs related to the
reorganization of our plants which we primarily incurred in the three months
ended December 31, 2002 partially offset these effects.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

         Selling, general and administrative expenses consist of employee
compensation, advertising and sales promotions, commissions and freight, as well
as information technology related expenses.

         Selling, general and administrative expenses increased by (euro)7,118
or 3.1%, from (euro)228,196 in the year ended December 31, 2001 to (euro)235,314
in the year ended December 31, 2002. Selling expenses increased due to higher
personnel and freight expenses as well as one-time expenses related to the
reorganization of our sales organization. This increase was partially offset by
lower advertising expenses. Higher general and administrative expenses were
primarily due to increased costs for professional services in the year ended
December 31, 2002, partially offset by a decrease in provisions for doubtful
accounts and lower personnel expenses. Selling, general and administrative
expenses as a percentage of



                                       42
<PAGE>

sales remained stable at 26.2% in the year ended December 31, 2002 compared to
25.9% in the year ended December 31, 2001.

AMORTIZATION OF GOODWILL AND TRADENAME

         In accordance with SFAS No. 142, we stopped amortizing goodwill as of
January 1, 2002 as described above under "Impact of new accounting standards on
our financial statements and results of operations". Amortization of goodwill
amounted to (euro)35,758 in the year ended December 31, 2001. Taking into
account income tax effects of (euro)5,105, our net loss of (euro)30,113 would
have improved by (euro)30,653 to net income of (euro)540 for the year ended
December 31, 2001, if SFAS No. 142 had been in effect for that year and we had
not amortized our goodwill. Compared to 2001, amortization of tradename remained
unchanged at (euro)19,341 in the year ended December 31, 2002.

INTEREST EXPENSE, NET

         Net interest expense decreased by (euro)9,878 or 12.8% from
(euro)76,961 in the year ended December 31, 2001 to (euro)67,083 in the year
ended December 31, 2002. This decrease was mainly due to principal payments on
our long-term debt to banks in the second half of 2001 and in July 2002 and to
lower interest rates on our long-term debt to banks in 2002. The reduction of
our interest charge from these effects was partially offset by an increase in
accrued interest on loans from related parties and shareholders. The interest
expense that we recorded on these loans increased by (euro)1,848 due to compound
interest. We incurred virtually all of our interest expense at the holding
company level or through our Germany and direct exports segment.

FINANCIAL INCOME (LOSS) FROM DERIVATIVES

         We conduct business on a worldwide basis in various international
currencies and are exposed to adverse movements in foreign currency exchange
rates. Furthermore, we use financial instruments such as bonds and long-term
debt to banks. As a consequence, we may be exposed to risks from changes in
interest rates. We use derivative financial instruments to reduce such risks.
Without the use of these instruments we would face even higher market risks. We
do not enter into financial instruments for trading or speculative purposes. We
record derivative instruments at fair value in our consolidated balance sheets
with the change in fair value reflected in our statement of operations.

         We incurred net losses from derivatives of (euro)20,494 in the year
ended December 31, 2001. This changed by (euro)44,190 to net income from
derivatives of (euro)23,696 in the year ended December 31, 2002.

         FOREIGN CURRENCY DERIVATIVES. We reduce the risk on cash flows from
anticipated sales and accounts receivable in foreign currencies by entering into
foreign currency derivative contracts to sell foreign currency amounts which we
expect to receive in US dollars, Japanese yen, British pounds and Canadian
dollars, at a fixed euro to foreign currency exchange rate. Until December 31,
2002, we did not designate our foreign currency derivatives as accounting hedges
and included all gains and losses on these instruments resulting from the mark
to market at the balance sheet date or realized upon settlement of these
instruments in financial income from derivatives on a net basis.

         Our net loss from currency derivatives of (euro)15,438 in the year
ended December 31, 2001 improved by (euro)43,390 to net income from currency
derivatives of (euro)27,952 in the year ended December 31, 2002. Most of the net
loss in 2001 and the net gain in 2002 relates to our US dollar foreign currency
derivatives. Generally, if the US dollar falls against the euro, we make gains
from changes in fair market value of our US dollar forward currency contracts,
and, if the US dollar rises against the euro, we incur losses from changes in
fair market value of our US dollar forward currency contracts. In 2002 the US


                                       43
<PAGE>

dollar fell against the euro by approximately 15%, and we earned (euro)25,313
from US dollar derivative contracts. Of these gains in 2002, (euro)17,472
related to changes in fair market value resulting from the mark to market of
contracts at the respective balance sheet dates, and (euro)7,841 related to
gains realized upon the settlement of contracts. In 2001, the US dollar rose
against the euro by approximately 5%, and we lost (euro)15,433 from our US
dollar forward contracts. Of these losses in 2001, (euro)7,934 related to
changes in fair market value resulting from the mark to market of contracts at
the respective balance sheet dates, and (euro)7,499 related to losses realized
upon the settlement of contracts.

         INTEREST RATE DERIVATIVES. We hold interest rate swap and collar
agreements. With our swap agreements, we exchange the short-term variable rate
related to our long-term debt to banks for a long-term variable rate with a
capped total interest. Our interest rate derivatives do not meet the
requirements for hedge accounting, and, consequently, we include changes in fair
market value at balance sheet date as well as interest differentials paid or
received under our interest rate derivative instruments in financial income from
derivatives.

         Our net loss from interest rate derivatives of (euro)5,056 in the year
ended December 31, 2001 decreased by (euro)800 to (euro)4,256 in the year ended
December 31, 2002. We incurred losses from our interest rate derivatives in both
periods because of the ongoing decline in short-term interest rates and the
relatively low level of short-term interest rates compared to long-term interest
rates.

OTHER EXPENSE, NET

         Net other expense increased by (euro)5,938 from (euro)2,650 in the year
ended December 31, 2001 to (euro)8,588 in the year ended December 31, 2002. We
attribute this increase to:

o        an increase in foreign currency transaction losses of (euro)7,346 from
         (euro)3,314 in the year ended December 31, 2001 to (euro)10,660 in the
         year ended December 31, 2002;

o        a decrease in foreign currency transaction gains of (euro)1,539 from
         (euro)4,365 in the year ended December 31, 2001 to (euro)2,826 in the
         year ended December 31, 2002;

o        a real estate transfer tax of(euro)1,300 in the year ended December 31,
         2002. We incurred no such real estate transfer tax in the year ended
         December 31, 2001;

o        professional services of (euro)4,071 in the year ended December 31,
         2001 which were mainly related to the financing of the acquisition of
         Friedrich Grohe AG, the implementation of US GAAP reporting procedures,
         the filing of a registration statement with the Securities and Exchange
         Commission and the syndication of the supplementary facility. We
         recorded no expenses for such services as other expense in the year
         ended December 31, 2002; and
o        an increase in other miscellaneous income, net, of (euro)176 from
         (euro)370 in the year ended December 31, 2001 to (euro)546 in the year
         ended December 31, 2002.

INCOME TAX (EXPENSE) BENEFIT

         Our income tax benefit of (euro)5,828 recorded for the year ended
December 31, 2001 changed by (euro)32,160 to an income tax expense of
(euro)26,332 for the year ended December 31, 2002. We mainly attribute the
increase in income tax expense to the change in our pretax results from a pretax
loss of (euro)35,018 in the year ended December 31, 2001 to pretax income of
(euro)51,059 in the year ended December 31, 2002. In



                                       44
<PAGE>

addition, the following factors influence the amount of our income tax
charge/benefit in the years 2002 and 2001.

         Our theoretical income tax expense for the year ended December 31, 2002
determined using the 2002 statutory tax rate of 38.2% would have been
(euro)19,507 compared to an actual income tax expense of (euro)26,332. The
difference of (euro)6,825 is mainly due to the tax effect of (euro)4,386 from
non tax-deductible expenses, an increase of (euro)1,999 in valuation allowances
on deferred tax assets and additional German income taxes and foreign
withholding taxes of (euro)1,559 provided for the future payout of foreign
retained earnings as dividends. These effects were partially offset by a foreign
tax rate differential of (euro)2,737, as the average effective tax rate on
foreign income was lower than the German statutory tax rate.

         Our theoretical income tax benefit for the year ended December 31, 2001
determined using the 2001 statutory tax rate of 38.2% would have been
(euro)13,377 compared to an actual income tax benefit of (euro)5,828. The
difference of (euro)7,549 is mainly due to the tax effect of (euro)13,488 from
amortization of non tax-deductible goodwill and other non tax-deductible
expenses, which was partly offset by tax benefits of (euro)2,855 from a change
in tax status of subsidiaries and tax effects of (euro)2,228 from dividend
distributions by German subsidiaries.

MINORITY INTERESTS

         Minority interests increased by (euro)253 from (euro)923 in the year
ended December 31, 2001 to (euro)1,176 in the year ended December 31, 2002.

NET INCOME (LOSS)

         Our net income increased by (euro)53,664 from a net loss of
(euro)30,113 in the year ended December 31, 2001 to net income of (euro)23,551
in the year ended December 31, 2002.

         Our net loss for the year ended December 31, 2001 included goodwill
amortization charges of (euro)35,758. Pursuant to SFAS No. 142, we recorded no
goodwill amortization charges for the year ended December 31, 2002. Net of
income tax effects of (euro)5,105, our net loss of (euro)30,113 for the year
ended December 31, 2001 would have been improved by(euro)30,653 to a net income
of(euro)540 if SFAS No. 142 had already been in effect in that year.

ADJUSTED CONSOLIDATED EBITDA

         Our adjusted consolidated EBITDA increased by (euro)8,002 or 4.7% from
(euro)171,501 in the year ended December 31, 2001 to (euro)179,503 in the year
ended December 31, 2002. We define adjusted consolidated EBITDA as earnings
before interest expense, income taxes, depreciation and amortization, noncash
charges (charges not resulting in cash outflows in the current or future
periods), income from equity method investees not received as a cash
distribution, extraordinary items and noncash financial income/loss from
derivatives. We consider adjusted consolidated EBITDA as an important indicator
of the operational strength and performance of our business, including our
ability to provide cash flows to service debt and finance capital expenditures.
However, as not all companies calculate EBITDA or similarly titled financial
measures in the same manner, other companies' disclosures of EBITDA may not be
comparable with adjusted consolidated EBITDA as presented here. You should
consider adjusted consolidated EBITDA in addition to, not as a substitute for,
our operating income (loss), net income (loss), cash flow or other measures of
financial performance reported in accordance with US GAAP. Adjusted consolidated
EBITDA as presented here differs from EBITDA as defined in the indenture
governing the notes.



                                       45
<PAGE>

         A reconciliation between adjusted consolidated EBITDA and net income
(loss) as reported in the consolidated financial statements for the years ended
December 31, 2002 and 2001 is as follows:

<TABLE>
<CAPTION>
                                                                                               GROHE HOLDING GMBH
                                                                                               ------------------
                                                                                       YEAR ENDED            YEAR ENDED
                                                                                      DECEMBER 31,          DECEMBER 31,
                                                                                          2002                  2001
                                                                                          ----                  ----
<S>                                                                                      <C>                  <C>
   Net income (loss) as reported in the consolidated statements of operations...         23,551               (30,113)
   Income from equity method investees not received as a cash distribution......          (540)                     0
   Income tax expense (benefit).................................................         26,332                (5,828)
   Interest expense as reported in the consolidated statements of operations....         70,407                80,328
   Depreciation expense.........................................................         47,872                54,078
   Amortization of software.....................................................          4,020                 3,372
   Amortization of goodwill and tradename.......................................         19,341                55,099
   Noncash charges..............................................................          4,639                   765
   Noncash financial (income) loss from derivatives.............................        (16,119)               13,800
                                                                                        -------               -------
Adjusted EBITDA.................................................................        179,503               171,501
                                                                                        =======               =======
</TABLE>

YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000

SALES

         Our total sales increased by (euro)25,307 or 3.0% from (euro)855,474 in
the year ended December 31, 2000 to (euro)880,781 in the year ended December 31,
2001. This growth in total sales was attributable to:

o        an increase in sales volume of a total of(euro)8,866 or 1.0%;

o        favorable currency fluctuations of(euro)1,572 or 0.2% as a consequence
         of invoicing in foreign currencies; and

o        an increase in sales prices of(euro)14,869 or 1.8%.

         Total sales in our Germany and direct exports segment decreased by
(euro)4,989 or 1.4% from (euro)361,216 in the year ended December 31, 2000 to
(euro)356,227 in the year ended December 31, 2001. Total sales in Germany
decreased by (euro)19,486 or 7.4% from (euro)264,868 in the year ended December
31, 2000 to (euro)245,382 in the year ended December 31, 2001. We attribute this
decrease to ongoing unfavorable market conditions and a reduction of inventories
by wholesalers. Direct exports increased by (euro)14,497 or 15.0% from
(euro)96,348 in the year ended December 31, 2000 to (euro)110,845 in the year
ended December 31, 2001. This increase was largely due to an increase in sales
in eastern Europe by (euro)15,282 or 57.9% from (euro)26,382 in the year ended
December 31, 2000 to (euro)41,664 in the year ended December 31, 2001. Also our
direct exports to the Middle East increased by (euro)2,317 or 4.3% from
(euro)54,253 in the year ended December 31, 2000 to (euro)56,570 in the year
ended December 31, 2001.

         Total sales in our European subsidiaries segment increased by
(euro)16,981 or 5.0% from (euro)340,251 in the year ended December 31, 2000 to
(euro)357,232 in the year ended December 31, 2001. The growth in sales was
primarily attributable to sales increases in the following countries:



                                       46
<PAGE>

o        France by(euro)3,736 or 4.4% from(euro)85,112 in the year ended
         December 31, 2000 to(euro)88,848 in the year ended December 31, 2001;

o        Netherlands by (euro)3,544 or 5.2% from (euro)68,384 in the year ended
         December 31, 2000 to (euro)71,928 in thE year ended December 31, 2001;

o        Spain by(euro)3,665 or 9.3% from(euro)39,527 in the year ended December
         31, 2000 to(euro)43,192 in the year ended December 31, 2001; and

o        the United Kingdom by (euro)3,314 or 17.3% from (euro)19,174 in the
         year ended December 31, 2000 to (euro)22,488 in the year ended December
         31, 2001.

         Including direct exports to European markets, which amounted to
(euro)53,383 in the year ended December 31, 2001, our total sales in Europe
increased by (euro)29,940 or 7.9% from (euro)380,675 in the year ended December
31, 2000 to (euro)410,615 in the year ended December 31, 2001.

         Total sales in our overseas subsidiaries segment increased by
(euro)13,315 or 8.6% from (euro)154,007 in the year ended December 31, 2000 to
(euro)167,322 in the year ended December 31, 2001. This increase was primarily
due to increases in sales in:

o        the United States by (euro)7,951 or 8.4% from (euro)95,113 in the year
         ended December 31, 2000 to (euro)103,064 in the year ended December 31,
         2001. This increase is largely attributable to price increases of
         (euro)3,630 and favorable foreign currency fluctuations of (euro)3,280
         and, to a lower extent, to volume increases;

o        Far East excluding Japan, which was influenced by a very strong fourth
         quarter 2001, by (euro)2,200 or 7.8% from (euro)28,318 in the year
         ended December 31, 2000 to (euro)30,518 in the year ended December 31,
         2001; and

o        Japan by (euro)1,446 or 7.1% from (euro)20,260 in the year ended
         December 31, 2000 to (euro)21,706 in the year ended December 31, 2001
         with the sales being strongly influenced by unfavorable foreign
         currency fluctuation of (euro)1,949 in 2001.

         Sales in overseas markets, including direct exports to this region
amounting to (euro)57,462 in the year ended December 31, 2001, increased by
(euro)14,853 or 7.1% from (euro)209,931 in the year ended December 31, 2000 to
(euro)224,784 in the year ended December 31, 2001.

         As a result of the different sales trends in Germany and abroad, our
sales in foreign markets, which increased by (euro)44,793 or 7.6% from
(euro)590,606 in the year ended December 31, 2000 to (euro)635,399 in the year
ended December 31, 2001, represent 72.1% of our total sales in the year ended
December 31, 2001 compared to 69.0% in the year ended December 31, 2000. Sales
in Europe excluding Germany accounted for 46.6% and in overseas markets for
25.5% of total sales in the year ended December 31, 2001. Accordingly, sales in
Germany decreased to 27.9% of our total sales in the year ended December 31,
2001.

COST OF SALES

         Cost of sales increased by (euro)386 or 0.1% from (euro)512,163 in the
year ended December 31, 2000 to (euro)512,549 in the year ended December 31,
2001.



                                       47
<PAGE>

         The cost of sales to sales ratio of 59.9% for the year ended December
31, 2000 decreased to 58.2% for the year ended December 31, 2001.

         In addition to the factors described under "Sales" above, the cost of
sales to sales ratio was favorably influenced by cost-cutting rationalization
measures in production. These positive effects overcompensated for increases in
manufacturing costs per unit, which mainly resulted from a lower production
volume compared to the previous year, the increase in raw material prices, and
changes in product mix.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

         Selling, general and administrative expenses increased by (euro)6,698
or 3.0% from (euro)221,498 in the year ended December 31, 2000 to (euro)228,196
in the year ended December 31, 2001. Selling expenses increased due to higher
personnel and higher advertising expenses. The increase in advertising expenses
was largely due to additional costs related to the International Trade Fair for
Building & Energy Technology - the Bathroom Experience, or ISH, in 2001, the
most important biennial international trade fair for the sanitary industry in
Europe. On the other hand, commissions for agents decreased considerably mainly
due to our new sales organization in Germany that uses only its own employees
rather than sales agents. Higher general and administrative expenses resulted
from higher personnel expenses due to additional staff, a one-time compensation
effect in the second quarter and an increase in provisions for doubtful
accounts. Selling, general and administrative expenses as a percentage of sales
remained stable at 25.9% in the year ended December 31, 2001 compared to the
year ended December 31, 2000.

AMORTIZATION OF GOODWILL AND TRADENAME

         Amortization of goodwill and tradename was nearly unchanged in 2001
compared to 2000 as there were no significant acquisitions during the year ended
December 31, 2001. Amortization of goodwill amounted to (euro)35,397 in the year
ended December 31, 2000 compared to (euro)35,758 in the year ended December 31,
2001. Amortization of tradename amounted to (euro)19,124 in the year ended
December 31, 2000 compared to (euro)19,341 in the year ended December 31, 2001.

INTEREST EXPENSE, NET

         Net interest expense decreased by (euro)7,051 or 8.4% from (euro)84,012
in the year ended December 31, 2000 to (euro)76,961 in the year ended December
31, 2001. This decrease was mainly due to the refinancing measures taken in
November 2000 and principal payments in 2001. We incurred virtually all of our
interest expense at the holding company level or through our Germany and direct
exports segment.

FINANCIAL LOSS FROM DERIVATIVES

         Our financial loss from derivatives increased by (euro)15,760 from
(euro)4,734 in the year ended December 31, 2000 to (euro)20,494 in the year
ended December 31, 2001. The net loss from currency derivatives increased by
(euro)13,523 from (euro)1,915 in the year ended December 31, 2000 to
(euro)15,438 in the year ended December 31, 2001. This development was mainly
due to changes in the fair market value of US dollar forward exchange contracts
caused by fluctuations in the US dollar to euro exchange rates. The net loss
from interest rate derivatives increased by (euro)2,237 from (euro)2,819 in the
year ended December 31, 2000 to (euro)5,056 in the year ended December 31, 2001.



                                       48
<PAGE>

OTHER EXPENSE, NET

         Net other expense increased slightly by (euro)91, or 3.6%, from
(euro)2,559 in the year ended December 31, 2000 to (euro)2,650 in the year ended
December 31, 2001. We attribute this increase to:

o        an increase in foreign currency transaction losses of (euro)2,470 from
         (euro)844 in the year ended December 31, 2000 to (euro)3,314 in the
         year ended December 31, 2001;

o        a decrease in foreign currency transaction gains of (euro)308 from
         (euro)4,673 in the year ended December 31, 2000 to (euro)4,365 in the
         year ended December 31, 2001;

o        a real estate transfer tax of(euro)3,579 in the year ended December 31,
         2000. We incurred no such real estate transfer tax in the year ended
         December 31, 2001;

o        a minor increase in professional services of (euro)9 from (euro)4,062
         in the year ended December 31, 2000 to (euro)4,071 in the year ended
         December 31, 2001. In the year ended December 31, 2000 these
         professional services were indirectly related to the acquisition,
         related to the financing of the acquisition and related to the
         conversion of Friedrich Grohe AG. In the year ended December 31, 2001
         these professional services were also related to the implementation of
         US GAAP reporting procedures, the filing of a registration statement
         with the Securities and Exchange Commission, and the syndication of the
         supplementary facility; and

o        a decrease in miscellaneous income of (euro)883 from (euro)1,253 in the
         year ended December 31, 2000 to (euro)370 in the year ended December
         31, 2001.

INCOME TAX (EXPENSE) BENEFIT

         Our income tax benefit for the year ended December 31, 2001 of
(euro)5,828 is not directly comparable to the income tax benefit for the year
ended December 31, 2000 of (euro)28,353 because the actual statutory tax rate
decreased to 38.2% in the year ended December 31, 2001 compared to 51.4% in the
year ended December 31, 2000.
 This decrease was due to a reduction of the German corporate income tax rate
from 40.0% to 25.0% effective January 1, 2001.

         Our theoretical income tax benefit for the year ended December 31, 2001
determined using the 2001 statutory tax rate of 38.2% would have been
(euro)13,377 compared to an actual income tax benefit of (euro)5,828. The
difference of (euro)7,549 was mainly due to the tax effect of (euro)13,488 from
amortization of non tax-deductible goodwill and other non tax-deductible
expenses which were partly offset by tax benefits of (euro)2,855 from a change
in tax status of subsidiaries and tax effects of (euro)2,228 from dividend
distributions by German subsidiaries.

         Our theoretical income tax benefit for the year ended December 31, 2000
determined using the 2000 statutory tax rate of 51.4% would have been
(euro)22,773 compared to an actual income tax benefit of (euro)28,353. The
difference of (euro)5,580 was mainly the result of the change in German tax laws
in 2001 resulting in a tax benefit of (euro)13,304, tax effects from dividend
distributions by German subsidiaries of (euro)2,621 and a foreign tax rate
differential of (euro)3,041, which were partly offset by the tax effect of
(euro)14,523 from amortization of non tax-deductible goodwill and other non
tax-deductible expenses.

MINORITY INTERESTS



                                       49
<PAGE>

         Minority interests decreased by (euro)2,055 or 69.0% from (euro)2,978
in the year ended December 31, 2000 to (euro)923 in the year ended December 31,
2001. We attribute this decrease mainly to a reduction of minority shares in
Friedrich Grohe in the first half of the year 2000.

NET LOSS

         The net loss increased by (euro)8,173, or 37.3%, from (euro)21,940 in
the year ended December 31, 2000 to (euro)30,113 in the year ended December 31,
2001.

ADJUSTED CONSOLIDATED EBITDA

         Our adjusted consolidated EBITDA increased by (euro)15,136 or 9.7% from
(euro)156,365 in the year ended December 31, 2000 to (euro)171,501 in the year
ended December 31, 2001.

         A reconciliation between adjusted consolidated EBITDA and net loss as
reported in the consolidated financial statements for the years ended December
31, 2001 and 2000 is as follows:


<TABLE>
<CAPTION>
                                                                                      GROHE HOLDING GMBH
                                                                                      ------------------
                                                                                   YEAR ENDED     YEAR ENDED
                                                                                  DECEMBER 31,   DECEMBER 31,
                                                                                      2001           2000
                                                                                      ----           ----
<S>                                                                                <C>             <C>
   Net loss as reported in the consolidated statements of operations...............(30,113)        (21,940)
   Extraordinary loss, net of applicable income taxes..............................   0              3,008
   Income from equity method investees not received as a cash distribution.........   0               (579)
   Income tax benefit.............................................................. (5,828)        (28,353)
   Interest expense as reported in the consolidated statements of operations....... 80,328          88,437
   Depreciation expense............................................................ 54,078          55,890
   Amortization of software........................................................  3,372           3,588
   Amortization of goodwill and tradename.......................................... 55,099          54,521
   Noncash charges.................................................................    765           1,793
   Noncash financial loss from derivatives ........................................ 13,800             0
                                                                                   -------         -------
Adjusted EBITDA....................................................................171,501         156,365
                                                                                   =======         =======
</TABLE>

5.B      LIQUIDITY AND CAPITAL RESOURCES

OVERVIEW

         In 1999 we purchased our predecessor Friedrich Grohe AG in several
transactions. We originally financed these transactions with equity, loans
provided by shareholders and related parties and various bank loans. We
refinanced part of the bank loans in November 2000 with the proceeds from
issuing (euro)200,000 of 11.5% senior notes, which notes we also refer to as
bonds. The bonds mature in November 2010 and bear interest at a fixed rate of
11.5%. We refinanced our senior bank loans in March 2003 as described below. We
have entered into interest rate swap and collar agreements to mitigate the
interest rate risk from our long-term debt to banks. We believe that our
operating cash flows will be sufficient to service interest and scheduled
repayments of our debt. Detailed information about the maturity of our long-term
obligations is provided below under "Tabular disclosure of contractual
obligations".

REFINANCING OF DEBT IN MARCH AND APRIL 2003



                                       50
<PAGE>

         In March 2003 we entered into an agreement with a syndicate of banks
for a new senior credit facility. The new senior facility consists of four
facilities, three term loan facilities, A1, A2 and B, in an aggregate amount of
up to (euro)550,000, and the new revolving facility, in an aggregate amount of
up to (euro)50,000. Principal payments on facilities A1 and A2 are due
semi-annually, with the final payment due on December 20, 2009. The principal
amount of facility B is due in one bullet payment on July 20, 2010. Interest on
all facilities is payable at EURIBOR or, in relation to any loan in a currency
other than euro, LIBOR plus margin at the end of each interest period or, if the
interest period should exceed six months, at the end of six months. The initial
margin per year is 2.25% for facilities A1 and A2 and the new revolving facility
and 2.75% for facility B. The margin will be reduced if we achieve certain
ratios of total net debt to EBITDA, as defined in the new senior credit
facility. In addition, we pay a commitment fee of no more than 0.625% for the
amount available under the revolving facility.

         We used the new senior credit facility to repay the senior credit
facility and a portion of the outstanding loans from related parties and
shareholders. The loans from related parties and shareholders are subordinated
to our 11.5% senior notes. Certain provisions of the new senior credit facility
required amendments to and waivers of provisions of the indenture under which we
issued our 11.5% senior notes. We obtained the required consent in March 2003.
In April 2003, we paid the noteholders who consented to the amendments and
waivers a fee of 7.25% of the nominal value of the bonds that they held. The
aggregate fee amounted to approximately (euro)12.9 million. We will include the
consent fee and any expenses related to the consent solicitation process in
other expense in our consolidated statements of operations as incurred.

         We will charge unamortized debt issuance costs related to the
refinanced senior credit facility and the repaid portion of the loans from
shareholders and related parties to interest expense at the respective repayment
dates of these debt instruments. We will capitalize and amortize debt issuance
costs related to the issuance of the new senior credit facility to interest
expense pursuant to the effective interest method.

         As the contractual interest rate of 5% on the loans from related
parties and shareholders was below market rate at the inception of the loans, we
imputed interest at a rate of 11.5% for accounting purposes. We credited the
difference between the net present value of the loans at their inception and the
cash amount received from shareholders and related parties against additional
paid in capital and deferred taxes at inception of the loans. As of December 31,
2002, the total amount accrued in the balance sheet for these loans amounted to
(euro)172,674, which approximates fair market value.

         As required by applicable accounting standards, we will account for the
partial repayment of the loans from shareholders and related parties as a
capital transaction.

WORKING CAPITAL

         As in previous years, we intend to finance working capital requirements
from funds that our operations generated. We believe that the existing financing
of working capital is sufficient for our current working capital requirements.
At December 31, 2002 and 2001, we had available (euro)70,058 and (euro)30,051
lines of credits with several banks. An amount of (euro)51,129 of the credit
lines as of December 31, 2002 represents senior bank loan facility E. Under the
respective credit arrangements we and our subsidiaries have the option to borrow
amounts for general purposes.

CAPITAL EXPENDITURES

         We finance our capital expenditures primarily from operating cash
flows, except for capital expenditures on the expansion of our production
facilities. Investment in new plants has, in the past, partly been financed by
bank loans, supported by government subsidies. We intend to finance further


                                       51
<PAGE>

capital expenditures primarily from operating cash flows. We believe that our
manufacturing facilities are generally in good condition. We do not anticipate
that exceptional capital expenditures exceeding depreciation will be needed to
replace existing facilities in the near future.

HISTORICAL CASH FLOWS

         The following table sets out certain information with respect to our
cash flows:


<TABLE>
<CAPTION>
                                                                        GROHE HOLDING GMBH
                                                                        ------------------
                                                           YEAR ENDED       YEAR ENDED        YEAR ENDED
                                                          DECEMBER 31,     DECEMBER 31,      DECEMBER 31,
                                                              2002             2001              2000
                                                              ----             ----              ----
<S>                                                         <C>             <C>               <C>
Cash flows from operating activities:
   Net income (loss).................................       23,551          (30,113)          (21,940)
   Minority interests in income of subsidiaries......        1,176              923             2,978
   Extraordinary loss................................          0                 0              4,775
   Adjustments to reconcile net income to net cash
      provided by operating activities...............       72,059          118,710            86,108
   Changes in operating assets and liabilities.......       45,962           48,339           (14,640)
                                                        ----------------- ---------------- -----------------
Net cash provided by operating activities............      142,748          137,859            57,281

Net cash used for investing activities...............      (41,184)         (33,574)          (57,649)

Net cash used for financing activities...............      (79,498)        (100,016)          (48,163)

Effect of foreign exchange rate changes on cash
   and cash equivalents..............................       (1,044)            (234)              159
                                                        ----------------- ---------------- -----------------
Net increase (decrease) in cash and cash equivalents.       21,022            4,035           (48,372)
                                                        ----------------- ---------------- -----------------

Cash and cash equivalents
   At beginning of year..............................       50,277           46,242            94,614
   At end of year....................................       71,299           50,277            46,242
</TABLE>

NET CASH PROVIDED BY OPERATING ACTIVITIES

         Net cash provided by operating activities increased by (euro)4,889 or
3.5% from (euro)137,859 in the year ended December 31, 2001 to (euro)142,748 in
the year ended December 31, 2002.

         In July 2001 we received an income tax refund of (euro)49,340 which we
included in other current assets at December 31, 2000. We used this tax refund
to repay long-term debt to banks. Not including the one-time effect from this
tax refund, our cash flow from operating activities improved by (euro)54,229 in
the year ended December 31, 2002 compared to the year ended December 31, 2001.
In addition to the ongoing positive development of our operations, we attribute
this increase mainly to:

o        a decrease in interest payments of (euro)17,710 from (euro)67,098 in
         the year ended December 31, 2001 to (euro)49,388 in the year ended
         December 31, 2002. This decrease is mainly due to principal payments on
         long-term debt to banks in the second half of 2001 and July 2002 and
         lower interest rates on our bank debt;



                                       52
<PAGE>

o        working capital requirements for accounts receivable, inventories and
         accounts payable were also reduced in the year 2002 compared to 2001.
         Due to better inventory management, we significantly reduced our
         inventories in 2001. This positive effect on working capital
         requirements in 2001 was almost completely offset by an increase in
         accounts receivable and decreased accounts payable in 2001. Though our
         sales volume increased by 2.8% in 2002, inventories remained almost at
         the same level in 2002 compared to 2001. Decreases in accounts
         receivable and increases in accounts payable, which were at an
         exceptional high at year end 2002, were the main factors for the
         reduction in working capital requirements in 2002;

o        movements in prepaid expenses and other assets which decreased
         by(euro)4,796 in 2001 ((euro)54,136 net of the one-time effect of tax
         refunds of(euro)49,340) compared to a decrease of(euro)9,217 in 2002;
         and

o        movements in other accrued expenses and liabilities, which decreased by
         (euro)12,342 in 2001 and increased by (euro)11,097 in 2002. The
         decrease in 2001 related primarily to accruals for interest payments.
         The increase in 2002 relates primarily to accrued payroll and
         personnel-related expenses.

         These positive effects on our operating cash flows in the year ended
December 31, 2002 compared to the year ended December 31, 2001 were partly
offset by higher income tax payments, which increased by (euro)6,554 from
(euro)14,931 (net of the one-time effect of tax refunds of (euro)49,340) in the
year ended December 31, 2001 to (euro)21,485 in the year ended December 31,
2002. Income tax payments mainly increased because of higher operating results
of group companies.

         Net cash from operating activities increased by (euro)80,578 or 140.7%
from (euro)57,281 in the year ended December 31, 2000 to (euro)137,859 in the
year ended December 31, 2001. We attribute this development to an increase in
cash flow provided by current operations of (euro)17,599 and a movement in
operating assets and liabilities of (euro)62,979. Net operating assets increased
by (euro)14,640 in the year ended December 31, 2000 and decreased by
(euro)48,339 in the year ended December 31, 2001.

         We attribute the increase in cash flows from current operations of
(euro)17,599 in the year ended December 31, 2001 compared to the year ended
December 31, 2000 to a (euro)6,875 reduction of interest payments from
(euro)73,973 in the year ended December 31, 2000 to (euro)67,098 in the year
ended December 31, 2001 and to the continuing positive development of current
operations in the year ended December 31, 2001.

         The decrease in net operating assets of (euro)48,339 in the year ended
December 31, 2001 was mainly caused by decreases in prepaid expenses and other
assets of (euro)54,136 and decreases in inventories of (euro)22,287 which were
partly offset by increases in accounts receivable of (euro)15,578 and decreases
in other accrued expenses and liabilities of (euro)12,342.

         We attribute the increase in accounts receivable in the year ended
December 31, 2001 compared to the year ended December 31, 2000 to increased
export sales as payment terms for the export business are longer than for
domestic sales. The increase in accounts receivable was further impacted by
higher sales in the fourth quarter of 2001 compared to the fourth quarter of
2000. We reduced inventories at year end 2001 in order to decrease net working
capital and related financing costs. The decrease in prepaid expenses and other
assets in the year ended December 31, 2001 was mainly due to a tax refund of
(euro)49,340 received in July 2001. We used this refund to repay long-term debt
to banks.



                                       53
<PAGE>

NET CASH USED FOR INVESTING ACTIVITIES

         Our investing activities comprise investments in tangible and
intangible assets. In the year ended December 31, 2000, our investing activities
also included purchases of shares from minority shareholders. We also refer to
our investments in property, plant and equipment and in intangible assets as
capital expenditures. Investments in intangible assets relate essentially to
software.

         Net cash used for investing activities increased by (euro)7,610 or
22.7% from (euro)33,574 in the year ended December 31, 2001 to (euro)41,184 in
the year ended December 31, 2002. Cash used for investments into property, plant
and equipment increased by (euro)4,039 and cash used for investments in
intangible assets increased by (euro)4,057. The increases mainly relate to the
introduction of a new standard software system (SAP R/3) and the necessary
computer hardware systems required for this software. In 2002, about 84% of our
capital expenditures related to our Germany and direct exports segment, 7% to
our European subsidiaries segment and 9% to our overseas subsidiaries segment.
In 2001, 77% of our capital expenditures related to our Germany and direct
exports segment, 10% to our European subsidiaries segment and 13% to our
overseas subsidiaries segment.

         Proceeds from the sale of property, plant and equipment increased by
(euro)668 from (euro)2,727 in the year ended December 31, 2001 to (euro)3,395 in
the year ended December 31, 2002. These proceeds include cash received for the
sale of former production sites and training centers of the Company.

         Net cash used for investing activities decreased by (euro)24,075 or
42.0% from (euro)57,649 in the year ended December 31, 2000 to (euro)33,574 in
the year ended December 31, 2001. We attribute this decrease mainly to a
reduction in cash used for purchases of shares from minority shareholders by
(euro)23,333. Capital expenditures decreased from (euro)39,551 in the year ended
December 31, 2000 to (euro)36,675 in the year ended December 31, 2001. In 2000,
76% of our capital expenditures related to our Germany and direct exports
segment, 14% to our European subsidiaries segment and 10% to our overseas
subsidiaries segment.

NET CASH USED FOR FINANCING ACTIVITIES

         Net cash used for financing activities decreased by (euro)20,518 or
20.5% from (euro)100,016 in the year ended December 31, 2001 to (euro)79,498 in
the year ended December 31, 2002. Our principal payments on long-term debt
decreased by (euro)28,494 from (euro)108,216 in the year ended December 31, 2001
to (euro)79,722 in the year ended December 31, 2002. In 2001 principal payments
were partly financed by a tax refund of (euro)49,340. The decrease in cash used
for principal payments was partly offset by movements in restricted cash, which
decreased by (euro)7,667 in 2001 and increased by (euro)1,324 in 2002. Under the
contracts with the financing banks, we have agreed to deposit certain cash
amounts into a bank account from which no withdrawals can be made without
consent from the financing banks.

         In the year ended December 31, 2001, net cash used for financing
activities amounted to (euro)100,016 compared to net cash used for financing
activities of (euro)48,163 in the year ended December 31, 2000.

         We attribute net cash used for financing activities in the year ended
December 31, 2001 to:

o        principal payments on long-term debt to banks of(euro)108,216; and

o        a decrease in restricted cash of(euro)7,667.

         We attribute net cash used for financing activities in the year ended
December 31, 2000 to:



                                       54
<PAGE>

o        principal payments on long-term debt to banks of(euro)314,147. These
         payments relate to the refinancing through the issuance of bonds in
         November 2000 in an amount of(euro)261,432 and scheduled principal
         payments of(euro)52,715;

o        proceeds from the issuance of bonds in an amount of(euro)200,000 in
         November 2000;

o        proceeds from the issuance of long-term debt to banks of(euro)98,522.
         These proceeds mainly relate to the refinancing in November 2000
         of(euro)76,694; and

o        an increase in restricted cash by(euro)30,295.

NET CASH FLOW

         Cash and cash equivalents amounting to (euro)50,277 as of December 31,
2001 increased by (euro)21,022 or 41.8% to (euro)71,299 as of December 31, 2002.

         Cash and cash equivalents amounting to (euro)46,242 as of December 31,
2000 increased by (euro)4,035 or 8.7% to (euro)50,277 as of December 31, 2001.

         Cash and cash equivalents amounting to (euro)94,614 as of December 31,
1999 decreased by (euro)48,372 or 51.1% to (euro)46,242 as of December 31, 2000.

         Under the senior credit facility, we agreed to deposit, at the request
of the lenders, cash that we received from subsidiaries whose shares were
pledged to the lenders into a bank account from which no withdrawals could be
made without their written consent. The lenders agreed to permit withdrawals
from the bank account provided that they had not declared an event of default
under the senior credit facility. No events of default occurred. We refinanced
the senior credit facility in March 2003 as described above.

INVESTMENT OF SURPLUS CASH

         We invest any surplus cash in euro deposit accounts held with financial
institutions. Under the senior credit facility, we have agreed to deposit
certain cash amounts into an account from which no withdrawals can be made
without their consent.

5.C.      RESEARCH AND DEVELOPMENT

         We consider research and development a major factor in securing our
future competitiveness. In an environment characterized by increasing levels of
innovation and a shortening of product life cycles, innovation in functions,
styles, materials and processes has gained further importance for
differentiating our brand and enhancing our premium brand status.

         Our research and development efforts generally concentrate on:

o        creating new and innovative products;

o        improving and expanding existing product lines;

o        developing new components; and


                                       55

<PAGE>

o        using innovative materials and processes.

         In recent years the development of modular and integrated systems, such
as shower panels and bathroom systems, has also become increasingly important.

         In order to maintain our innovative strength, we conduct various
research projects for the development of basic technologies such as in the field
of nanotechnology/new surface properties mainly with external institutes and
universities. We keep track of new materials developments systematically and
conduct extensive testing with partners, in order, for instance, to ensure that
we stay below the permitted levels of metal leaching into drinking water, which
are becoming more stringent around the world. We used tested and standardized
components, materials and methods to a greater extent in our research and
development projects in 2002 which resulted in the desired cost improvements. We
segregate pre-development and series development to meet our high quality
standards such as those for product life and surface quality. We expect our
strategy for the selection and integration of system suppliers to provide us
with information on technological trends at an early stage so that we may take
these trends into account in subsequent product development. Suppliers also may
be involved in the early stages of development projects in order to provide
their specific expertise.

         To optimize internal communication, we have taken the first steps
toward promoting knowledge sharing and more intensive use of existing synergies.
We aim for ongoing exchange of technology and experience and the establishment
and maintenance of a communication network as the fundamental element for
setting up a comprehensive knowledge management system.

         Our research and development activities in the year ended December 31,
2002 included the enhancement of our product ranges which were presented at the
ISH fair in 2003 and the adaptation of products for international markets. Also
in 2002, we synchronized processes that we previously performed in sequence to
accelerate the development of new products. In 2001 and 2000, our research and
development projects particularly included the development of a new shower
program such as the innovative Freehander and Taron shower panel and the
development of preproduction samples and pilot lot production for the new Tenso
and Atrio product lines. We presented these product lines at the ISH fair in
2001. In the year 2000 we implemented an engineering data management, or EDM,
system throughout the group in order to access existing product data from all
locations and to use this data to continue the development of new products.

         Research and development expenses amounted to (euro)24,190,
(euro)20,066 and (euro)20,873 in the years ended December 31, 2002, 2001 and
2000, respectively. We attribute the increase in the year ended December 31,
2002 mainly to expenses for additional personnel in research and development. As
a percentage of sales, research and development expenditures increased slightly
from 2.4% and 2.3% in the years ended December 31, 2000 and 2001, respectively,
to 2.7% in the year ended December 31, 2002.

5.D.     TREND INFORMATION

         INDUSTRY TRENDS. Although it is difficult to assess growth rates in the
worldwide sanitary products industry, we estimate that the sanitary fittings
segment has achieved an average compound annual sales growth rate of
approximately six percent over the past ten years in western Europe, North
America and Japan, measured by value of demand. Major factors which have
contributed to growth in the sanitary products industry in western Europe and
North America would appear to include changing demographics, changing consumer
preferences to favor more expensive products with higher design standards and
more advanced technological features, an increasing trend towards a greater
number of water delivery points per dwelling and increasing renovation activity.
Growth in the sanitary products industry in emerging markets generally results
from population growth, greater disposable income and increasing penetration



                                       56
<PAGE>

of western sanitary standards. We believe that growth in tourism in emerging
markets has also contributed to demand for higher quality sanitary products in
those markets.

         REGIONAL TRENDS. During the year ended December 31, 2002 sales in
Germany and direct exports decreased by 2.9%, sales by European subsidiaries
increased by 3.7%, and sales by overseas subsidiaries increased by 8.5%. The
decrease of 2.9% in Germany and direct exports results from a decrease in sales
in Germany by 7.9% partly offset by an increase in direct exports of 8.4%,
especially related to exports to eastern European countries. We attribute the
decrease in sales in Germany to ongoing unfavorable market conditions. We
estimate that the German sanitary products market declined approximately 10% in
2002. For 2003, the industry, specialist trade and specialist wholesalers expect
little recovery. While remodeling demand is likely to decrease further, a
positive trend is becoming apparent in non-residential construction. However, we
do not expect a fundamental recovery of the German sanitary products market any
time before 2004. We expect around 2% growth in sanitary product sales in our
European markets for 2003. The high growth in eastern Europe over the last few
years has flattened out, although individual markets are still showing strong
growth rates. We will attempt to increase sales at a rate faster than the market
rate within our European subsidiaries segment. We also expect further growth in
our overseas markets including in the United States. Provided a stabilization of
the political situation in the Middle East and a positive development of the
economy in Japan, we expect a positive development in our Middle and Far East
markets.

         MANUFACTURING. In 2002 our management approved a new international
manufacturing strategy aimed at cutting costs and further streamlining
operations. This strategy will involve all of our plants. We expect that the
strategy will allow our plants to focus on their core competencies and improve
the workflow within and among our plants. We intend to shift production volume
of some of our smaller production sites in Germany to our larger manufacturing
facilities. We have already integrated the production of our subsidiary H.D.
Eichelberg at our plant in Hemer, and we will move production from our plant in
Haldensleben to Hemer and Lahr during the first half of 2003. Additionally, we
plan to integrate the production of our subsidiary Eggemann at our plant in
Hemer in the second half of 2003. Our plant in Portugal plays an important role
in our strategic considerations, and beginning in 2003 we intend to increase
production capacity there.

         DISTRIBUTION. Our distribution system generally follows the three-step
process common to the sanitary products industry in most developed markets: from
the manufacturers to the sanitary products wholesalers, from the sanitary
products wholesalers to the installers and retailers and from the installers and
retailers to private residential and commercial end-users. Further developments
in distribution, including a growing level of sophistication in retail
distribution, will favor premium brands like Grohe, which can offer an extensive
range of products and solutions. Furthermore, consolidation in wholesale
distribution will create larger wholesale companies which concentrate on key
brands which have superior product and system innovations and special logistical
capabilities.

         ECONOMIC CONDITIONS AND CONSTRUCTION ACTIVITY. The demand for our
products is directly affected by general economic conditions, including gross
domestic product growth, interest rates and labor costs, in those countries in
which we operate. We are particularly exposed to fluctuations in Germany and the
rest of western Europe.

         Our business is dependent on construction activity in the markets in
which we operate. For example, approximately 30% of our annual sales are
attributable to the new construction segment of the construction industry, while
the remainder is attributable to the building repairs, maintenance and
improvement segment of the construction industry.



                                       57
<PAGE>

         EFFECTS OF CURRENCY FLUCTUATIONS AND INFLATION. We transact business
around the world, including in 130 countries outside the European Union and in
more than ten currencies. During the year ended December 31, 2002, we generated
approximately 30% of our revenues in currencies other than the euro and we
expect this percentage to increase in the future. Changes in foreign currency
exchange rates, therefore, can affect our ability to sell our products at
satisfactory prices and can affect the value of our foreign assets, revenues,
liabilities and costs when reported in euros and, therefore, our financial
condition or results of operations.

         PRICE OF CERTAIN RAW MATERIALS. During the year ended December 31,
2002, approximately 62% of our raw material costs related to brass and brass
machining and forging parts and approximately 32% of our raw material costs
related to plastic components. Accordingly, our production costs are directly
impacted by fluctuations in the price of these raw materials. Particularly,
prices for brass have been volatile in the past.

         FUTURE ACQUISITIONS. We will continue to explore acquisitions of
related businesses to enhance our existing products and expand the geographic
and industry scope of our business as an important element of our growth
strategy. We cannot assure you that we will be able to identify and acquire
suitable companies on acceptable terms. However, any businesses that we acquire,
together with any indebtedness that we incur, would have an impact on our
results of our operations.

         NEW PRODUCTS. In 2002, we earned more than 25% of our revenues through
the sale of products launched after January 1, 2000. Our results of operations
depend upon our ability to continue to introduce new products with attractive
performance and design characteristics at competitive prices in order to compete
successfully in our markets.

5.E.     OFF-BALANCE SHEET ARRANGEMENTS

         We do not have any material off-balance sheet arrangements except for
the following. As is customary in the industry, we sell our products to some
customers against bills of exchange. A bill of exchange provides legal evidence
of the debt and orders the drawee, who can be the customer, or a financial
institution acting on its behalf, to pay a specified amount against the bill of
exchange at maturity. If we endorse these bills of exchange to our bank, we
receive its value in cash after deduction of a discount. Should the drawee
default upon maturity of the bill of exchange, we are liable for the debt. At
December 31, 2002, the maximum possible recourse against us upon default of the
drawee on these transactions was (euro)4,300.



                                       58
<PAGE>

5.F.

TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

         The following table summarizes our contractual obligations existing as
of December 31, 2002:

<TABLE>
<CAPTION>
                                                                PAYMENTS DUE BY PERIOD
                                           ------------------------------------------------------------------
                                              2003      2004 TO 2005  2006 TO 2007  THEREAFTER     TOTAL
                                              ----      ------------  ------------  ----------     -----
<S>                                        <C>            <C>            <C>          <C>         <C>
Long-term debt to banks.....................73,184        162,051        114,402      3,501       353,138
Bonds.......................................     0              0              0    200,000       200,000
Long-term debt to related parties and            0              0              0    172,674       172,674
   shareholders.............................
Capital lease obligations...................   656            460             58          0         1,174
Operating leases............................ 4,820          6,494          1,009      5,057        17,380
Unconditional purchase obligations.........132,640          1,676              0          0       134,316
                                           -------        -------        -------    -------       -------
Total .....................................211,300        170,681        115,469    381,232       878,682
                                           =======        =======        =======    =======       =======
</TABLE>

ITEM 6   DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

6.A.     DIRECTORS AND SENIOR MANAGEMENT

GENERAL

         We have a two-tier management structure. This management structure
provides for managing directors (GESCHAFTSFUHRER) and an advisory board
(BEIRAT). The managing directors are responsible for managing our business
affairs and representing us in our dealings with third parties, while the
advisory board appoints and removes the managing directors and oversees their
actions. Under the applicable German law, our advisory board is not permitted to
make management decisions. However, pursuant to our Articles of Association, the
managing directors must obtain the prior consent of our advisory board for
matters or actions which are outside the ordinary course of business. The
advisory board is also authorized to subject other actions of the managing
directors to its prior consent. German law prohibits a managing director from
serving on the advisory board of the same company for which it is a managing
director.

         Our advisory board currently consists of three members. Thirteen of the
19 BC Funds together with seven individual investors, through their equity
interest in us, have the power to appoint and remove one member of the advisory
board alone and the other two members together with Teabar Capital Corporation,
another major shareholder. We also have four managing directors who are elected
by the advisory board. The managing directors are obliged to conduct the
business of the company in compliance with the law, our Articles of Association
and the resolutions of the shareholders' meetings and the advisory board.
Pursuant to our Articles of Association, the managing directors are required to
report regularly to the advisory board on certain matters. The members of the
advisory board and the managing directors are as follows:


                                       59
<PAGE>


         ADVISORY BOARD

<TABLE>
<CAPTION>
Name                                                          Age          Position
----                                                          ---          --------
<S>                                                           <C>          <C>
Dr. Udo Simmat..............................................  51           Chairman of the Advisory Board
Dr. Karsten Heider..........................................  40           Member, Advisory Board
Mr. Cornelius Geber.........................................  50           Member, Advisory Board
</TABLE>

         MANAGING DIRECTORS

<TABLE>
<CAPTION>
Name                                                          Age        Position
----                                                          ---        --------
<S>                                                           <C>        <C>
Dipl.-Betriebswirt Peter Korfer-Schun.......................  57         Managing Director
Mr. Stephan M. Heck.........................................  54         Managing Director
Dr. oec. Rainer S. Simon....................................  52         Resigned, March 2002
Mr. Detlef Spigiel..........................................  47         Managing Director
Mr. Michael Grimm...........................................  43         Managing Director
</TABLE>


         The members of our advisory board and our managing directors are
briefly described below.

DETAILS OF THE MEMBERS OF THE ADVISORY BOARD

         DR. UDO SIMMAT was appointed to the advisory board in 1999, pursuant to
an arrangement with BC Funds, Teabar Capital Corporation and other investors
based on the shareholders agreement. He is an attorney in Germany and obtained a
degree in law from the University of Augsburg in 1979, and a doctorate in law in
1980. He has been a partner in the law firm CMS Hasche Sigle, or its
predecessors, since 1983. He has acted, and continues to act, as legal counsel
to BC Partners Limited, the adviser to BC Funds.

         DR. KARSTEN HEIDER was appointed to the advisory board in 1999, also
pursuant to an arrangement with BC Funds, Teabar Capital Corporation and other
investors based on the shareholders agreement. He is an attorney in Germany and
obtained a degree in law from the University of Tubingen in 1992, and a
doctorate in law in 1993. He has been a partner in the law firm CMS Hasche
Sigle, or its predecessors, since 1999. He has acted, and continues to act, as
legal counsel to BC Partners Limited, the adviser to BC Funds.

         MR. CORNELIUS GEBER has had a consultancy agreement with BC Partners
Limited since April 1, 1999 pursuant to which he was appointed a member of the
advisory board of Grohe Holding and a supervisory board member of Friedrich
Grohe. He has a degree in maritime management and, since April 1, 1999, has been
a senior consultant with Deutsche Post AG, chairman of the supervisory board of
Paul Gunther Logistik AG, and a member of the board of directors of IFCO Systems
N.V., Amsterdam. He was also a member of the supervisory board (AUFSICHTSRAT) of
Friedrich Grohe AG and has been a member of the supervisory board of Friedrich
Grohe Geschaftsfuhrungs AG since March 28, 2000.

DETAILS OF THE MANAGING DIRECTORS

         DIPL.-BETRIEBSWIRT PETER KORFER-SCHUN has been a managing director
since 1991, after holding various positions and management roles in the sales
and marketing departments of leading brand name companies. He is also our Chief
Executive Officer, and his responsibilities include branding and



                                       60
<PAGE>

innovation. Since October 1, 1999, he also has been the Chairman of the
Management Board of Friedrich Grohe AG & Co. KG. He studied business management
at the University of Applied Science in Berlin and graduated in 1969.

         MR. STEPHAN M. HECK was appointed as managing director effective April
1, 2002. After holding various senior positions and management roles in a
leading global chemicals company in Germany and abroad, Mr. Heck assumed
responsibility for our European business in 1994. Since April 1, 2002, Mr. Heck
has been the Head of Sales at Friedrich Grohe AG & Co. KG. He is also our Sales
Executive Director. He studied business administration in Zurich, Switzerland,
at the University of Zurich and graduated in 1978.

         DR. OEC. RAINER S. SIMON resigned his position as managing director in
March of 2002. He became a managing director in 1996. He was also our Executive
Director, Overseas and Affiliated Companies. He studied business management at
the University of St. Gallen in Switzerland and graduated in 1976. He obtained
his doctorate in 1979.

         MR. DETLEF SPIGIEL has been a managing director since August 1, 2000,
after holding various positions and management roles in the technical, sales and
personnel departments of leading companies in the automotive industry. Mr.
Spigiel was appointed to the Management Board of Friedrich Grohe AG & Co. KG on
August 1, 2000. In this capacity, he is responsible for production, logistics,
industrial engineering, quality management, procurement and personnel. Mr.
Spigiel is the Head of Technology at Friedrich Grohe AG & Co. KG and our Head of
Technology and Personnel. He studied engineering and economics at the University
of Dortmund and graduated in engineering in 1979 and economics in 1981.

         MR. MICHAEL GRIMM has been a managing director since May 1, 2002. He is
also our Chief Financial Officer. After holding senior positions at an
international accounting firm, Mr. Grimm held numerous management roles in the
group accounting department of a leading global company in the chemicals and
pharmaceuticals industry from 1997 to 2002, the last of which was vice president
finance, in which capacity he was responsible for group accounting and financial
planning. Mr. Grimm also has been Head of Finance at Friedrich Grohe AG & Co. KG
since May 1, 2002. He studied business at the University of Frankfurt am Main
and graduated in 1985.

         All of the managing directors are also members of the management board
(VORSTAND) of Friedrich Grohe Geschaftsfuhrungs AG, the general partner of
Friedrich Grohe. In this capacity, the contracts of the managing directors
expire on the following dates:

<TABLE>
<CAPTION>
<S>                                                               <C>
o        Dipl.-Betriebswirt Peter Korfer-Schun            -       December 31, 2004

o        Dr. oec.  Rainer S.  Simon                       -       Resigned in March of 2002

o        Mr. Detlef Spigiel                               -       July 31, 2003, with a planned extension until
                                                                  July 31, 2005

o        Mr. Stephan M. Heck                              -       March 31, 2007

o        Mr. Michael Grimm                                -       April 30, 2005, with a planned extension until
                                                                  April 30, 2007
</TABLE>



                                       61
<PAGE>

6.B.     COMPENSATION

         Compensation for the year ended December 31, 2002 for members of the
management board, including former director Dr. Rainer S. Simon, amounted to
approximately (euro)3.7 million. This amount includes bonuses for the year ended
December 31, 2001 in a total amount of (euro)0.6 million, that were paid during
the year ended December 31, 2002. We paid approximately (euro)45 thousand in
compensation to members of the advisory board during the year ended December 31,
2002.

         The members of the advisory board and the managing directors, as
managing directors of Grohe Holding, do not receive a pension. The rights of the
managing directors upon termination are derived from their employment and
pension agreements with Friedrich Grohe Geschaftsfuhrungs AG, which cover all
their activities with respect to the Grohe group. Upon resigning from the Grohe
group, a director is entitled to a transitional payment or, if appropriate, a
pension.

         Mr. Korfer-Schun, Mr. Spigiel, Mr. Heck and Mr. Grimm are entitled to
receive pensions as members of the management board of Friedrich Grohe
Geschaftsfuhrungs AG, the general partner of Friedrich Grohe. As of December 31,
2002, total pension liabilities of Friedrich Grohe Geschaftsfuhrungs AG for Mr.
Korfer-Schun, Mr. Spigiel, Mr. Heck and Mr. Grimm, were(euro)3.1 million. There
are also pension liabilities for the former directors, Dr. Hovermann and Mr.
Baab in the amount of(euro)2.6 million. Dr. Simon waived his pension rights when
he resigned as managing director in March, 2002.

         A director who becomes permanently occupationally disabled is entitled
to an invalidity pension. In the event of death, the regular salary is paid to
the director's estate for the four months following the date of death.
Thereafter, the company must pay a widow's or orphan's pension, if appropriate.
These payments and pensions are calculated on the basis of the last fixed
salary, the age of the director and the length of employment with the company.
Advisory board members receive no remuneration in case of termination.

6.C.     BOARD PRACTICES

         The managing directors are appointed for an indefinite period, ending
on dismissal or resignation. In practice, however, the term of the managing
directors is linked to their term as members of the management board of
Friedrich Grohe Geschaftsfuhrungs AG, which terms are set forth in the table
above following their names and titles. At the end of such terms, either their
terms on the management board of Friedrich Grohe Geschaftsfuhrungs AG will be
extended, or these managing directors will resign from the managing board of
Grohe Holding.

         Pursuant to our Articles of Association, the members of our advisory
board are elected for a minimum term of approximately five years. The term of a
member of the advisory board expires at the end of the general meeting of
shareholders in which the shareholders ratify the actions of the advisory board
with respect to the third fiscal year following the year in which the member was
appointed (not taking into account the fiscal year in which the term of the
office commenced).

         We do not have an audit or remuneration committee. Our advisory board
approves our annual financial statements each year and otherwise fulfils the
function of an audit committee.

6.D.     EMPLOYEES

         The following table sets forth information about our average number of
employees by business segments for the years 2002, 2001 and 2000.


                                       62
<PAGE>

<TABLE>
<CAPTION>
                                                       2002                  2001                   2000
                                                       ----                  ----                   ----
<S>                                                    <C>                    <C>                    <C>
Germany and direct exports................             4,620                  4,815                  4,777
Europe excluding Germany..................               684                    673                    672
Overseas..................................               502                    468                    416
                                                       -----                  -----                  -----
Average number of employees...............             5,806                  5,956                  5,865
Apprentices...............................               171                    171                    169
                                                       -----                  -----                  -----
Average number of employees
   including apprentices..................             5,977                  6,127                  6,034
                                                       -----                  -----                  -----
</TABLE>

         We have not suffered a material work stoppage or strike, and we
consider our relations with our employees and their unions to be satisfactory.
We are subject to mandatory collective bargaining agreements with most of our
employees in our German production facilities. German law prohibits us from
asking our employees if they are members of unions. Accordingly, we do not know
how many of our employees are union members. In general, our employees in
Germany fall under the scope of the German Dismissal Protection Act
(KUNDIGUNGSSCHUTZGESETZ), which act restricts our ability to terminate
employment relationships unilaterally.

6.E.     SHARE OWNERSHIP

         Mr. Korfer-Schun has a 0.69% interest in Grohe Holding, and Dr. Simon,
a member of the supervisory board of Friedrich Grohe Geschaftsfuhrungs AG and
former managing director of Grohe Holding GmbH, has an interest of 0.69%. Mr.
Spigiel has an interest of 0.44%; Mr. Grimm has an interest of 0.36%; Mr. Heck
has an interest of 0.36%; Dr. Albrecht, Chairman of the supervisory board of
Friedrich Grohe Geschaftsfuhrungs AG, has an interest of 0.12%, and Mr. Geber
has an interest of 0.02%. The total combined interest of management in Grohe
Holding is currently 2.68%. See "Item 7.A. Major Shareholders".

ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

7.A.     MAJOR SHAREHOLDERS

         Grohe Holding's total share capital amounted to (euro)51,374,300 as of
April 30, 2003.

         The following table sets out information regarding ownership of more
than five percent of the shareholding and the management interests in Grohe
Holding as of the date of this annual report:

<TABLE>
<CAPTION>
                                                                          SHAREHOLDINGS
IDENTITY OF PERSON OR GROUP                                             (BY VALUE IN EUROS)            PERCENTAGE
---------------------------                                             -------------------            ----------
<S>                                                                         <C>                          <C>
BC Funds (if calculated together).............................              19,661,050 (1)               38.26
Teabar Capital Corporation....................................              10,722,950                   20.87
Capital d'Amerique CDPQ, Inc..................................               8,223,750                   16.01
BdW Beteiligungsgesellschaft fur die Deutsche Wirtschaft mbH & Co.
    KG........................................................               2,824,850                    5.50
HVB-Offene Unternehmensbeteiligungs-AG........................               2,824,850                    5.50
South Light Investment Pte Limited............................               2,824,850                    5.50
Management....................................................               1,374,300 (2)                2.68
</TABLE>

----------



                                       63
<PAGE>

(1)      This figure includes BC European Capital V which holds (euro)1,016,950
         or 1.98%, and BC European Capital VI which holds (euro)18,644,100 or
         36.28%. This figure also includes direct investments from executives of
         BC Partners Limited in France.

(2)      This figure includes Mr. Peter Korfer-Schun, Dr. Rainer S. Simon, Mr.
         Detlef Spigiel, Mr. Michael Grimm, Mr. Stephan Heck, Dr. Hellmut K.
         Albrecht and Mr. Cornelius Geber.

         For over ten years, BC Partners Limited has been a well-known private
equity firm in Europe. Since it was founded in 1986, BC Partners Limited has
advised seven private equity funds with a total of more than (euro)6.0 billion
under management. In this time, 52 European transactions have been consummated
with an aggregate transaction value of approximately (euro)25 billion. BC
Partners Limited is the exclusive adviser to the 19 BC Funds limited
partnerships, which if calculated together own 38.26% of Grohe Holding. The 19
BC Funds limited partnerships are established under the laws of England and
Wales.

         The second largest shareholder in Grohe Holding is Teabar Capital
Corporation, with an interest of approximately 20.9%. Teabar Capital Corporation
is wholly-owned by the Ontario Teachers' Pension Plan Board, which has an
interest in the BC Funds of approximately 14.4%. Capital d'Amerique CDPQ, Inc.
is the third largest shareholder in Grohe Holding, with an interest of
approximately 16.0%, and the Caisse de Depot group, to which Capital d'Amerique
CDPQ, Inc. belongs, has an interest in the BC Funds of approximately 6.4%.
Capital d'Amerique CDPQ, Inc. is the pension fund of the public servants of the
Province of Quebec, Canada. Neither Teabar Capital Corporation, Ontario
Teachers' Pension Plan Board, Capital d'Amerique CDPQ, Inc. nor the Caisse de
Depot group is affiliated with the BC Funds or their advisers, other than as
investors in the BC Funds. Share ownership of management increased by
(euro)110,000 in 2001 and by (euro)371,200 in 2002.

         Under our Articles of Association, the shareholders and the advisory
board have broad powers with respect to our management and, indirectly, Grohe
Beteiligungs, including the appointment, dismissal and supervision of our
managing directors. Two members of the three member advisory board are
appointed, and can be removed, by Teabar Capital Corporation and the BC Funds
together with seven individual entities acting jointly. The other member is
appointed, and can be removed, by the BC Funds together with seven individual
entities. Currently, two members of the advisory board are partners in the law
firm of CMS Hasche Sigle, which provides legal advice to us and BC Partners
Limited. The third current advisory board member is Mr. Cornelius Geber, an
independent consultant who is also a member of the supervisory board of
Friedrich Grohe Geschaftsfuhrungs AG. All shareholders have equal voting rights
under our Articles of Association. However, pursuant to a shareholders agreement
among all the shareholders of Grohe Holding, the other shareholders of Grohe
Holding have agreed to support commercially reasonable proposals of 13 of the 19
BC Funds together with seven individual investors in relation to the activities
of Grohe Holding. However, it may not be possible to enforce that agreement
under German law in a timely manner if other shareholders do not vote as agreed.

         Management participation in Grohe Holding currently consists of Mr.
Korfer-Schun, Dr. Simon, Mr. Spigiel, Mr. Grimm, Mr. Heck, Dr. Albrecht and Mr.
Geber, who together have a combined interest of 2.68% in Grohe Holding. See
"Item 6. Directors, Senior Management and Employees."

7.B.     RELATED PARTY TRANSACTIONS

         CIE Management II Limited is the general partner of the 19 BC Funds
limited partnerships, which if calculated together, own 38.1% of Grohe Holding.
CIE Management II Limited charged us with fees of (euro)2.56 million on January
26, 2000 for arranging the financing of our acquisition of Friedrich Grohe AG.



                                       64
<PAGE>

         Capital d'Amerique CDPQ Inc. is the pension fund of the public servants
of the Province of Quebec, Canada and has an interest of approximately 16.0% in
Grohe Holding. The Caisse de Depot group, to which Capital d'Amerique CDPQ Inc.
belongs, has an interest in the BC Funds of approximately 6.4%. Capital
d'Amerique CDPQ charged us with fees of (euro)383,469 on February 7, 2000 for
providing a portion of the financing of our acquisition of Friedrich Grohe AG.

         Funds advised by BC Partners Limited collectively are the largest
shareholders of the company Sanitec International S.A., or Sanitec, owning over
a 77% indirect interest in Sanitec. In addition, Dr. Rainer S. Simon, a director
of Sanitec, was one of our managing directors until March 2002 and currently is
a member the supervisory board of our subsidiary, Friedrich Grohe
Geschaftsfuhrungs AG. Also, our managing director Peter Korfer-Schun is a member
of the board of directors of a subsidiary of Sanitec. In the years ended
December 31, 2000, 2001 and 2002, we sold to subsidiaries of Sanitec various
products for the approximate aggregate total amount of (euro)601,299,
(euro)814,642 and (euro)898,727, respectively.

         Dr. Udo Simmat and Dr. Karsten Heider are members of our advisory board
and are also partners of the law firm CMS Hasche Sigle, our counsel. In
addition, CMS Hasche Sigle has represented, and continues to represent, BC
Partners Limited, which is the advisor to the 19 BC Funds limited partnerships
which funds together own 38.1% of Grohe Holding.

         Mr. Jens Reidel and Dr. Hanns Ostmeier are members of the supervisory
board of Friedrich Grohe Geschaftsfuhrungs AG, the general partner of our
subsidiary Friedrich Grohe, and Mr. Jens Reidel is, and, until December 9, 2002,
Dr. Hanns Ostmeier was, a managing director of BC Partner Beteiligungsberatung
GmbH, which provides advisory services to our subsidiary, Friedrich Grohe. BC
Partner Beteiligungsberatung GmbH committed to a minimum amount of annual
consulting services for which they receive a fixed fee of (euro)127,823 per full
calendar year. The aforementioned consulting agreement was effective as of
August 1, 1999. The total amounts paid to BC Partner Beteiligungsberatung GmbH
were (euro)127,823, (euro)145,796 and (euro)127,828 for the years ended December
31, 2000, 2001 and 2002.

         Dr. Klaus Hovermann is a former managing director of Grohe Holding who
resigned on June 5, 2001. His wife, Beate Hovermann, has a 75% interest in a
company called H. Lenberg GmbH. H. Lenberg GmbH has sold springs to Grohe
Holding and its predecessor for use in the manufacturing of various Grohe
products for over 40 years. Average sales to Grohe Holding and its predecessor
for the five years ending December 31, 2001 were (euro)281,211 per year. These
sales represent approximately 5% of H. Lenberg GmbH's annual sales and less than
1% of our annual procurement.

         Dr. Bernd Kortum is a member of the supervisory board of our subsidiary
Friedrich Grohe Geschaftsfuhrungs AG and also a managing director of
Norddeutsche Vermogen Holding GmbH & Co. Norddeutsche Vermogen Holding GmbH &
Co. is the parent company of Immobilienverwaltungsgesellschaft "Aqua-Carre
Berlin" mbH & Co. KG. In June 2002 we sold one of our former production sites,
located in Berlin, Germany, for (euro)5.9 million to
Immobilienverwaltungsgesellschaft "Aqua-Carre Berlin", at which time we received
the first (euro)1.96 million installment of the purchase price. The remaining
purchase price of (euro)3.92 million is due in two further installments of
(euro)1.96 million, to be paid in June 2004 and June 2006, respectively. As
these installments do not bear interest, we have imputed interest at a rate of
5% resulting in a net present value of the sale price of (euro)5.4 million as of
June 2002.

         In July 1999, BC Funds, Channel Islands provided a loan of (euro)185.3
million to Grohe Holding and Teabar Capital Corp., Toronto, Canada, provided a
loan of (euro)73.2 million to Grohe Holding. In the period from August to
December 1999, BC Funds and Teabar Capital Corp. syndicated part of these loans
as follows:



                                       65
<PAGE>

o        they syndicated loans in an amount of(euro)42.6 million to Capital
         d'Amerique CDPQ, Montreal; and

o        they syndicated loans in an amount of(euro)58.7 million to other
         shareholders.

These loans bear interest at a nominal rate of 5% per year. Principal and
interest payments are not due prior to the complete settlement of all claims of
the creditors under the new senior credit facility. In the course of the
issuance of our notes in November 2000, principal and interest payments were
subordinated to the repayment of the notes until November 2010.

         Mr. Cornelius Geber has an 0.02% and Dr. Hellmut K. Albrecht has an
0.12% interest in Grohe Holding. In July 2001, Mr. Geber and Dr. Albrecht
provided shareholder loans to Grohe Holding in an aggregate amount equal
to(euro)378,000. The loan bears interest at a rate of 5% per year. Principal and
interest payments are subordinated to the repayment of the notes and the
supplementary facility until November 2010. As of the date of this report, we
have repaid an aggregate total of(euro)155 million of the shareholder loans plus
accrued interest of(euro)45 million.

7.C.     INTERESTS OF EXPERTS AND COUNSEL

Not applicable.

ITEM 8.  FINANCIAL INFORMATION

8.A.     CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

8.A.1.  TO 8.A.4.

         Please refer to Item 18 "Financial Statements" and to pages F-1 to
F-66.

8.A.5.

         Not applicable.

8.A.6.  EXPORT SALES

         In the year ended December 31, 2002, our total sales were (euro)898.3
million. Sales in Europe excluding Germany accounted for approximately
(euro)433.0 million or 48.2% of our total sales, and sales in markets outside of
Europe accounted for approximately (euro)239.3 million or 26.6% of our total
sales, resulting in total sales outside Germany of (euro)672.3 million or 74.8%
of our total sales. Since we have our major production facilities in Germany,
almost all our sales in markets outside Germany are export sales. Sales from our
foreign subsidiaries to our German subsidiaries amounted to approximately
(euro)47 million.

8.A.7.  LEGAL PROCEEDINGS

         We are a party to routine litigation incidental to the normal conduct
of our business. We do not believe that liabilities related to those
proceedings, in the aggregate, are likely to be material to our financial
condition or results of operation. In addition, we are a party to the following
proceedings.

CHALLENGE TO THE ENTRY IN THE COMMERCIAL REGISTER OF FRIEDRICH GROHE AG

         In this proceeding, the plaintiffs have requested that the Upper
Regional Court (OBERLANDESGERICHT) of Hamm revoke the entry of Friedrich Grohe
AG & Co. KG, a limited partnership,



                                       66
<PAGE>

into which Friedrich Grohe AG, a stock company was converted, in the commercial
register on the grounds that not all of the prerequisites for entry were
fulfilled. The Upper Regional Court of Hamm refused this request, and under
German rules of procedure, the court's decision is final. However, three of the
plaintiffs have filed an appeal to the Federal Constitutional Court
(BUNDESVERFASSUNGSGERICHT), claiming that the Upper Regional Court's decision
has affected their fundamental rights under the German constitution. At the same
time, these plaintiffs have threatened to appeal to the European Court of Human
Rights if the Federal Constitutional Court does not decide in their favor,
claiming that their human rights granted under the European Convention on Human
Rights have been violated. If the plaintiffs are successful in any of these
appeals, there is a risk that the courts may rule to annul the conversion. We
believe that it is unlikely that these claims would prevail, however.

CHALLENGE TO THE RESOLUTION APPROVING THE CONVERSION OF FRIEDRICH GROHE AG

         The conversion of Friedrich Grohe AG was approved at the meeting of
shareholders of Friedrich Grohe AG on February 23 and 24, 2000 and was
registered in the Commercial Register of the Local Court (AMTSGERICHT) of
Iserlohn, Germany on March 28, 2000. Former minority shareholders have filed
claims with German courts challenging the resolution approving the conversion.
These claims are based primarily on the following:

o        the conversion, especially as reflected in the new partnership
         agreement of Friedrich Grohe, only benefits the general partner;

o        the information rights of the then-minority shareholders were not
         satisfied;

o        leveraged buy-outs violate fiduciary duties owed by majority
         shareholders to minority shareholders and Friedrich Grohe; and

o        a notification requirement under the German Securities Trading Act
         (WERTPAPIERHANDELSGESETZ) was not fulfilled.

         The Regional Court (LANDGERICHT) of Hagen has dismissed the challenges
to the conversion resolution. Each of the plaintiffs has filed an appeal to the
Upper Regional Court (OBERLANDESGERICHT) of Hamm making similar assertions and
arguments. The Upper Regional Court decided to stay the matter until the Federal
Constitutional Court has made a decision regarding the challenge to the
commercial register entry of Friedrich Grohe AG & Co. KG. Any decision of the
Upper Regional Court in this matter may be appealed to the Federal Supreme Court
(BUNDESGERICHTSHOF) and thereafter to the Federal Constitutional Court
(BUNDESVERFASSUNGSGERICHT).

         If, after the conclusion of the foregoing appeals process, the German
courts declared the resolution invalid, which scenario we consider remote, the
following may result.

o        The plaintiffs could be entitled to the damages that the court finds
         that they have actually incurred. Damages might include compensation
         for, among other things, certain tax disadvantages resulting from the
         conversion and the reduced liquidity of their investment.

o        The partnership agreement that was adopted by the resolution could
         cease to be effective as of the date that the resolution was declared
         null and void. A new partnership agreement that maintains the former
         minority shareholders' legal position would then be prepared. If any
         shareholder refused to execute the new partnership agreement, they
         could be forced to do so through legal



                                       67
<PAGE>

         actions commenced by the majority shareholder. The minority
         shareholders then could try to initiate liquidation proceedings with
         respect to Friedrich Grohe AG & Co. KG.

o        A court could require that Friedrich Grohe AG & Co. KG convert back
         into a publicly listed stock corporation which might cause the tax
         benefits resulting from the conversion to be eliminated; the majority
         shareholder then could squeeze out the minority shareholders, and a
         procedure to convert back into a limited partnership could be
         commenced.

         Some minority shareholders have requested that the amount of the
mandatory cash settlement offer of (euro)330.20 per share made to those
shareholders who objected to the resolution authorizing the conversion of
Friedrich Grohe AG into a limited partnership be examined in an arbitration
procedure at the Dortmund Regional Court. The court may determine a higher cash
settlement in the course of this arbitration procedure. If so, the higher cash
settlement would apply to 50,195 shares of minority shareholders of Friedrich
Grohe AG who objected to the resolution authorizing the conversion of Friedrich
Grohe AG into Friedrich Grohe AG & Co. KG. A higher cash settlement may have a
material adverse effect on our financial position. The Dortmund Regional Court
has commissioned an expert to ascertain the value of the company. However the
expert has not yet issued its report.

CHALLENGE TO THE ADOPTION OF THE FRIEDRICH GROHE AG & CO. KG YEAR 2000 FINANCIAL
STATEMENTS

         One minority shareholder has filed a claim with the Regional Court of
Hagen objecting to the adoption of the Friedrich Grohe financial statements of
year 2000. The claim is based primarily on the grounds that:

o        withdrawals by the majority shareholder of Friedrich Grohe, Grohe
         Beteiligungs, violate fiduciary duties owed by the majority shareholder
         to the minority shareholders and to Friedrich Grohe and have the effect
         of excessively reducing the equity of Friedrich Grohe; and

o        Friedrich Grohe is entitled to reimbursement of the withdrawals made by
         its parent Grohe Beteiligungs GmbH & Co. KG, and that this entitlement
         should have been reflected as an asset in the financial statements for
         the year 2000.

If this claim is successful, the financial statements and withdrawals from
Friedrich Grohe for year 2000 could be declared invalid. If the financial
statements are declared invalid, the minority shareholders then could try to
initiate liquidation proceedings with respect to Friedrich Grohe AG & Co. KG,
but we consider it unlikely that they would be successful. The Regional Court of
Hagen has decided to stay the matter pending the Federal Constitutional Court
decision in the claim for revocation of the commercial register entry of
Friedrich Grohe AG & Co. KG however.

         We believe that we have raised adequate defenses to each of these
claims and intend to defend ourselves vigorously.

8.A.8.   DIVIDEND POLICY

         Refer to Item 10.B.3.

8.B.     SIGNIFICANT CHANGES

         Not applicable.



                                       68
<PAGE>

ITEM 9.  THE OFFER AND LISTING

9.A.     OFFER AND LISTING DETAILS

         Not applicable.

9.B.     PLAN OF DISTRIBUTION

         Not applicable.

9.C.     MARKETS

         Our 11.5% senior notes, due November 15, 2010, are listed on the
Luxembourg Stock Exchange. We have no other class of securities listed or traded
on any other stock exchange.

9.D.     SELLING SHAREHOLDERS

         Not applicable.

9.E.     DILUTION

         Not applicable.

9.F.     EXPENSES OF THE ISSUE

         Not applicable.

ITEM 10. ADDITIONAL INFORMATION

         This section summarizes the material provisions of our Articles of
Association and German law to the extent that they may affect the rights of our
shareholders. The description is only a summary and does not describe everything
that our Articles of Association contain.

10.A.    SHARE CAPITAL

         Refer to Item 10.B.3.

10.B.    MEMORANDUM AND ARTICLES OF ASSOCIATION

10.B.1.  REGISTRATION

         Grohe Holding GmbH is a limited liability company organized in the
Federal Republic of Germany under the German Limited Liability Company Act
(GMBHG) and is entered in the commercial register of Local Court of Iserlohn
under file number HRB 2316. Pursuant to section 2, subparagraph 1, of our
Articles of Association, our purpose is the administration of our own
shareholdings in our own name and of shareholdings of third parties in the name
of third parties in domestic and foreign companies, provided that the
shareholdings are not certificated in securities.

10.B.2.  DIRECTORS' VOTING POWERS

         Under section 181 of the German Civil Code, there is a general
prohibition against any person concluding a legal transaction in which he,
acting in his own or representative capacity, is materially



                                       69
<PAGE>

interested. There are, however, certain exemptions from this requirement which
can be provided through a company's articles of incorporation or through
shareholder or board resolutions. Under our Articles of Association, we may
grant general exemptions or exemptions for individual transactions, and, in the
past, through resolutions of our advisory board, we have granted exemptions for
individual transactions.

         None of our directors may determine his own compensation or the
compensation of another director in Grohe Holding GmbH. Our managing directors
only may obtain loans from us with the approval of the advisory board.

         There is no age limit for directors specifically set forth in the our
Articles of Association, however, in the employment contracts of the managing
directors with Friedrich Grohe Geschaftsfuhrungs AG, the managing directors are
entitled to receive a pension if they retire on their 65th birthday. Typically,
Friedrich Grohe Geschaftsfuhrungs AG would not enter into an employment contract
with an officer, the duration of which would extend beyond that person's 65th
birthday. As a result, in practice, the age of our directors does not exceed 65.

10.B.3.  SHARE RIGHTS, PREFERENCES AND RESTRICTIONS

         Our share capital amounts to (euro)51,374,300. We have one class of
share capital, and it is not certificated.

         Each (euro)50.00 of nominal share capital entitles the shareholder to
one vote at a shareholders' meeting. Our Articles of Association provide that
all resolutions of the general shareholders' meeting may be passed by a simple
majority of our nominal share capital, except for resolutions with regard to:
(1) an amendment to our Articles of Association, in particular the increase or
reduction of our nominal capital, (2) reorganization and mergers, (3) the sale
or lease of the company in whole or a branch or sub-branch, and (4) dissolution
of the company, all of which require the consent of at least three-quarters of
our nominal share capital.

         Under our Articles of Association, the appointment of the members of
our advisory board, which consists of three members, is limited to BC European
Capital VI 1 through 12, BC European Capital VI 14, together with seven
individual investors and Teabar Capital Corp. BC European Capital VI 1 through
12, and BC European Capital VI 14 together with seven individual investors and
Teabar Capital Corp. are entitled to appoint jointly two members of the advisory
board. The third member may be appointed solely by BC European Capital VI 1
through 12, and BC European Capital VI 14 together with seven individual
investors. Only if BC European Capital VI 1 through 12, and BC European Capital
VI 14 together with seven individual investors choose not to exercise their
right to appoint the third member are the remaining shareholders entitled to
elect a member to the advisory board.

         Each shareholder is entitled to receive, in proportion to their nominal
share capital, any dividend we declare. Pursuant to Paragraph 29, section 1, of
the German limited liability company act, we only may make distributions to our
shareholders to the extent of the profit shown on our unconsolidated balance
sheet in accordance with German GAAP.

         If we are liquidated, we will use the liquidation proceeds first to pay
all our creditors, then to repay the paid capital on our shares and then for
distribution among our shareholders, in proportion to their nominal share
capital.

         A redemption of shares is permitted only if it is authorized by our
Articles of Association. Our Articles of Association do currently not authorize
a redemption of our shares. Any amendment of the



                                       70
<PAGE>

Articles of Association to introduce such an authorization would require a
three-quarters majority vote of our nominal capital.

10.B.4.  CHANGE OF RIGHTS OF HOLDERS

         In order to change the rights of the holders of our interests, an
amendment to our Articles of Association is required. By law, this amendment
requires consent of the holders of at least three-quarters of our nominal share
capital. Our Articles of Association do not require the consent of the holders
of a greater percentage than what applicable law requires.

10.B.5.  MEETINGS OF SHAREHOLDERS

         Our Articles of Association require shareholder meetings to be called
by the managing directors within the first nine months of each fiscal year.
Extraordinary shareholder meetings must be called when a matter must be decided
by a shareholder resolution in accordance with our Articles of Association or
applicable law, or if the interests of the company otherwise require a
shareholders' meeting. Either two managing directors, or one managing director
jointly with a PROKURIST, has the right to call such a meeting.

         Since we have an advisory board, that board also may call a shareholder
meeting if the interests of the company so require. A meeting also may be called
by shareholders whose aggregate shares amount to at least ten percent of our
nominal share capital if they have first unsuccessfully requested the call of a
meeting or the announcement of subjects for a meeting, or if no one authorized
to call a meeting exists. The location for the meeting is determined in the
reasonable discretion by those who are calling the meeting. Shareholder meetings
can be held outside Germany if the choice of the location is reasonable.

         All shareholders must be notified in writing of general shareholder
meetings at least four weeks prior to the proposed date of the meeting. The
notice to the shareholders must include an agenda for the meeting. In the event
of extraordinary meetings, the shareholders must be notified at least one week
in advance of the meeting.

         A shareholder may participate in a shareholder meeting either in person
or through a representative to whom the shareholder has given a written power of
attorney. Admission to and participation in a meeting of other persons, such as
managing directors, members of the advisory board, or advisors of shareholders,
is subject to a majority decision of the shareholders at the meeting.

         No shareholder meeting is required and shareholder resolutions may be
passed in writing, by communication by telephone or by exchange of telexes or
cables, if all shareholders either consent to a proposed resolution or agree to
cast their votes in that particular form.

10.B.6.  OWNERSHIP LIMITATIONS

         There are no restrictions on who may hold interests in the company, but
the transfer of shares to unaffiliated third parties requires the approval of
the advisory board.

10.B.7.  CHANGE IN CONTROL

         The transfer of an equity interest, other than a transfer to affiliated
companies, requires the written consent of the advisory board. Therefore, by
withholding consent, the advisory board can prevent a merger, take-over or
similar transaction.

10.B.8.


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<PAGE>

         Not applicable.

10.B.9.

         Not applicable.

10.B.10

         Not applicable.

10.C.    MATERIAL CONTRACTS

SENIOR CREDIT FACILITY

         Until March 31, 2003, Grohe Beteiligungs and Friedrich Grohe were
borrowers under a credit facility, which we refer to as the senior credit
facility or senior facility, made by a syndicate of banks, for which Dresdner
Bank AG and Bayerische Hypo- und Vereinsbank AG are the arrangers. The terms of
the senior credit facility subsequently were amended, and Grohe Beteiligungs
entered into an agreement with Dresdner Bank AG for a facility of (euro)76.7
million, referred to as the supplementary facility. Pursuant to an amendment
agreement to the senior facility dated January 18, 2002, the supplementary
facility was repaid with the proceeds of a new facility under the senior
facility. In addition, the working capital facility in the amount of (euro)51.1
million was renewed. We repaid the senior credit facility in full on March 31,
2003. We have entered into certain related agreements, which are intended to
preserve the corporate structure of Grohe Holding and the relative rights of its
creditors. The following is a summary of the material provisions of the senior
credit facility and certain related agreements.

GENERAL

         The senior credit facility consisted of six facilities, Facilities A to
F, in an aggregate amount of (euro)613.6 million. Facilities A to C and Facility
F were available to and owed by Grohe Beteiligungs. Facilities D and E were
available to and owed by Friedrich Grohe AG & Co. KG. As of December 31, 2001,
Facility A was fully repaid. The total amounts outstanding under Facilities B, C
and F was approximately (euro)12.4, (euro)59.2 and (euro)76.7 million,
respectively, as of December 31, 2002.

         As of December 31, 2002, the total amount outstanding under Facility D
was approximately (euro)187.2 million. Facility E remained undrawn until we
refinanced the senior facility in March 2003.

SECURITY

         The indebtedness under Facilities A to F of the senior credit facility
was secured by the following, among other things:

o        a pledge of all of the shares held by Grohe Beteiligungs in Friedrich
         Grohe, Friedrich Grohe Geschaftsfuhrungs AG and its 25% shareholding in
         Grohe A/S;

o        a pledge and assignment of all rights and claims arising under the sale
         and purchase agreement dated July 15, 1999 and the hedging agreements
         entered into by Grohe Beteiligungs; and

o        a pledge of the escrow account established in the name of Grohe
         Beteiligungs pursuant to the senior credit facility.



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<PAGE>

         In addition, Friedrich Grohe's indebtedness under Facilities D and E of
the senior credit facility was also secured by the following, among other
things:

o        a pledge of all the shares held by Friedrich Grohe in its German
         subsidiaries;

o        a pledge of all the shares held by Grohe International GmbH in the
         foreign subsidiaries;

o        pledges of real property in Germany owned by Friedrich Grohe and by
         some of the direct and indirect German subsidiaries of Friedrich Grohe;
         and

o        a pledge and assignment of all the material assets of Friedrich Grohe
         and part of the material assets of Friedrich Grohe's subsidiaries.

COVENANTS

         The senior credit facility contained customary operating and financial
covenants, including, without limitation:

o        the requirement to maintain the following minimum ratios of Weighted
         Consolidated EBITDA to consolidated net finance charges, calculated on
         a rolling basis:

                           Financial Quarter
                           -----------------
                           December 2002 - March 2003                  2.10
                           June 2003 - September 2003                  2.30
                           December 2003 - March 2004                  2.50
                           June 2004 - September 2004                  2.65
                           December 2004 - March 2005                  2.80
                           June 2005 - September 2005                  3.00
                           December 2005 - March 2006                  3.20
                           June 2006 - September 2006                  3.30
                           After December 2006                         3.40;

o        the requirement to maintain the following minimum Consolidated EBITDA,
         expressed in millions of euro:

                           Financial Quarter
                           -----------------
                           After March 2002                            135.5;

o        the requirement not to exceed the following maximum ratios of the sum
         of all amounts drawn under the senior credit facility, all other
         existing loans and all asset backed financings less cash and cash
         equivalents determined pursuant to German GAAP to Weighted Consolidated
         EBITDA:

                           Financial Quarter
                           -----------------
                           December 2002 - March 2003                  2.20
                           June 2003 - September 2003                  2.00
                           December 2003 - March 2004                  1.70
                           June 2004 - September 2004                  1.50
                           After September 2004                        1.20;


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<PAGE>

o        the requirement not to exceed following maximum ratios of all debt less
         cash and cash equivalents determined pursuant to German GAAP to
         Weighted Consolidated EBITDA:

                           Financial Quarter
                           -----------------
                           December 2002 - March 2003                  3.80
                           June 2003 - September 2003                  3.45
                           December 2003 - March 2004                  3.10
                           June 2004 - September 2004                  2.85
                           December 2004 - March 2005                  2.60
                           June 2005 - September 2005                  2.30
                           December 2005 - March 2006                  2.05
                           June 2006 - September 2006                  1.75
                           After December 2006                         1.60.

         In addition, the senior credit facility included a covenant that
limited capital expenditures.

         We were in compliance with each of the above listed ratios until we
refinanced the senior loans in March of 2003.

         The senior credit facility defined "Consolidated EBITDA" as the
consolidated net income of the Group determined pursuant to German GAAP before:

         1.       Any provision on account of (deferred) taxation;
         2.       Consolidated net finance charges for such period;
         3.       Any items treated as exceptional or extraordinary items;
         4.       Any amortization of intangible assets (including goodwill
                  arising from the Acquisition);
         5.       Any amortization, or writing off, of acquisition costs;
         6.       Deducting losses (but after deducting gains (to the extent
                  already recognized)) arising from the retranslation of long
                  term monetary assets and liabilities denominated in foreign
                  currencies and/or the revaluation to period end exchange rates
                  of derivative financial instruments taken out to hedge future
                  transactions;
         7.       any amount attributable to depreciation of tangible assets.

Weighted Consolidated EBITDA is the Consolidated EBITDA multiplied by 2,989,462
purchased shares with a par value of DM 50 divided by 3,000,000.

         The senior credit facility defined "Grohe Group EBITDA" as, in respect
of any specified 12-month period, but taking into consideration Grohe group net
finance charges for the 12-month period ending the quarter after the specified
period, the consolidated net income of the Grohe group determined pursuant to
German GAAP before:

         1.       Any provision on account of (deferred) taxation;
         2.       Grohe group net finance charges;
         3.       Any items treated as exceptional or extraordinary items;
         4.       Any amortization of intangible assets (including goodwill
                  arising from the acquisition);
         5.       Any amortization, or writing off, of acquisition costs;
         6.       Deducting losses (but after deducting gains (to the extent
                  already recognized)) arising from the retranslation of long
                  term monetary assets and liabilities denominated in foreign
                  currencies and/or the revaluation to period end exchange rates
                  of derivative financial instruments taken out to hedge future
                  transactions; and
         7.       any amount attributable to depreciation of tangible assets.



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<PAGE>

         In addition, the senior credit facility included covenants relating to
limitations on:

o        sales and other disposals;

o        indebtedness;

o        acquisitions;

o        investments; and

o        hedging.

INTEREST RATE AND FEES

         Facility B of the senior credit facility bore interest at a rate of
Euribor plus 2.25% per year. Facility C bore interest at a rate of Euribor plus
2.50% per year. Facility D bore interest at a rate of Euribor plus 2.0%, reduced
by 0.25% from the original interest of 2.25%. The margin for Facility D would
have decreased to 1.75% after the repayment of 43% of the total drawings under
Facilities A to D and F would have further decreased to 1.50% after the
repayment of 65% of the total drawings under Facilities A to D and F. The
interest rate for Facility E was the same as for Facility D. Facility F bore
interest at a rate of Euribor plus 3.0% per year.

MANDATORY PREPAYMENT

         Mandatory prepayment in full was required if there was a material
alteration of the corporate structure of Grohe Holding, including:

o        the shareholders of Grohe Holding cease to own or hold in the aggregate
         less than 51% of the capital or voting rights to Grohe Holding;

o        Grohe Holding ceases to own or hold all shares in Grohe Consult GmbH;

o        Grohe Beteiligungs ceases to own 99% of the capital or the voting
         rights in Friedrich Grohe;

o        Grohe Holding ceases to be the sole general partner of Grohe
         Beteiligungs or Grohe Consult GmbH ceases to be the sole limited
         partner of Grohe Beteiligungs; or

o        Grohe Beteiligungs ceases to own or hold all shares in Friedrich Grohe
         Geschaftsfuhrungs AG.

         Certain mandatory partial prepayments were required to be made,
including:

o        100% of the Excess Cash Flow of Grohe Beteiligungs in any fiscal year,
         as defined in the senior credit facility;

o        75% of Grohe Group Excess Cash Flow of Friedrich Grohe and its
         consolidated subsidiaries in any fiscal year, as defined in the senior
         credit facility;



                                       75
<PAGE>

o        any amounts received by Grohe Beteiligungs or Friedrich Grohe in
         connection with a refund of taxes

o        any amounts received by Grohe Beteiligungs or Friedrich Grohe under an
         insurance policy, unless applied within three months against the loss
         for which such amounts were received; or

o        proceeds from asset sales by Grohe Beteiligungs or Friedrich Grohe,
         other than in the ordinary course of business, not immediately
         reinvested in replacement assets.

         The senior credit facility defined "Excess Cash Flow" as the profit of
Grohe Beteiligungs and Friedrich Grohe less:

         1.       the aggregate amount of interest payable by Grohe Beteiligungs
                  but deducting:
                  a.       any commission, fees, discounts and other finance
                           payments receivable by Grohe Beteiligungs under any
                           interest rate or currency hedging instrument
                           permitted by the senior credit facility; and
                  b.       any interest receivable by Grohe Beteiligungs on any
                           deposit or bank account; and
         2.       any costs incurred by Grohe Beteiligungs under any interest
                  rate or currency hedging instrument permitted by the senior
                  credit facility; and
         3.       the aggregate of scheduled repayments and mandatory
                  prepayments of any indebtedness of Grohe Beteiligungs falling
                  due; and
         4.       costs, taxes and expenses incurred by Grohe Beteiligungs for
                  the purpose of securing Grohe Beteiligungs' existence and good
                  standing; and
         5.       permitted payments.

EVENTS OF DEFAULT

         The senior credit facility contained customary events of default,
including:

o        failure to make payments under the senior credit facility or certain
         related documents;

o        breach of covenants, including financial covenants;

o        breach of representations;

o        cross-default, in respect of indebtedness in excess of(euro)255,646;

o        insolvency, bankruptcy or similar events;

o        change of control, as the term is defined in the senior credit
         facility; and

o        material adverse change.

NEW SENIOR CREDIT FACILITY

         As of March 31, 2003, we have repaid the senior credit facility and
entered into a new senior credit facility, which we refer to as the new senior
credit facility or new senior facility, with a syndicate of



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<PAGE>

banks, for which Credit Suisse First Boston International and Merrill Lynch
International are the arrangers. The following is a summary of the material
provisions of the new senior credit facility.

GENERAL

         The new senior credit facility consists of four facilities: three term
loan facilities, A1, A2 and B, in an aggregate amount of up to (euro)550.0
million, and the new revolving facility, in an aggregate amount of up to
(euro)50.0 million. Grohe Beteiligungs is the borrower under term loan
facilities A2 and B; Friedrich Grohe is the borrower under term loan facility A1
and the new revolving facility. Upon the satisfaction of certain conditions
described in the new senior credit facility, Friedrich Grohe may become the
borrower under all or a portion of term loan facility A2, and Grohe Beteiligungs
will be released as borrower for that portion of term loan facility A2 assumed
by Friedrich Grohe. A wholly-owned subsidiary of Friedrich Grohe may become an
additional borrower under the new revolving facility upon the satisfaction of
certain conditions in the new senior credit facility. Term loan facilities A1
and A2 amortize semi-annually over approximately seven years with the final
payment due on December 20, 2009. Facility B requires payments of interest at
the end of each interest period and one bullet payment of principal on July 20,
2010.

SECURITY

         The indebtedness under the new senior facility will be secured by
substantially all the assets of Grohe Beteiligungs and Friedrich Grohe including
equity interests they hold in their respective subsidiaries.

         After an initial public offering of Grohe Holdings' shares and giving
effect to the proceeds of such offering, if at the time of such initial public
offering the ratio of Total Net Debt to EBITDA is less than 2.5 to 1, and no
default has occurred and is continuing, then, in accordance with certain
requirements, substantially all security interests in Grohe Beteiligungs' assets
described above will be released. Thereafter, Grohe Beteiligungs and Friedrich
Grohe have agreed under the new senior facility not to incur any liens on any of
their assets unless such liens also secure the new senior facility.

COVENANTS

         The new senior credit facility contains customary operating and
financial covenants, based on financial data produced under accounting
principles generally accepted in Germany, including, without limitation:

o        The requirement that the ratio of Consolidated Operating Cash Flow to
         Net Debt Service for the year prior to each March 31, June 30,
         September 30 and December 31 prior to the occurrence of a qualified
         public offering shall not be less than 1.0 to 1.

o        The requirement to maintain the following minimum ratios of EBITDA to
         Consolidated Net Finance Charges for each financial quarter specified
         below which is before the occurrence of a qualified public offering:



                                       77
<PAGE>

                      Financial Quarter
                      -----------------
                      April 2003 - June 2003                        2.60 to 1
                      July 2003 - September 2003                    2.60 to 1
                      October 2003 - December 2003                  2.60 to 1
                      January 2004 - March 2004                     2.70 to 1
                      April 2004 - June 2004                        2.70 to 1
                      July 2004 - September 2004                    2.75 to 1
                      October 2004 - December 2004                  2.75 to 1
                      January 2005 - March 2005                     2.95 to 1
                      April 2005 - June 2005                        3.10 to 1
                      July 2005 - September 2005                    3.25 to 1
                      October 2005 - December 2005                  3.40 to 1
                      January 2006 - March 2006                     3.55 to 1
                      April 2006 - June 2006                        3.65 to 1
                      June 2006 - September 2006                    3.80 to 1
                      October 2006 - December 2006                  3.90 to 1
                      January 2007 - March 2007                     4.00 to 1
                      April 2007 - June 2007                        4.10 to 1
                      July 2007 - September 2007                    4.20 to 1
                      After September 30, 2007                      4.25 to 1

         After the occurrence of a qualified public offering, the above ratios
shall be not less than 2.50 to 1 for each financial quarter or, for the purpose
of the incurrence test referred to in paragraph (f) of the definition of
permitted transaction in the new senior credit facility, 3.00 to 1.

o        The requirement to remain under the following maximum ratios of Total
         Net Senior Debt to EBITDA, prior to the occurrence of a qualified
         public offering:

              Financial Quarter
              -----------------
              June 30, 2003                                 3.20 to 1
              September 30, 2003                            3.20 to 1
              December 31, 2003                             3.00 to 1
              March 31, 2004                                3.00 to 1
              June 30, 2004                                 2.90 to 1
              September 30, 2004                            2.85 to 1
              December 31, 2004                             2.75 to 1
              March 31, 2005                                2.75 to 1
              June 30, 2005                                 2.50 to 1
              September 30, 2005                            2.40 to 1
              December 31, 2005                             2.25 to 1
              March 31, 2006                                2.25 to 1
              June 30, 2006                                 2.00 to 1
              September 30, 2006                            1.90 to 1
              December 31, 2006                             1.75 to 1
              March 31, 2007                                1.75 to 1
              June 30, 2007                                 1.65 to 1
              September 30, 2007                            1.60 to 1
              December 31, 2007 and thereafter              1.50 to 1


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<PAGE>

o        The requirement to remain under the following maximum ratios of Total
         Net Debt to EBITDA for each financial quarter specified below which is
         before the occurrence of a qualified public offering:

              Financial Quarter
              -----------------
              June 30, 2003                                 4.50 to 1
              September 30, 2003                            4.50 to 1
              December 31, 2003                             4.30 to 1
              March 31,2004                                 4.30 to 1
              June 30, 2004                                 4.20 to 1
              September 30, 2004                            4.15 to 1
              December 31, 2004                             4.10 to 1
              March 31, 2005                                4.10 to 1
              June 30, 2005                                 3.85 to 1
              September 30, 2005                            3.75 to 1
              December 31, 2005                             3.60 to 1
              March 31, 2006                                3.60 to 1
              June 30, 2006                                 3.30 to 1
              September 30, 2006                            3.15 to 1
              December 31, 2006                             3.00 to 1
              March 31, 2007                                3.00 to 1
              June 30, 2007                                 2.75 to 1
              September 30, 2007                            2.65 to 1
              December 31, 2007 and thereafter              2.50 to 1

o        After the occurrence of a qualified public offering the maximum ratios
         of Total Net Debt to EBITDA for each financial quarter specified below
         will be:

              Financial Quarter
              -----------------
              June 30, 2003                                 4.00 to 1
              September 30, 2003                            4.00 to 1
              December 31, 2003                             4.00 to 1
              March 31, 2004                                4.00 to 1
              June 30, 2004                                 4.00 to 1
              September 30, 2004                            4.00 to 1
              December 31, 2004                             4.00 to 1
              March 31, 2005                                4.00 to 1
              June 30, 2005                                 4.00 to 1
              September 30, 2005                            4.00 to 1
              December 31, 2005                             4.00 to 1
              March 31, 2006                                4.00 to 1
              June 30, 2006                                 4.00 to 1
              September 30, 2006                            4.00 to 1
              December 31, 2006                             4.00 to 1
              March 31, 2007                                3.00 to 1
              June 30, 2007                                 3.00 to 1
              September 30, 2007                            3.00 to 1
              December 31, 2007 and thereafter              3.00 to 1

         In addition, the new senior credit facility includes covenants relating
to limitations on:



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<PAGE>

o        sales and other disposals;

o        indebtedness;

o        acquisitions;

o        investments; and

o        hedging.

         The new senior credit facility defines "Consolidated Net Interest
Expense" as Consolidated Net Finance Charges plus capitalized interest payable
by Grohe Holding, Grohe Consult GmbH and Grohe Beteiligungs and its
subsidiaries, or the Grohe Holding group, to any person which is not a member of
the Grohe Holding Group.

         The new senior credit facility defines "Consolidated Net Finance
Charges" as the aggregate amount of the consolidated interest, commission, fees,
discounts, other finance payments and dividends payable or made by any member of
the Grohe Holding group INCLUDING any commission, fees, discounts and other
finance payments payable by any member of the Grohe Holding group under any
interest rate hedging arrangement and excluding any capitalized interest but
deducting (a) any commission, fees, discounts and other finance payments
receivable by any member of the Grohe Holding group under any interest rate
hedging instrument permitted by the new senior credit facility, (b) any interest
receivable by any member of the Grohe Holding group on any deposit (including
from time deposit investments) or bank account from any member outside the Grohe
Holding group and (c) all fees and other finance payments incurred by any member
of the Grohe Holding group in connection with the new senior credit facility,
the purchase of Friedrich Grohe by Grohe Holding or any acquisition permitted by
the new senior credit facility.

         The new senior credit facility defines "Consolidated Operating Cash
Flow" as, in respect of the Grohe Holding group for any period (and on the basis
that there is no double counting), EBITDA for that period:

         1.       plus any increase or minus any decrease in provisions for
                  liabilities other than short term liabilities (as defined in
                  the new senior credit facility) and charges made in respect of
                  that period;

         2.       plus any decrease, or minus any increase, in short term assets
                  (as defined in the new senior credit facility) during that
                  period;

         3.       plus any increase, or minus any decrease, in short term
                  liabilities during that period;

         4.       plus, to the extent not already taken into account of in
                  EBITDA, the net proceeds of assets other than short term
                  assets disposed of during that period;

         5.       minus any investment in fixed assets;

         6.       plus any increase, or minus any decrease in special fixed
                  assets items;



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<PAGE>

         7.       plus any receipts by way of extraordinary or exceptional items
                  and minus any payments by way of extraordinary or exceptional
                  items, in each case, received or made during that period;

         8.       minus any dividends actually paid in cash or cash dividends
                  declared by any member of the Grohe Holding group to any
                  person who is not a member of the Grohe Holding group during
                  that period;

         9.       plus any non-cash items charged or amortized and minus any
                  non-cash items credited against the Grohe Holding Group's
                  consolidated profit and loss account during that period (but
                  excluding the items referred to in the definition of EBITDA);

         10.      plus, to the extent not already taken account of in EBITDA,
                  (i) all payments by any vendor to a member of the Grohe
                  Holding group under any acquisition agreement relating to
                  permitted acquisitions received in cash, in such period to the
                  extent not applied in prepaying the term facilities and (ii)
                  all payments received in cash in such period from any such
                  vendor in respect of purchase price adjustments in respect of
                  working capital, capital expenditure and other items set out
                  in the acquisition agreement;

         11.      plus, to the extent not already taken account of in EBITDA,
                  income from participating interests in associated undertakings
                  to the extent received in cash and minus any payment made to
                  associated undertakings during that period;

         12.      plus, to the extent not already taken account of in EBITDA,
                  realized exchange gains and minus realized exchange losses
                  during that period;

         13.      minus the aggregate of all corporation or other similar taxes
                  paid during that period;

         14.      plus any amounts to the extent funded from indebtedness
                  incurred pursuant to paragraphs (n) of the definition of
                  permitted indebtedness in the new senior credit facility or,
                  if and to the extent used to finance a permitted acquisition,
                  (m) of the definition of permitted indebtedness in the new
                  senior credit facility, cash contributions (by the way of a
                  capital increase or payment into the reserves in cash or in
                  kind) made to Grohe Beteiligungs by its direct or indirect
                  shareholders or by any loans granted to Grohe Beteiligungs or
                  any of its restricted subsidiaries by a (direct or indirect)
                  shareholder of Grohe Beteiligungs;

         15.      plus any transaction costs paid in connection with the
                  refinancing of the existing senior credit agreement and the
                  repayment of certain of the shareholder loans, to the extent
                  funded out of financial indebtedness (as defined in the new
                  senior credit facility) incurred by Grohe Beteiligungs or any
                  of its restricted subsidiaries or additional equity provided
                  to Grohe Beteiligungs or any of its restricted subsidiaries.

         The new senior credit facility defines "EBITDA" as the aggregate of:

         1.       the consolidated net income of the Grohe Holding group for
                  that period after taking into account profit attributable to
                  minority interests, before deducting:

                           a.       any provision on account of taxation;

                           b.       Consolidated Net Interest Expenses;



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<PAGE>

                           c.       depreciation;

                           d.       amounts of the value attributed to goodwill
                                    or stepup written-off during such period or
                                    charged to the profit and loss account of
                                    the Grohe Holding group during such period;
                                    and

                           e.       amounts amortized against, or charged to,
                                    the profit and loss account of the Grohe
                                    Holding group during such period in respect
                                    of fees, out of pocket costs and expenses
                                    and taxes incurred by any member of the
                                    Grohe Holding group in connection with the
                                    new senior credit facility, the purchase of
                                    Friedrich Grohe by Grohe Holding or any
                                    permitted acquisition under the new senior
                                    credit facility;

                                    and

                  2.       any items treated as exceptional or extraordinary
                           items.

         The new senior credit facility defines "Indebtedness for Borrowed
Money" as financial indebtedness other than any indebtedness with respect of
paragraphs (g) and (h) of the definition of such financial indebtedness.

         The new senior credit facility defines "Net Debt Service" as the
aggregate of:

                  1.       Consolidated Net Finance Charges; and

                  2.       the aggregate of scheduled and mandatory payments
                           (except for mandatory prepayments from excess cash)
                           of any Indebtedness for Borrowed Money falling due
                           but excluding any amounts falling due under any
                           Indebtedness for Borrowed Money referred to in
                           paragraph (e) of the definition of permitted
                           indebtedness under the new senior credit facility or
                           under the new revolving facility other than any
                           payments required to be made in permanent reduction
                           of the new revolving facility and excluding the
                           amount of any payment falling due under finance
                           leases.

         The new senior credit facility defines "Operating Excess Cash Flow" as
Consolidated Operating Cash Flow of Friedrich Grohe and its subsidiaries for the
period in question minus:

                  1.       (to the extent incurred by Friedrich Grohe and its
                           subsidiaries) Net Debt Service (without double
                           counting Consolidated Net Finance Charges) for such
                           period;

                  2.       the amount of distributions made by Friedrich Grohe
                           to Grohe Beteiligungs (including by way of
                           withdrawals from the partners' accounts) in such
                           period up to the amount necessary for Grohe
                           Beteiligungs (a) to meet its scheduled payment
                           obligations falling due in such period under the new
                           senior credit facility, (b) to make payments to Grohe
                           Holding during such period, if such payments are
                           permitted under the new senior credit facility, and
                           (c) to finance payments due by Grohe Beteiligungs
                           during such period, to the extent such payment
                           obligation was not incurred in breach of the finance
                           documents (as defined in the new senior credit
                           facility); and



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                  3.       the amount of distributions made by to minority
                           shareholders of Friedrich Grohe or any of its
                           subsidiaries (including by way of withdrawals from
                           the partners' accounts) in such period provided that
                           with regard to distributions to minority shareholders
                           of Friedrich Grohe, Friedrich Grohe is obliged by law
                           to make such distributions and allow such
                           withdrawals.

         The new senior credit facility defines "Total Net Debt" as, at any time
(without double counting), the aggregate amount of all obligations of any member
of the Grohe Holding group for or in respect of Indebtedness for Borrowed Money
other than any such obligation to any other member of the Grohe Holding group,
including those in respect of shareholder loans, to the extent they constitute
permitted indebtedness pursuant to paragraph (d) of the definition of permitted
indebtedness in the new senior credit facility, subordinated Grohe Holding
Shareholder loans and subordinated loans from Grohe Beteiligungs to Grohe
Holding in respect of the shareholder loan refinancing, minus cash and cash
equivalents held by Grohe Beteiligungs or any of its restricted subsidiaries
and, only for the purpose of determining whether a qualifying public offering
has occurred, net initial public offering proceeds.

         The new senior credit facility defines "Total Net Senior Debt" as, at
any time (without double counting), the aggregate amount of all obligations of
any Grohe Holding group member under the finance documents and the original
senior credit facility minus cash and cash equivalents held by Grohe
Beteiligungs or any of its restricted subsidiaries, including cash on the escrow
account (and so that no amount shall be included or excluded more than once).

INTEREST RATE AND FEES

         Initially, term loan facilities A1 and A2 and the new revolving
facility will bear interest at a rate of EURIBOR plus a margin of 2.25% per year
and term loan facility B will bear interest at a rate of EURIBOR plus 2.75% per
year. If any portion of the term loan facilities is in a currency other than
euro, that portion will bear interest at a rate of LIBOR plus the applicable
margin. At any interest payment date, the margin applicable to term loan
facilities A1, A2 and B and the new revolving facility may be reduced if the
ratio of Total Net Debt to EBITDA for the relevant period meets a certain
threshold. The first possible reduction in margin will become applicable 12
months after Grohe Beteiligungs and Friedrich Grohe entered into the new senior
facility. After a qualified public offering, the margin applicable to the new
senior facility will be reduced by 0.25% if certain requirements are met,
provided however that the applicable margin for term loan facilities A1 and A2
and the new revolving facility at no time will be less than 1.25%. The
commitment fee for the new revolving facility is no more than 0.625% for the
amount available under the new revolving facility.

MANDATORY PREPAYMENT

         The new senior facility will require, among other things, the following
to be used to make partial prepayments:

o        certain portions from Operating Excess Cash Flow of Friedrich Grohe and
         its subsidiaries in any fiscal year until the earlier of a qualified
         public offering or the time when the ratio of Total Net Debt to EBITDA
         falls below 2.5 to 1;

o        any amounts received from a breach of contract, warranty or indemnity
         claim against a vendor or its affiliates in connection with certain
         acquisitions, unless applied to prepay bank debt that has been incurred
         to finance such acquisition or to replace, reinstate, or repair any
         damaged asset giving rise to such claim or paid to third parties as
         required in connection with such claim, in each case within 18 months;



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o        proceeds from asset sales, other than in the ordinary course of
         business, so long as such asset sale occurred prior to a qualified
         public offering; and

o        any amounts received under an insurance policy claim, unless applied
         against the loss for which such amounts were received or such claim
         arose following a qualified public offering.

EVENTS OF DEFAULT

         The new senior facility contains customary event of default provisions,
including, among others:

o        failure to make payments under the new senior facility or certain
         related documents;

o        breach of covenants, including financial covenants, and representations
         and warranties;

o        cross-default in respect of indebtedness in excess of(euro)5.0 million
         with respect to payment defaults and cross-acceleration and(euro)10.0
         million otherwise;

o        adverse changes to the partnership agreements of Grohe Beteiligungs and
         Friedrich Grohe;

o        insolvency, bankruptcy or similar events, subject to minor exceptions;

o        certain changes in the corporate structure; and

o        the occurrence of any event or circumstance that may have a material
         adverse effect on (a) the business, assets or financial condition of
         Grohe Beteiligungs and its restricted subsidiaries taken as a whole;
         (b) the ability of an obligor to perform its payment obligations under
         the finance documents; (c) the ability of Grohe Beteiligungs to meet
         its obligations under Clause 23 (Financial Covenants) of the new senior
         credit facility; or (d) the validity or enforceability of the finance
         documents or the rights or remedies of the agent, any arranger, the
         security agent, any lender, the hedge counterparties or any fronting
         bank under the finance documents.

UPSTREAM LOAN

         We used a portion of the proceeds of the new senior credit facility to
repay a portion of our shareholder loans and to pay the consent solicitation
payment to the holders of the 11.5% senior notes who consented to the amendments
to and waivers of the provisions of the indenture under which we issued the
11.5% senior notes. Pursuant to a loan facility agreement, which we refer to as
the upstream loan, Grohe Beteiligungs lent (euro)125.0 million to us. The
upstream loan bears interest at a rate of 12% per year to July 31, 2006, at 14%
per year from August 1, 2006 to July 31, 2009 and at 16% per year thereafter
until it matures on November 30, 2011. We may prepay the upstream loan and the
interest accrued on the upstream loan in whole or in part by setting off our
right to withdraw profits from Grohe Beteiligungs. To the extent the upstream
loan and the accrued interest accrued is not paid by set-off, we will repay
those amounts on the earlier to occur of November 30, 2011 and the date on which
all amounts payable in respect of our 11.5% senior notes have been repaid in
full, which we refer to as the notes repayment date. No cash payments of
interest are permitted prior to the notes repayment date. In accordance with the
provisions of the indenture, we, Grohe Beteiligungs and the trustee entered into
a subordination agreement. Under the subordination agreement, the upstream loan
was subordinated to the 11.5% senior notes and Grohe Beteiligungs agreed not to
exercise any remedies against us until the notes repayment date.



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INDENTURE

GENERAL

         Grohe Holding issued (euro)200,000,000 of 11.5% Senior Notes, due
November 15, 2010, pursuant to an indenture dated November 13, 2000 between
Grohe Holding and The Bank of New York, London Branch, as trustee. The notes are
unsecured obligations of Grohe Holding that rank equally with all of our other
existing and future unsecured senior indebtedness and effectively rank junior to
all of the existing and future indebtedness, including trade payables, of our
subsidiaries.

OPTIONAL REDEMPTION

         On and after November 15, 2005, we are entitled at our option to redeem
the notes at the redemption prices, plus accrued interest to the redemption
date, set forth below (expressed as a percentage of principal amount) for the
12-month period commencing November 15th:

Period                                          Redemption Price
------                                          ----------------
2005......................................            105.750%
2006......................................            103.833%
2007......................................            101.917%
2008 and thereafter.......................              100.0%

         In addition, prior to November 15, 2003, we are entitled at our option
to redeem up to 35% of the aggregate principal amount of the notes at a
redemption price (expressed as a percentage of principal amount) of 111.5%, plus
accrued interest, with the cash proceeds of a public equity offering so long as
65% of the notes remains outstanding immediately after the occurrence of each
such redemption and such redemption occurs within 90 days after the date of such
public equity offering.

         Finally, we may redeem all, but not less than all, of the notes at 100%
of their principal amount plus accrued interest, if we become obligated to pay
additional amounts due to certain developments affecting taxation.

MANDATORY REDEMPTION

         We are not required to make mandatory redemption or sinking fund
payments on the notes. However, under circumstances, we may be required to
purchase notes if there is a change of control or an asset sale.

ADDITIONAL AMOUNTS

         We are required to make all our payments under or with respect to the
notes, free and clear of, and without withholding or deduction for or on account
of, any present or future tax, duty, levy, impost, assessment or other
governmental charge imposed or levied by or on behalf of the government of the
Federal Republic of Germany or any political subdivision or any authority or
agency therein or thereof having power to tax, or within any other jurisdiction
in which we are organized or are otherwise resident for tax purposes or any
jurisdiction from or through which payment is made, unless such withholding or
deduction is required by law or by regulation or governmental policy of general
application. In the event that any such withholding or deduction is so required,
subject to certain exceptions, we will pay such additional amounts as will
result in receipt by holders of the notes of such amounts as would have been
received by them had no such withholding or deduction been required.



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<PAGE>

COVENANTS

         The indenture contains certain covenants including, among others, the
following:

o        limitations on indebtedness;

o        limitations on restricted payments;

o        limitations on restrictions on distributions from restricted entities;

o        limitations on the sale of assets and controlled entity equity
         interests;

o        limitations on affiliate transactions;

o        limitations on the sale or issuance of equity interests of restricted
         entities;

o        limitations on liens;

o        limitations on sale/leaseback transactions;

o        limitations on guarantees of company indebtedness;

o        limitations on making changes to the Grohe Beteiligungs partnership
         agreement, the corporate agreement and the trustee agreement;

o        limitations on the sale, prepayment or modification of the intercompany
         loan and the subordination agreement;

o        limitations on business activities; and

o        limitations on merger and consolidation.

         The indenture also requires Grohe Holding to furnish to the noteholders
and the trustee (1) all annual and quarterly financial information that would be
required to be contained in a filing with the SEC on Forms 20-F and 10-Q if
Grohe Holding were required to file such forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and,
with respect to the annual financial information, a report thereon by Grohe
Holding's certified independent accountants; and (2) all current reports on Form
6-K that would be required to be filed with the SEC on Form 8-K if Grohe Holding
were required to file Form 8-K (other than such reports that are required as a
result of Regulation S sales of equity securities), such information to be
furnished at the time such filings would have been required.

DEFAULTS

         The indenture contains customary events of default including:



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o        default in the payment of interest or additional amounts on the notes
         when due, continued for 30 days;

o        default in the payment of principal of any note when due at its
         maturity, upon optional redemption, upon required purchase, upon
         declaration of acceleration or otherwise;

o        the failure by Grohe Holding to comply with its covenant regarding
         mergers and consolidations;

o        the failure by Grohe Holding to comply for 30 days after notice with
         covenants regarding change of control (other than a failure to purchase
         notes), limitations on indebtedness, limitations on restricted
         payments, limitations on restrictions on distributions from restricted
         entities, limitation on sales of assets and controlled entity equity
         interests (other than a failure to purchase notes), limitations on
         affiliate transactions, limitations on the sale or issuance of equity
         interests of restricted entities, limitations on liens, limitations on
         sale/leaseback transactions, limitations on guarantees of company
         indebtedness, limitations on changes to the Grohe Beteiligungs
         partnership agreement, the corporate agreement and the trustee
         agreement, limitations on sale, prepayment or modification of the
         intercompany loan, limitations on business activities, or SEC reports;

o        the failure by Grohe Holding to comply for 60 days after notice with
         its other agreements contained in the Indenture;

o        indebtedness of Grohe Holding or any significant controlled entity
         (other than indebtedness of a securitization entity incurred in
         connection with a qualified securitization transaction which
         indebtedness is non-recourse indebtedness to Grohe Holding and its
         other restricted entities) is not paid within any applicable grace
         period after final maturity or is accelerated by the holders thereof
         because of a default and the total amount of such indebtedness unpaid
         or accelerated exceeds (euro)15.0 million;

o        certain events of bankruptcy, insolvency or reorganization of Grohe
         Holding or a significant controlled entity; or

o        any judgment or decree for the payment of money in excess of (euro)15.0
         million is entered against Grohe Holding or a significant controlled
         entity, remains outstanding for a period of 60 consecutive days
         following such judgment or decree and is not discharged, waived or
         stayed within 10 days after notice.

         However, a default under the fourth, fifth and eighth points above will
not constitute an event of default until the trustee if directed in writing by
the holders of 25% in principal amount of the outstanding notes (subject to it
being indemnified to its satisfaction) notifies Grohe Holding of the default and
Grohe Holding does not cure such default within the time specified after receipt
of such notice.

         If an event of default occurs and is continuing, the trustee at its
discretion may, and if so directed by the holders of at least 25% in principal
amount of the outstanding notes (subject in each case to it being indemnified to
its satisfaction) declare the principal of and accrued but unpaid interest on
all the notes to be due and payable. Upon such a declaration, such principal and
interest shall be due and payable immediately. If an event of default relating
to certain events of bankruptcy, insolvency or reorganization of Grohe Holding
occurs and is continuing, the principal of and interest on all the notes will
become and be immediately due and payable without any declaration or other act
on the part of the



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trustee or any holders of the notes. Under certain circumstances, the holders of
a majority in principal amount of the outstanding notes may rescind any such
acceleration with respect to the notes and its consequences.

GOVERNING LAW

         The indenture and the notes are governed by, and construed in
accordance with, English law. However, to the extent the indenture or the notes
includes or is deemed to include provisions of the Trust Indenture Act, those
provisions shall be performed and interpreted in accordance with that Act.

FIRST SUPPLEMENTAL INDENTURE

         On April 3, 2003, we and the trustee entered into a first supplemental
indenture. The purpose of the first supplemental indenture was to amend the
indenture to permit the refinancing of the senior credit facility with the new
senior credit facility and to permit the repayment of the shareholder loans with
a portion of the proceeds of the new senior credit facility. In addition, we may
change our legal form from that of a limited liability company to that of a
stock company, and, to do so, German law requires that we change our board
composition to include members elected by employees of our subsidiaries. The
first supplemental indenture amends the definition of shareholder-elected board
so that we may change our board composition in this manner without triggering a
change of control under the indenture

INTERCOMPANY LOAN

         Grohe Holding has loaned the proceeds from the issuance of the notes to
its subsidiary Grohe Beteiligungs pursuant to an intercompany loan agreement
dated October 26, 2000, which we refer to as the intercompany loan. The
intercompany loan has the same interest, payment, default and maturity terms as
the notes.

SUBORDINATION AGREEMENT

         Grohe Holding has agreed to subordinate its rights under its
intercompany loan to Grohe Beteiligungs to the rights of the lenders under the
senior credit facility pursuant to a subordination agreement dated October 26,
2000, which we refer to as the subordination agreement. In connection with the
new senior credit facility, Grohe Holding has agreed to subordinate its rights
under its intercompany loan to Grohe Beteiligungs to the rights of the lenders
under the new senior credit facility pursuant to a subordination agreement dated
March 17, 2003, which we refer to as the new subordination agreement.

         The following is a summary of the material provisions of the
subordination agreement.

         Grohe Holding has agreed:

o        not to receive or to take any action to obtain payment with respect to
         the intercompany loan, without regard to whether such payment is due
         and payable to Grohe Holding, except for payments set forth in
         "Permitted payments to Grohe Holding" below, and except as described
         below;

o        to turn over any funds it receives under the intercompany loan, other
         than funds related to permitted payments described in "Permitted
         payments to Grohe Holding" below, to the agent under the senior credit
         facility until all amounts outstanding under the senior credit facility
         are repaid;



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<PAGE>

o        that its claims under the intercompany loan will be subordinated and
         will rank junior to the claims of the lenders under the senior credit
         facility; and

o        that while amounts are outstanding under the senior credit facility, it
         will not take any action to accelerate, enforce or otherwise exercise
         any remedy with respect to the intercompany loan. However, Grohe
         Holding may take any action to obtain payment, accelerate, enforce or
         otherwise exercise any remedy with respect to the intercompany loan if:

                  (1)      the lenders under the senior credit facility have
                           given their consent to such action,

                  (2)      the lenders under the senior credit facility are
                           taking the same or equivalent action in respect of
                           their claims,

                  (3)      insolvency proceedings have been commenced against
                           Grohe Beteiligungs and it has not been demonstrated
                           that the proceedings are without merit, or

                  (4)      120 days have passed after notification to the
                           lenders under the senior credit facility that any
                           event has arisen giving Grohe Holding the right to
                           terminate the intercompany loan or accelerate
                           payments under the intercompany loan.

         The new subordination agreement is substantially similar to the
subordination agreement, except that Grohe Holding has agreed not to incur any
financial indebtedness other than under shareholder loans which are fully
subordinated to the new senior lender's claims or any other financial
indebtedness unless Grohe Holding can demonstrate that after giving effect to
this indebtedness the ratio of Total Net Debt to EBITDA is no more than the
amounts described above. See "New Senior Credit Facility - Covenants".

PERMITTED PAYMENTS TO GROHE HOLDING
         Under the senior credit facility and the subordination agreement,
subsidiaries of Grohe Holding are permitted to make payments to Grohe Holding in
an aggregate amount sufficient for Grohe Holding to make any of the following
payments:

o        payments, other than payments which are subject to the restrictions
         described in the following paragraph, required by Grohe Holding to meet
         its obligations under the notes, the indenture, the registration rights
         agreement and certain related documents to the extent such payments are
         related to the issuance and exchange of the notes and exchange notes,
         including fees, costs and expenses relating to the offering, sale and
         exchange, financial reporting, listing, SEC registration and reporting,
         and on-going administration under these agreements; and

o        payment by Grohe Holding of taxes, audit fees, legal expenses,
         management fees, directors' fees and other expenses and any other
         proper and necessary incidental expenses required to maintain its
         corporate existence.

Provided that the payments referred to above cannot exceed (euro)255,646 in any
calendar year, except that in all cases necessary fees, costs and expenses in
excess of the foregoing amount shall also be permitted upon provision of
evidence satisfactory to the agent under the senior credit facility that the
fees, costs and expenses exceeded such amount and were reasonably incurred in
the relevant year.



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<PAGE>

         Subsidiaries of Grohe Holding are also permitted to make payments to
Grohe Holding in an aggregate amount sufficient for Grohe Holding to pay
interest, principal when due upon final maturity of the notes, additional
interest, any tax gross-up payments and taxes in respect of the notes unless:

o        there is an event of default with respect to any borrower failing to
         pay any amount under the senior credit facility when due which has not
         been cured within the applicable time frame; or

o        after an event of default, other than a payment default, there is a
         "blocking period" in place.

         A "blocking period" can be instituted by the lenders or the agent to
protect the lenders' rights under the senior credit facility. The blocking
period will end after a period of 120 days or earlier if the agent gives notice
to end the blocking period, if the event of default is waived or cured or if all
amounts outstanding under the senior credit facility are repaid. Only one
blocking period can be declared in any consecutive 360-day period, and only one
blocking period can be declared in respect of the same event of default, unless
cured for more than 180 days.

         The provisions of the new subordination agreement regarding permitted
withdrawals are substantially similar to those of the subordination agreement,
except that the amount that Grohe Holding can withdraw for ongoing
administrative costs, including taxes, is (euro)2.0 million in any financial
year. Amounts requested to be withdrawn in excess of (euro)2.0 million must be
reasonably incurred and must be approved by the agent under the new senior
credit facility. In addition, under the new subordination agreement Grohe
Holding is permitted to make withdrawals for the following purposes:

o        in connection with the repayment in part of certain of the Shareholder
         Loans;

o        to finance the cost of a qualifying public offering or listing up
         to(euro)4.0 million even if the listing fails;

o        costs incurred in connection of the repayment in part of certain of the
         Shareholder Loans up to (euro)13.0 million;

o        and, so long as the ratio of Total Net Debt to EBITDA is lower than 2.0
         to 1 as of the end of the most recent financial quarter, no default has
         occurred and is continuing under the new senior credit facility and no
         listing or public offering of the shares has occurred, the payment of
         cash interest up to (euro)5.3 million.

PARTNERSHIP AGREEMENT AND TRUSTEE AGREEMENT

         We and Grohe Consult GmbH have entered into a partnership agreement
dated October 26, 2000, which we refer to as the partnership agreement, pursuant
to which Grohe Beteiligungs was formed, and a trustee agreement dated as of
October 26, 2000, which we refer to as the trustee agreement, and, together with
the partnership agreement, the formation agreements, to preserve our group
structure and the relative rights of our creditors. Pursuant to the formation
agreements, Grohe Consult GmbH is a limited partner of Grohe Beteiligungs and
has only a nominal interest in Grohe Beteiligungs and holds such limited
partnership interest in trust for us, the general partner.

CORPORATE AGREEMENT

         In connection with the senior credit facility, we, Grohe Consult GmbH,
Grohe Beteiligungs and Dresdner Bank AG, as agent, agreed to use our best
efforts, prior to any insolvency of the parties, to



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maintain our corporate structure pursuant to an agreement dated October 26,
2000, which we refer to as the corporate agreement. In connection with our new
senior credit facility, we, Grohe Consult GmbH and Grohe Beteiligungs entered
into a new corporate agreement dated March 17, 2003, which we refer to as the
new corporate agreement. Pursuant to the new corporate agreement, the parties
agreed to maintain a structure that establishes a ranking between the various
debt instruments of the Grohe group and that the Grohe Beteiligungs partnership
agreement only will be amended with the prior consent of the agent of the
lenders under the new senior credit facility.

LONG-TERM DEBT TO RELATED PARTIES AND SHAREHOLDERS

         Long term-debt to related parties and shareholders amounted to
(euro)172.7 million as of December 31, 2002. As these loans bear interest at 5%
per year which is below market rate, interest on the loans has been imputed for
accounting purposes using an appropriate discount rate of 11.5%. The principal
amount of loans provided by related parties and shareholders as of December 30,
2002 was (euro)259.6 million. As of the date of this report, we have repaid an
aggregate total of (euro)200.0 million of our long-term debt to related parties
and shareholders. Payments may not be made prior to the full settlement of all
claims of the creditors under the senior credit facility and, except as
described below, the notes. Long-term debt to related parties and shareholders
are subordinated to the notes and cannot be accelerated or terminated by the
lenders prior to the maturity or repayment of the notes. The long-term debt to
related parties and shareholders is subordinated to all our indebtedness, and we
may not repay the long-term debt to related parties and shareholders except to
the extent permitted by the indenture.

OTHER CREDIT FACILITIES OF FRIEDRICH GROHE AND SUBSIDIARIES

         In addition to the facilities available to it under the senior credit
facility, Friedrich Grohe has as of December 31, 2002:

o        undrawn credit facilities, excluding guarantee facilities, of(euro)8.3
         million.

         Certain of the subsidiaries of Friedrich Grohe have:

o        undrawn credit facilities amounting to approximately(euro)10.7 million;
         and

o        secured and unsecured borrowings amounting to approximately(euro)21.8
         million.

10.D.    EXCHANGE CONTROLS

         The euro is a fully convertible currency. There are, except in limited
embargo circumstances, currently no legal restrictions in Germany on
international capital movements and foreign exchange transactions that would
prevent us from transferring capital or remitting dividends or other payments to
holders of our senior notes or shareholders who are not residents or citizens of
Germany. For statistical purposes only, we, like every individual or corporation
residing in Germany, must report to the German Central Bank (DEUTSCHE
BUNDESBANK), subject only to immaterial exceptions, any payment received from or
made to an individual or a corporation resident outside of Germany
(non-residents) if the payment exceeds (euro)12,500 (or the equivalent in a
foreign currency). In addition, German residents, including corporations, but
excluding financial institutions, must report any claims against or liabilities
payable to non-residents that in the aggregate exceed (euro)1.5 million (or the
equivalent in a foreign currency) at the end of any one month.



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10.E.    TAXATION

                     U.S. FEDERAL INCOME TAX CONSIDERATIONS

         The following discussion summarizes the material US Federal income tax
considerations which may be relevant to the ownership and disposition of our
notes by US holders, and is based upon the provisions of the US Internal Revenue
Code of 1986, as amended, the applicable US Treasury regulations promulgated or
proposed thereunder, judicial authority and current administrative rulings and
practice. Legislative, judicial or administrative changes or interpretations may
be forthcoming that may be retroactive and that could alter or modify the
continued validity of the following statements and conclusions. You are a US
holder if you are a resident of the United States for purposes of the income tax
convention between the United States and Germany and are fully eligible for
benefits under the treaty. This summary deals only with US holders who will hold
the notes as capital assets. This summary does not address considerations which
may be relevant to you if you are an investor who is subject to special tax
rules, such as a bank, thrift, real estate investment trust, regulated
investment company, insurance company, dealer in securities or currencies,
trader in securities or commodities who elects mark-to-market treatment, person
who will hold the notes as a hedge against currency risk or as a position in a
"straddle" or conversion transaction, tax-exempt organization or a person whose
"functional currency" is not the US dollar.

         In general, you will be entitled to treaty benefits, and therefore will
be a US holder, if you are:

o        an individual US resident, a US corporation or a partnership, estate or
         trust to the extent your income is subject to taxation in the United
         States in your hands or in the hands of your partners or beneficiaries;

o        not also a resident of Germany for German tax purposes; and

o        not subject to an anti-treaty shopping article which applies in limited
         circumstances.

         The treaty benefits discussed below generally are not available to you
if you hold the notes in connection with the conduct of a business through a
permanent establishment, or the performance of personal services through a fixed
base, in Germany. This summary does not discuss the treatment of such holders.
This summary is based on laws, regulations, rulings and decisions now in effect,
all of which may change. Any change could apply retroactively and could affect
continued validity of this summary.

         You should consult your tax adviser about the tax consequences of
holding the notes, including the relevance to your particular situation of the
considerations discussed below, as well as the relevance to your particular
situation of state, local or other tax laws.

INTEREST ON THE NOTES

         Payments or accruals of interest on the notes will be taxable to you as
ordinary interest income at the time that you receive or accrue such amounts, in
accordance with your regular method of tax accounting.

         If you use the cash method of tax accounting, the amount of interest
income you will realize will be the US dollar value of the interest payment in
euros based on the spot rate of exchange in effect on the date you receive the
payment, regardless of whether you convert the payment into US dollars. You


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generally will not have an exchange gain or loss on the interest payment, but
you may have an exchange gain or loss when you dispose of any euros you receive.

         If you are an accrual-basis US holder, the amount of interest income
you will realize will be based on the average exchange rate in effect during the
interest accrual period or, with respect to an interest accrual period which
spans two taxable years, at the average exchange rate for the partial period
within the taxable year. Alternatively, as an accrual-basis US holder, you may
elect to translate all interest income at the spot rate on the last day of the
accrual period (or the last day of the taxable year, in the case of an accrual
period which spans more than one taxable year) or on the date on which you
receive the interest payment if that date is within five business days of the
end of the accrual period. If you make this election, you must apply it
consistently to all debt instruments from year to year, and you cannot change
the election without the consent of the Internal Revenue Service. If you use the
accrual method of accounting for tax purposes, you will recognize foreign
currency gain or loss on the receipt of an interest payment in euros if the
exchange rate in effect on the date the payment is received differs from the
rate applicable to a previous accrual of that interest income. This foreign
currency gain or loss will be treated as ordinary income or loss, but generally
will not be treated as an adjustment to interest income received on the notes.

PURCHASE, SALE AND RETIREMENT OF THE NOTES

         Initially, your tax basis in a note generally will equal the cost of
the note to you. The cost to you (and therefore generally your initial tax
basis) will be the US dollar value of the purchase price in euros on the date of
purchase, calculated at the exchange rate in effect on that date. If the note is
traded on an established securities market and you are a cash-basis taxpayer (or
if you are an accrual-basis taxpayer that makes a special election), you will
determine the US dollar value of the cost of the note by translating the amount
of euros that you paid for the note at the spot rate of exchange on the
settlement date of your purchase. If you convert US dollars into euros and then
immediately use those euros to purchase a note, you generally will not have any
taxable gain or loss as a result of the conversion or purchase.

         When you sell or exchange a note, or if a note that you hold is
retired, you generally will recognize gain or loss equal to the difference
between the amount you realize on the transaction (less any accrued interest,
which will be subject to tax in the manner described above under "Interest on
the Notes") and your tax basis in the note. If you sell or exchange a note for
euros, or receive euros on the retirement of a note, the amount you will realize
for US tax purposes generally will be the dollar value of the euros which you
receive calculated at the exchange rate in effect on the date the note is
disposed of or retired. If you dispose of a note that is traded on an
established securities market and you are a cash-basis US holder (or if you are
an accrual-basis holder that makes a special election), you will determine the
US dollar value of the amount realized by translating the amount at the spot
rate of exchange on the settlement date of the sale, exchange or retirement.

         The special election available to you if you are an accrual-basis
taxpayer in respect of the purchase and sale of notes traded on an established
securities market, which is discussed in the two preceding paragraphs, must be
applied consistently to all debt instruments from year to year and cannot be
changed without the consent of the US Internal Revenue Service.

         Except as discussed below with respect to foreign currency gain or
loss, the gain or loss that you recognize on the sale, exchange or retirement of
a note will generally be a capital gain or loss. The gain or loss on the sale,
exchange or retirement of a note will be a long-term capital gain or loss if you
have held the note for more than one year on the date of disposition. Net
long-term capital gain recognized by an individual US holder generally will be
subject to a maximum tax rate of 20%. The ability of a US holder to offset
capital losses against ordinary income is limited.



                                       93
<PAGE>

         Despite the foregoing, the gain or loss which you recognize on the
sale, exchange or retirement of a note will generally be treated as ordinary
income or loss to the extent that the gain or loss is attributable to changes in
exchange rates during the period in which you held the note. This foreign
currency gain or loss will not be treated as an adjustment to interest income
that you receive on the note.

INFORMATION REPORTING AND BACKUP WITHHOLDING

         The Paying Agent must file information returns with the US Internal
Revenue Service in connection with note payments made to certain US persons. If
you are a US person, you generally will not be subject to a US backup
withholding tax on such payments if you provide your taxpayer identification
number to the Paying Agent. You also may be subject to information reporting and
backup withholding tax requirements with respect to the proceeds from a sale of
the notes. If you are not a US person, you may have to comply with certification
procedures to establish that you are not a US person in order to avoid
information reporting and backup withholding tax requirements.

                            GERMAN TAX CONSIDERATIONS

         The following discussion summarizes certain aspects of German taxation
which may be relevant to holders of notes that are individuals who will hold the
notes as private capital assets. This summary does not address considerations
which may be relevant to non-individual holders or to individual holders that
hold notes in a business. This summary addresses the following situations:

o        holders who are a resident of Germany for German income tax purposes
         according to the specific rules of the German income tax act, or

o        holders who are not a resident of Germany for German income tax
         purposes and do not hold, directly or indirectly, or together with
         other parties with whom you have pooled your shareholding in Grohe
         Holding, more than 25% of the issued share capital of Grohe Holding.

         If you are a German citizen, but are not a resident of Germany for
German income tax purposes, different tax rules may apply unless you have
permanently resided outside of Germany for more than ten years.
 These tax rules will depend on, among other things, your residency and the tax
treaty between your country of residence and Germany.

         This summary is based upon German law and tax treaties in effect as of
the date of this report and may be subject to changes, possibly with retroactive
effect. This summary does not purport to include a comprehensive description of
all the German tax consequences which may be relevant to you and does not
discuss all considerations relevant to classes of investors subject to special
tax rules, including holders of definitive (or certificated) notes or coupons.
You should consult your own advisers regarding the tax consequences of the
purchase, ownership and disposition of the notes in light of your particular
circumstances.

INTEREST ON THE NOTES

         If you are not a resident of Germany for German income tax purposes,
all payments of interest, including accrued interest, and principal to you under
the notes may be made free of withholding or deduction of, for, or on account
of, any taxes of whatsoever nature imposed, levied, withheld, or assessed by
Germany or any political subdivision or taxing authority in Germany.

         If you are a resident of Germany for German income tax purposes, the
interest income is subject to German income taxation. In addition, a 5.5%
solidarity surcharge on that income tax is applicable. A



                                       94
<PAGE>

church tax may also be payable. Furthermore, if the notes are held in custody of
a German bank or a German financial service provider, this bank or financial
service provider is required to deduct 30% withholding tax (ZINSABSCHLAGSTEUEr)
plus, based on the withholding tax, a 5.5% solidarity surcharge from any
interest payments to you. These tax payments can be credited against your own
German income tax for the year in which interest has been paid.

         A special withholding tax of 35% plus, based on the withholding tax,
5.5% solidarity surcharge may become due for resident or non-resident holders of
definitive (certificated) notes or coupons if interest coupons are not in
custody of a German bank or financial service provider and are presented to a
German bank or financial service provider.

CAPITAL GAINS

         If you are not a resident of Germany for income tax purposes, gains
realized on the sale or other disposition of notes will not be subject to German
tax.

         If you are a resident in Germany for income tax purposes, under current
tax law, capital gains realized on the sale or other disposition of notes are
not subject to capital gains taxation, unless you sell the notes within one year
of their acquisition.

CAPITAL LOSSES

         If you are not a resident in Germany for income tax purposes, capital
losses on the sale or other disposition of notes or as a result of an insolvency
of the debtor cannot be offset against any other income which is subject to
German tax. If you are a resident in Germany for income tax purposes, capital
losses on the sale or other disposition of notes or as a result of an insolvency
of the debtor cannot be offset against other income, unless they arise within
one year of acquiring the notes. Even losses incurred during the one year period
only can be offset in very limited situations. For example, it is not possible
to offset these losses against taxable interest income from the notes.

INHERITANCE AND GIFT TAXES

         A transfer of the notes by a gift or by reason of death only will be
subject to German gift or inheritance tax if you are, or your heir, donee or
other beneficiary is, a German resident for German gift or inheritance tax
purposes according to the specific rules of the German Gift and Inheritance Tax
Act. This treatment also can apply if you are, or your heir, donee or other
beneficiary is, a German citizen but not resident for German gift or inheritance
tax purposes, unless such person has permanently stayed outside Germany for more
than ten years. As several personal allowances and different tax rates exist
under the German Inheritance and Gift Tax Act, you should consult your
professional tax advisers with respect to specific gift and inheritance tax
issues.

OTHER GERMAN TAXES

         No German transfer, stamp, turnover or other similar taxes will be
payable upon the issue, purchase or sale of the notes.

CHANGES IN THE EUROPEAN UNION "SAVINGS DIRECTIVE"

         On January 21, 2003, the Council for Economic and Financial Affairs of
the European Union, consisting of the ministers for economic affairs and for
finance of all 15 member states of the European Union, agreed to amend the EU
"Savings Directive". Under this amendment, in the case of interest



                                       95
<PAGE>

payments to natural persons, a "disbursing agent" in one EU member state will be
required to supply information concerning the interest payments to the competent
authority of the other EU member state where the recipient of such payments is
tax resident. These rules will not apply in Austria, Belgium and Luxembourg.
Instead, Austria, Belgium and Luxembourg, as well as Switzerland and Andorra,
Liechtenstein, Monaco and San Marino, will be obligated to introduce a
withholding tax on interest of 15% from 2004 through 2006, 20% from 2007 through
2009 and 35% beginning in 2010. We believe that it is likely that this amendment
will become effective as of January 1, 2005, provided that Andorra,
Liechtenstein, Monaco, San Marino, Switzerland and some dependent and associated
overseas areas of EU member states have enacted corresponding rules into their
domestic law before that date.

         Under the aforementioned conditions, and based on the draft of the EU
savings directive in effect as of July 18, 2001, disbursing agents in Austria,
Belgium and in Luxembourg who pay interest to beneficial owners of our notes who
are (i) natural persons and (ii) resident in a EU member state other than the
state in which the disbursing agents reside are required to deduct the
withholding tax from the interest payments, unless the beneficial owner provides
to the respective disbursing agent (i) a declaration in which he expressly
agrees that the disbursing agent can exchange the required information with the
competent authority in the EU member state of residence of the beneficial owner
or (ii) a document approved by the competent authority of the respective EU
member state in which the name, address, tax or other identification number,
date and location of birth, name and address of the disbursing agent and the
account or number of the note are disclosed.

10.F.    DIVIDENDS AND PAYING AGENTS

         Not applicable.

10.G.    STATEMENTS BY EXPERTS

         Not applicable.

10.H.    DOCUMENTS ON DISPLAY

         You may inspect the documents concerning us referred to in this report
at the Securities and Exchange Commission's public reference facilities at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at their regional
offices located at 223 Broadway, New York, New York 10279 and the Northwest
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. These and any other documents that we have filed with the SEC since
November 27, 2002 are also publicly available through the SEC website at
WWW.SEC.GOV.

10.I.    SUBSIDIARY INFORMATION

         Not applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         All amounts in Item 11 are in thousands of euro except where indicated.

         Our exposure to market risk is comprised of interest rate risk, foreign
exchange risk and commodity price risk. In order to manage this market risk
exposure we enter into interest rate and foreign currency derivative contracts
as well as fixed-price commodity purchase commitments. We do not have any
trading or speculative activity in derivative financial instruments.



                                       96
<PAGE>

INTEREST RATE SENSITIVITY

         We have a significant variable rate senior secured credit facility and
as a result could be significantly affected by changes in interest rates.
Changes in interest rates affect the interest paid on debt. To mitigate the
effect of changes in interest rates, we have entered into interest rate swap and
collar agreements.

         The table below provides information about our derivative financial
instruments and other financial instruments that are sensitive to changes in
interest rates. For debt obligations, the table presents principal payments and
the EURIBOR plus margin or fixed interest rates by expected maturity dates. For
interest rate swaps and collars, the table presents notional amounts, the
applicable variable rates and pay, receive, cap and floor rates by contractual
maturity dates. Notional amounts are used to calculate the contractual cash
flows to be exchanged under the contract.




                                       97
<PAGE>

<TABLE>
<CAPTION>
                                       INTEREST RATE SENSITIVITY AS OF DECEMBER 31, 2002
                 PRINCIPAL (NOTIONAL) AMOUNT BY EXPECTED MATURITY, AVERAGE INTEREST SWAP, CAP AND FLOOR RATES

                                                                                                                     Fair Value
                                                                                                                    December 31,
                                          2003       2004       2005       2006      2007    Thereafter   Total         2002
                                       ---------------------------------------------------------------------------------------------
<S>                                      <C>            <C>        <C>       <C>       <C>         <C>   <C>              <C>
Short-term debt to banks
  denominated in Japanese yen;
  average fixed rate at 0.93%.......     4,018          0          0         0         0           0     4,018            4,018

Long-term debt to banks; variable
  rate at 2.0% - 3.0% above EURIBOR.    64,423     75,160     82,829   113,004         0           0   335,416          335,416

Long-term debt to banks; fixed
  rates at 4.95% to 7.25%...........     8,761      3,369        693       697       701       3,501    17,722           18,197

Long-term debt to shareholders and
  related parties; fixed rate at
  5.0%..............................         0          0          0         0         0     304,672   304,672          172,674

Original notes; fixed rate at 11.5%.         0          0          0         0         0     200,000   200,000          227,000

INTEREST RATE DERIVATIVE FINANCIAL INSTRUMENTS:
----------------------------------------------

Combined interest rate swap and
  cap agreements;
   Notional amount..................    28,632     53,941          0         0         0           0    82,573          (1,663)

                            Pay rate is 5-year swap rate for 6-months EURIBOR with a cap at 5.07%;
                                               receive rate is 3-months EURIBOR
Combined interest rate swap and
  cap agreements;
   Notional amount..................         0     63,912          0         0         0           0    63,912          (1,330)

                           Pay rate is 5-year swap rate for 3-months EUROLIBOR with a cap at 4.99%;
                                                receive rate is 3-months LIBOR

Interest Rate Collar;
   Notional Amount..................    35,790    164,892          0         0         0           0   200,682          (4,151)

                                               Basis rate is 6-months EURIBOR;
                           cap rate is 5,20% (8.00% in case 6-months EURIBOR is higher than 8.00%);
                                                     floor rate is 3.00%
</TABLE>





                                       98
<PAGE>

<TABLE>
<CAPTION>
                                        INTEREST RATE SENSITIVITY AS OF DECEMBER 31, 2001
                  PRINCIPAL (NOTIONAL) AMOUNT BY EXPECTED MATURITY, AVERAGE INTEREST SWAP, CAP AND FLOOR RATES

                                                                                                                        Fair Value
                                                                                                                       December 31,
                                         2002       2003       2004       2005      2006     Thereafter      Total         2001
                                     ----------------------------------------------------------------------------------------------
<S>                                     <C>           <C>         <C>        <C>      <C>           <C>      <C>            <C>
Short-term debt to banks
  denominated in Japanese yen;
  average fixed rate at 0.94%.......    4,313         0           0          0        0             0        4,313          4,313

Long-term debt to banks; variable
  rate at 2.25% - 4.50% above
  EURIBOR...........................   47,550    64,423      75,160     82,829  138,027             0      407,989        407,989

Long-term debt to banks; fixed
  rates at 4.95% to 7.25%...........    5,157     4,833       8,338        693      697         4,202       23,919         23,977

Long-term debt to shareholders
  and related parties; fixed rate
  at 5.0%...........................        0         0           0          0        0       291,511      291,511        154,864

Original notes; fixed rate at
  11.5%.............................        0         0           0          0        0       200,000      200,000        217,000

INTEREST RATE DERIVATIVE FINANCIAL INSTRUMENTS:
----------------------------------------------

Combined interest rate swap and
cap agreements;
   Notional amount..................   63,145    28,632      53,941          0        0             0      145,718        (2,394)

                             Pay rate is 5-year swap rate for 6-months EURIBOR with a cap at 5.07%;
                                                receive rate is 3-months EURIBOR

Combined interest rate swap and
cap agreements;
   Notional amount..................        0         0      63,912          0        0             0       63,912        (1,280)

                            Pay rate is 5-year swap rate for 3-months EUROLIBOR with a cap at 4.99%;
                                                 receive rate is 3-months LIBOR

Interest Rate Collar;
   Notional Amount..................        0    35,790     164,892          0        0             0      200,682        (1,466)

                                                Basis rate is 6-months EURIBOR;
                            cap rate is 5,20% (8.00% in case 6-months EURIBOR is higher than 8.00%);
                                                      floor rate is 3.00%
</TABLE>


EXCHANGE RATE SENSITIVITY

         We are in business in approximately 130 countries outside the European
Union and operate in more than 10 currencies. During the year ended December 31,
2002, we generated approximately 30% of our revenues in currencies other than
euro. Since production costs are mainly measured in euro the risk from foreign
currency exposure is essentially related to sales denominated in foreign
currencies. The currency exposure relates primarily to the US dollar and to a
lesser extend to the Japanese yen and British pound, resulting from sales to the
United States, the Middle and Far East, Japan, and the United Kingdom. Currency
exposure from sales in other currencies is insignificant. In 2002 our sales
denominated in US dollar amounted to (euro)196.7 million.

         It is our foreign exchange risk management policy to mitigate the risk
from exchange rate fluctuations on foreign currency denominated sales by
entering into hedging transactions. We reduce the risk on our cash flows from
anticipated sales and accounts receivables in foreign currencies by entering
into foreign currency derivative contracts to sell the foreign currency amounts
which will be received from sales in foreign currencies at a fixed euro to
foreign currency exchange rate. This policy has been set up to enable management
to plan future euro cash flows from sales and related accounts receivables. The
maximum length of time to hedge the exposure from forecasted sales is twelve
months. The



                                       99
<PAGE>

derivative contracts that we enter into may exceed this twelve-month period by
the expected collection period for the related accounts receivables of up to six
months. As the euro to US dollar exchange rate for the years 2000, 2001, and
2002 was considerably higher than the budgeted rate for the respective years,
management decided to cover nine to twelve months of anticipated sales in
addition to cash flows from foreign currency accounts receivables.

         As a majority of the foreign currency derivatives is related to future
sales, and the fair market valuation of such derivatives is highly dependent on
the exchange rate at the balance sheet date, gains and losses from such
derivatives due to currency exchange rate fluctuations may be significantly
higher than the foreign currency gains and losses resulting from the settlement
and valuation of foreign currency receivables. Accordingly, fluctuations in
currency exchange rates may have a negative effect on our business, financial
condition and results of operations. Before January 1, 2003, we did not apply
hedge accounting. Accordingly, we directly included in income gains and losses
resulting from changes in fair market value of foreign currency derivative
contracts. Beginning on January 1, 2003, we have applied hedge accounting for
most of our currency derivatives used to hedge sales transactions. Gains and
losses resulting from changes in fair market value of derivatives specifically
designated to hedge projected sales will generally be reported as a component of
other comprehensive income or loss, as the case may be, and reclassified into
earnings in the same period during which the hedged forecasted sales transaction
affects earnings. Based on a notional amount of US dollar foreign currency
derivatives of (euro)135.0 million at December 31, 2002, (euro)152.1 million at
December 31, 2001, and (euro)184.8 million at December 31, 2000, a hypothetical
10% increase in the euro to US dollar exchange rate would reduce the fair value
of our US dollar foreign currency derivatives by approximately (euro)13.5,
(euro)15.2 million and (euro)18.5 million, respectively and would result in
corresponding losses.

         The following table provides information about our derivative financial
instruments and other financial instruments that are sensitive to changes in
foreign exchange rates, by functional currencies. For debt obligations, the
table presents principal payments and the applicable currencies. For foreign
currency forwards and options, the table presents notional amounts and average
settlement rates and the applicable currency. Notional amounts are used to
calculate the contractual cash flows to be exchanged under the contract.

         Carrying amounts for our foreign currency accounts receivable and
accounts payable approximate fair value and, therefore, are not presented below.




                                      100
<PAGE>

<TABLE>
<CAPTION>
                                    FOREIGN CURRENCY SENSITIVITY AS OF DECEMBER 31, 2002
                         PRINCIPAL (NOTIONAL) AMOUNT BY EXPECTED MATURITY, AVERAGE SETTLEMENT RATES

                                                                                                                   Fair value
                                                                                                                  December 31,
                                                2003      2004      2005     2006     2007   Thereafter   Total       2002
                                              ----------------------------------------------------------------------------------
<S>                                            <C>           <C>      <C>       <C>     <C>        <C>   <C>           <C>
Short-term debt to banks denominated in
Japanese yen; average fixed rate at 0.93%...   4,018         0        0         0       0          0     4,018         4,018

Long-term debt to banks denominated in
Thailand Baht; fixed rate at 7.25%..........   4,570         0        0         0       0          0     4,570         4,602
                                                                                                               --------------
Total debt denominated in foreign
currencies..................................                                                                           8,620
                                                                                                               ==============

EXCHANGE RATE DERIVATIVE FINANCIAL INSTRUMENTS:
----------------------------------------------

Pay US$ / receive euro forwards                                                                                       13,975
-------------------------------                                                                                -------------
  Number of individual contracts............      30        11        0         0       0          0        41
  Average notional amount ..................   3,287     3,307        0         0       0          0     3,292
  Total notional amount of US$ contracts....  98,602    36,378        0         0       0          0   134,980
  Average settlement rate (euro/US$)........  1.0891    1.0055        0         0       0          0    1.0666
  For information purposes:
   Exchange rate at December 31, 2002
   (euro/US$)...............................                                                            0.9573


Pay Japanese yen / receive euro forwards                                                                                 577
----------------------------------------
  Number of individual contracts............       8         0        0         0       0          0         8
  Average notional amount ..................     804         0        0         0       0          0       804
  Total notional amount of yen contracts....   6,429         0        0         0       0          0     6,429
  Average settlement rate (euro/100 yen)....  0.8847         0        0         0       0          0    0.8847
  For information purposes:
   Exchange rate at December 31, 2002
   (euro/100 yen)...........................                                                            0.8037

Pay British pound / receive euro forwards                                                                                271
-----------------------------------------
  Number of individual contracts............       9         5        0         0       0          0        14
  Average notional amount ..................   1,167     1,288        0         0       0          0     1,210
  Total notional amount of GBP contracts....  10,501     6,439        0         0       0          0    16,940
  Average settlement rate (euro/GBP)........  1.5514    1.5432        0         0       0          0    1.5483
  For information purposes:
   Exchange rate at December 31, 2002
   (euro/GBP)...............................                                                            1,5330

Pay Canadian collar / receive euro forwards                                                                              662
-------------------------------------------
  Number of individual contracts............      21         5        0         0       0          0        26
  Average notional amount ..................     269       292        0         0       0          0       274
  Total notional amount of CAD contracts....   5,652     1,459        0         0       0          0     7,111
  Average settlement rate (euro/CAD)........  0.6656    0.6434        0         0       0          0    0.6610
  For information purposes:
   Exchange rate at December 31, 2002
   (euro/CAD)...............................                                                            0.6078
                                                                                                               --------------
   Subtotal Japanese yen, British pound
     and Canadian dollar exchange rate
     derivative financial instruments.......                                                                           1,510
                                                                                                               --------------

   Total exchange rate derivative
     financial instruments..................                                                                          15,485
                                                                                                               ==============
</TABLE>

         Out of the total notional amount of exchange rate derivative financial
instruments of (euro)165,460 as of December 31, 2002, (euro)134,980 were related
to US dollar forward contracts. The notional amount of US



                                      101
<PAGE>

dollar foreign currency forwards of (euro)134,980 is used to economically hedge
ten months of anticipated sales of (euro)134 million projected for the year
ended December 31, 2003 and accounts receivables of (euro)21.3 million
denominated in US dollar as of December 31, 2002. Notional amounts of foreign
currency forwards of (euro)30,480 were used to economically hedge sales
denominated in British pound, Japanese yen and Canadian dollar and respective
accounts receivables. Aggregated anticipated sales denominated in British pound
and Japanese yen projected for the year ended December 31, 2003 amount to
(euro)27.8 million.

<TABLE>
<CAPTION>
                                   FOREIGN CURRENCY SENSITIVITY AS OF DECEMBER 31, 2001
                        PRINCIPAL (NOTIONAL) AMOUNT BY EXPECTED MATURITY, AVERAGE SETTLEMENT RATES

                                                                                                                  Fair value
                                                                                                                   December
                                                2002      2003      2004     2005      2006    Thereafter Total    31, 2001
                                              --------------------------------------------------------------------------------
<S>                                            <C>           <C>      <C>       <C>      <C>       <C>   <C>         <C>
Short-term debt to banks denominated in
   Japanese yen; average fixed rate at
   0.94%....................................   4,313         0        0         0        0         0     4,313       4,313

Long-term debt to banks denominated in
   Thailand baht; fixed rate at 7.25%.......     732       732    5,860         0        0         0     7,324       7,324
                                                                                                               ------------
Total debt denominated in foreign
currencies..................................                                                                        11,637
                                                                                                               ============

EXCHANGE RATE DERIVATIVE FINANCIAL INSTRUMENTS:
-----------------------------------------------

Pay US$ / receive euro forwards                                                                                    (3,497)
-------------------------------                                                                                ------------
  Number of individual contracts............      33         0        0         0        0         0        33
  Average notional amount ..................   4,609         0        0         0        0         0     4,609
  Total notional amount of US$ contracts.... 152,101         0        0         0        0         0   152,101
  Average settlement rate (euro/US$)........  1.1143         0        0         0        0         0    1.1143
  For information purposes:
   Exchange rate at December 31, 2001
   (euro/US$)...............................                                                            1.1296


Pay Japanese yen / receive euro forwards                                                                               492
----------------------------------------
  Number of individual contracts............       7         0        0         0        0         0         7
  Average notional amount ..................     760         0        0         0        0         0       760
  Total notional amount of yen contracts....   5,320         0        0         0        0         0     5,320
  Average settlement rate (euro/100 yen)....  0.9673         0        0         0        0         0    0.9673
  For information purposes:
   Exchange rate at December 31, 2001
   (euro/100 yen)...........................                                                            0.8626

Pay British pound / receive euro forwards                                                                               44
-----------------------------------------
  Number of individual contracts............      12         0        0         0        0         0        12
  Average notional amount ..................   1,191         0        0         0        0         0     1,191
  Total notional amount of GBP contracts....  14,289         0        0         0        0         0    14,289
  Average settlement rate (euro/GBP)........  1.6424         0        0         0        0         0    1.6424
  For information purposes:
   Exchange rate at December 31, 2001
   (euro/GBP)...............................                                                            1.6364
                                                                                                               ------------
   Subtotal Japanese yen and British
     pound exchange rate derivative
     financial instruments..................                                                                           536
                                                                                                               ------------

   Total exchange rate derivative
     financial instruments..................                                                                       (2,961)
                                                                                                               ============
</TABLE>

         Out of the total notional amount of exchange rate derivative financial
instruments of (euro)171,710 as of December 31, 2001, (euro)152,101 were related
to US dollar forward contracts. The notional amount of US



                                      102
<PAGE>

dollar foreign currency forwards of (euro)152,101 is used to economically hedge
eight months of anticipated sales of (euro)185.9 million projected for the year
ended December 31, 2002 and accounts receivables of (euro)32.3 million
denominated in US dollar as of December 31, 2001. Notional amounts of foreign
currency forwards of (euro)19,609 were used to economically hedge sales
denominated in British pound and Japanese yen and respective accounts
receivables. Aggregated anticipated sales denominated in British pound and
Japanese yen projected for the year ended December 31, 2002 amounted to
(euro)45.8 million.





                                      103
<PAGE>




<TABLE>
<CAPTION>
                                   FOREIGN CURRENCY SENSITIVITY AS OF DECEMBER 31, 2000
                        PRINCIPAL (NOTIONAL) AMOUNT BY EXPECTED MATURITY, AVERAGE SETTLEMENT RATES

                                                                                                           Fair value
                                                                                        There-              December
                                           2001      2002     2003     2004      2005   after      Total    31, 2000
                                          -------------------------------------------------------------------------------
<S>                                        <C>       <C>       <C>      <C>       <C>      <C>       <C>       <C>
Short-term debt to banks denominated in
   Japanese yen; average fixed rate at
   1.33%..................................4,670      0         0        0         0        0         4,670     4,670

Long-term debt to banks denominated in
   Thailand baht; fixed rate at 8.25%
   (7.25% from June 1, 2001 on)...........713        713       6,376    0         0        0         7,802     7,802
                                                                                                               ------------
Total debt denominated in foreign
   currencies.............................                                                                     12,472
                                                                                                               ============

EXCHANGE RATE DERIVATIVE FINANCIAL INSTRUMENTS:
-----------------------------------------------

Pay US$ / receive euro forwards                                                                                2,754
-------------------------------
  Number of individual contracts..........37         0         0        0         0        0         37
  Average notional amount.................3,550      0         0        0         0        0         3,550
  Total notional amount of US$ contracts..131,350    0         0        0         0        0         131,350
  Average settlement rate (euro/US$)......1.0784     0         0        0         0        0         1.0784
  For information purposes:
   Exchange rate at December 31, 2000
   (euro/US$).............................                                                           1.0716

Pay US$ / receive euro options                                                                                 1,683
------------------------------
  Number of individual options............5          0         0        0         0        0         5
  Average notional amount ................10,686     0         0        0         0        0         10,686
  Total notional amount of US$ options....53,430     0         0        0         0        0         53,430
  Average strike price (euro/US$).........1.0686     0         0        0         0        0         1.0686
  For information purposes:
   Exchange rate at December 31, 2000
   (euro/US$)...............................                                                         1.0716
                                                                                                               ------------
   Subtotal US dollar derivative                                                                               4,437
     financial Instruments..................                                                                   ------------

Pay Japanese yen / receive euro forwards                                                                       1,127
----------------------------------------
  Number of individual contracts...........17        0         0        0         0        0         17
  Average notional amount .................592       0         0        0         0        0         592
  Total notional amount of yen contracts...10,064    0         0        0         0        0         10,064
  Average settlement rate (euro/100 yen)...1.0710    0         0        0         0        0         1.0710
  For information purposes:
   Exchange rate at December 31, 2000
   (euro/100 yen)...........................                                                         0.9340

Pay British pound / receive euro forwards                                                                      782
-----------------------------------------
  Number of individual contracts...........13        0         0        0         0        0         13
  Average notional amount .................1,456     0         0        0         0        0         1,456
  Total notional amount of GBP contracts...18,933    0         0        0         0        0         18,933
  Average settlement rate (euro/GBP).......1.6463    0         0        0         0        0         1.6463
  For information purposes:
   Exchange rate at December 31, 2000
   (euro/GBP)...............................                                                         1.5992

Pay CAD / receive euro forwards                                                                                (3)
-------------------------------
  Number of individual contracts...........1         0         0        0         0        0         1
  Average notional amount..................174       0         0        0         0        0         174
  Total notional amount of CAD contracts...174       0         0        0         0        0         174
  Average settlement rate (euro/CAD).......0.6966    0         0        0         0        0         0.6966
  For information purposes:
   Exchange rate at December 31, 2000
     (euro/CAD).............................                                                         0.7148


                                      104
<PAGE>

                                                                                                               ------------
   Subtotal other exchange rate
     derivative financial instruments....                                                                      1,906
                                                                                                               ------------

   Total exchange rate derivative
     financial instruments..................                                                                   6,343
                                                                                                               ============
</TABLE>

         Out of the total notional amount of exchange rate derivative financial
instruments of (euro)213,951 as of December 31, 2000, (euro)184,780 were related
to US dollar forwards and options. The notional amount of US dollar foreign
currency forwards and options of (euro)184,780 was used to economically hedge
ten months of anticipated sales of (euro)185.1 million projected for the year
ended December 31, 2001 and accounts receivables of (euro)38.5 million
denominated in US dollar as of December 31, 2000. Notional amounts of foreign
currency forwards and options of (euro)28,997 were used to economically hedge
sales denominated in British pound and Japanese yen and respective accounts
receivables. Aggregated anticipated sales denominated in British pound and
Japanese yen projected for the year ended December 31, 2001 amounted to
(euro)41.8 million.

         The following table reconciles the gains and losses from changes in
aggregated fair market value of foreign currency derivative contracts at the
respective balance sheet dates to financial income from derivatives:

<TABLE>
<CAPTION>
                                                        Year ended     Year ended     Year ended      Year ended
                                                         and as of     and as of       and as of       and as of
                                                       December 31,     December     December 31,      December
                                                           1999         31, 2000         2001          31, 2002
                                                           ----         --------         ----          --------
<S>                                                        <C>            <C>            <C>            <C>
USD FOREIGN CURRENCY DERIVATIVE CONTRACTS
-----------------------------------------

Aggregated fair market value                               (2,690)        4,437          (3,497)        13,975

Gain (loss) from changes in aggregated fair market
    value at balance sheet date                                           7,127          (7,934)        17,472

Gain (loss) from changes in fair market value at
    settlement date                                                      (8,467)         (7,499)         7,841

------------------------------------------------------------------------------------------------------------------
Financial   gain  (loss)  from  US  dollar  foreign
    currency derivatives                                                 (1,340)        (15,433)        25,313
------------------------------------------------------------------------------------------------------------------

OTHER CURRENCIES
----------------

Aggregated fair market value                                 (711)        1,906              536         1,510

Gain (loss) from changes in aggregated fair market
    value at balance sheet date                                           2,617          (1,370)           974

Gain (loss) from changes in fair market value at
    settlement date                                                      (3,192)           1,365         1,665

------------------------------------------------------------------------------------------------------------------
Financial gain (loss) from other foreign currency
    derivatives                                                            (575)             (5)         2,639
------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------
Total   financial   gain   (loss)   from   currency
derivatives                                                              (1,915)        (15,438)        27,952

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

Financial loss from interest rate derivatives                            (2,819)         (5,056)        (4,256)

------------------------------------------------------------------------------------------------------------------
Total financial gain (loss)                                              (4,734)        (20,494)        23,696
==================================================================================================================
</TABLE>




                                      105
<PAGE>

         The aggregated fair market value of foreign currency derivative
contracts at the respective balance sheet dates depends primarily on the spread
between the average settlement rate of the foreign currency derivative contracts
and the respective exchange rate existing at the balance sheet date as well as
the aggregated notional amount.

         As of December 31, 2002 the average euro to US dollar settlement rate
for our US dollar foreign currency derivative contracts was (euro)0.1093 higher
than the exchange rate existing at December 31, 2002 resulting in a positive
fair market value of (euro)13,975 compared to a negative fair market value of
(euro)3,497 as of December 31, 2001; accordingly, gains from changes in fair
market value of (euro)17,472 were recorded for the year ended December 31, 2002.
In addition, we realized gains of (euro)7,841 from US dollar foreign currency
derivatives settled within the year 2002, because the average settlement rate
for our US dollar derivative contracts was generally higher than the exchange
rate at settlement date resulting from the appreciation of the euro against the
US dollar during fiscal year 2002.

         As of December 31, 2001 the average euro to US dollar settlement rate
for our US dollar foreign currency derivative contracts was (euro)0.0153 lower
than the exchange rate existing at December 31, 2001 resulting in a negative
fair market value of (euro)3,497 compared to a positive fair market value of
(euro)4,437 as of December 31, 2000; accordingly losses from changes in fair
market value of (euro)7,934 were recorded for the year ended December 31, 2001.
In addition, we realized losses of (euro)7,499 from US dollar foreign currency
derivatives settled within the year 2001, because the average settlement rate
for our US dollar derivative contracts was generally lower than the exchange
rate at settlement date resulting from the general depreciation of the euro
against the US dollar during fiscal years 2001 and 2000.

         As of December 31, 2000 the average euro to US dollar settlement rate
for our US dollar foreign currency derivative contracts was (euro)0.0040 higher
than the exchange rate persisting at December 31, 2000 resulting in a positive
fair market value of (euro)4,437 compared to a negative fair market value of
(euro)2,690 as of December 31, 1999; accordingly gains from changes in fair
market value of (euro)7,127 were recorded for the year ended December 31, 2000.
On the other hand, we realized losses of (euro)8,467 from US dollar foreign
currency derivatives settled within the year 2000, because the average
settlement rate for our US dollar derivative contracts was generally lower than
the exchange rate at settlement date resulting from the general depreciation of
the euro against the US dollar during fiscal year 2000.

COMMODITY PRICE SENSITIVITY

         The following table provides information about our inventory and fixed
price purchase commitments that are sensitive to changes in commodity prices.
For inventory the table presents carrying amount and fair value at December 31,
2002. For fixed price purchase commitments the table presents notional amount
and fair value at December 31, 2002.

Commodity inventory              Carrying amount              Fair value
-------------------              ---------------              ----------
Brass                                  2,789                      2,921
Zinc                                     154                        154
Copper                                   754                        754




                                      106
<PAGE>

<TABLE>
<CAPTION>
Fixed-price purchase
commitments:                       Notional amount by expected maturity
------------                       ------------------------------------                  Fair value as of
                                2003               2004                Total             December 31, 2002
                                ----               ----                -----             -----------------
<S>                            <C>                  <C>                <C>                      <C>
Brass                          25,855               1,676              27,531                   30,858
Nickel                            253                   0                 253                      242
Zinc                            2,236                   0               2,236                    2,301
Copper                          1,784                   0               1,784                    1,749
</TABLE>

         Because of the relatively low price level for brass towards the end of
the year 2002 we concluded purchase contracts to cover demand for the entire
year 2003 and the beginning of 2004. As a result, fixed price purchase
commitments for brass increased by (euro)17,100 from (euro)10,431 as of December
31, 2001 to (euro)27,531 as of December 31, 2002.

ITEM 12..DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

         Not applicable.




                                      107
<PAGE>



                                     PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

         Not applicable.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
         PROCEEDS

         Not applicable.

ITEM 15. CONTROLS AND PROCEDURES

         Within 90 days prior to the date of this report, we performed an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures. We designed our disclosure controls and procedures to
ensure that the material financial and non-financial information required to be
disclosed in Form 20-F and filed with the Securities and Exchange Commission is
recorded, processed, summarized and reported timely. We performed this
evaluation with the participation of our key corporate senior management,
including our disclosure control committee, under the supervision of our
management board and our Chief Executive Officer, Peter Korfer-Schun, and our
Chief Financial Officer, Michael Grimm. In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable, rather than absolute, assurance of achieving the desired control
objectives, and management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
Based on the foregoing, our management, including our Chief Executive Officer
and our Chief Financial Officer, concluded that our disclosure controls and
procedures were effective.

         There have been no significant changes in our internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of the evaluation. Therefore, we have not taken any corrective actions.

ITEM 16. [RESERVED]




                                      108
<PAGE>



                                    PART III

ITEM 17. FINANCIAL STATEMENTS

         We have responded to Item 18 in lieu of responding to this Item.

ITEM 18. FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----

         Independent Auditors' Reports.......................................F-2

         Consolidated Financial Statements...................................F-6

ITEM 19. EXHIBITS

         The following is a list of all exhibits filed as a part of this Annual
Report on Form 20-F:

             EXHIBIT
              NUMBER                            EXHIBIT
              ------                            -------

               1.1         *Articles of Association of the Registrant.

               1.2         *Articles of Association of the Registrant (English
                           translation).

               2.1         *Form of Exchange Note.

               2.2         *Indenture, dated as of November 13, 2000, by and
                           among Grohe Holding GmbH and The Bank of New York,
                           London Branch.

                           First Supplemental Indenture, dated as of April 3,
                           2003, by and among Grohe Holding GmbH and The Bank of
                           New York, London Branch.

               4.1         *Purchase Agreement, dated as of November 3, 2000, by
                           and among Grohe Holding GmbH, Credit Suisse First
                           Boston (Europe) Limited, Merrill Lynch International,
                           Dresdner Bank AG, London Branch and UBS AG, acting
                           through its business group, UBS Warburg.

                           *Paying Agency Agreement, dated November 13, 2000,
                           between Grohe Holding GmbH and Kredietbank S.A.
                           Luxembourgeoise.

                           *Registration Rights Agreement, dated November 3,
                           2000, among Grohe Holding GmbH, Credit Suisse First
                           Boston (Europe) Limited and Merrill Lynch
                           International, Dresdner Bank AG, London Branch and
                           UBS AG, acting through its business group, UBS
                           Warburg.

                           *Intercompany Loan, dated October 26, 2000, between
                           Grohe Holding GmbH and Grohe Beteiligungs GmbH & Co.
                           KG.

                           *Subordination Agreement among Grohe Holding GmbH,
                           Grohe Beteiligungs GmbH & Co. KG, the lenders under
                           the Credit Agreement and Dresdner Bank



                                      109
<PAGE>

                           AG, London Branch dated October 26, 2000.

                           *Credit Agreement, dated October 5, 1999, by and
                           among, Grohe Beteiligungs, Friedrich Grohe, the
                           lenders referred to therein, Dresdner Bank AG, as
                           Arranger, Documentation Agent, Security Agent and
                           Lender, Bayerische Hypo- und Vereinsbank AG, as
                           Co-Arranger and Lender, and Dresdner Bank Luxembourg
                           S.A., as Senior Agent (as amended).

                           Second Amendment and Restatement Agreement, dated
                           April 8, 2003, Relating to a Secured Facilities
                           Agreement, dated March 17, 2003, between Grohe
                           Beteiligungs GmbH & Co. KG, as agent for the
                           obligors, and Dresdner Bank Luxembourg S.A., as agent
                           for the Finance Parties, as amended by an Amendment
                           and Restatement Agreement dated April 5, 2003.

                           Subordination Agreement, dated March 17, 2003,
                           between Grohe Holding GmbH, Grohe Consult GmbH, Grohe
                           Beteiligungs GmbH & Co. KG and Dresdner Bank
                           Luxembourg S.A.

                           Loan Facility, March 28, 2003, between Grohe
                           Beteiligungs GmbH & Co. KG, as lender, and Grohe
                           Holding GmbH, as borrower.

                           Subordination Agreement, dated March 28, 2003, among
                           Grohe Beteiligungs GmbH & Co. KG, as lender, Grohe
                           Holding GmbH, as borrower, as The Bank of New York,
                           as trustee.

                           *Corporate Agreement, dated October 26, 2000, between
                           Grohe Holding GmbH, Grohe Consult GmbH, Grohe
                           Beteiligungs GmbH & Co. KG and Dresdner Bank AG,
                           London Branch.

                           *Trustee Agreement, dated October 26, 2000, between
                           Grohe Consult GmbH, Grohe Holding GmbH and the senior
                           agent under the senior credit facility.

                           Corporate Agreement, dated March 17, 2003, between
                           Grohe Holding GmbH, Grohe Consult GmbH and Grohe
                           Beteiligungs GmbH & Co. KG.

                           *Grohe Beteiligungs GmbH & Co. KG partnership
                           agreement, dated October 26, 2000, between Grohe
                           Holding GmbH, as general partner, and Grohe Consult
                           GmbH, as limited partner, providing for the formation
                           of Grohe Beteiligungs GmbH & Co.

                           *Contribution and Transfer Agreement dated October
                           26, 2000, among all of the shareholders of Grohe
                           Holding GmbH.

               7.1         Statement regarding computation of ratios of earnings
                           to fixed charges.

               7.2         Statement regarding computation of cost of sales to
                           sales ratio.

               8.1         Significant subsidiaries owned, directly or
                           indirectly, by Grohe Holding as of April 30, 2003.



                                      110
<PAGE>

              10.1         Statement regarding calculation of consolidated
                           EBITDA

              10.2         Certification Pursuant to Section 906 of the
                           Sarbanes-Oxley Act of 2002

                           * Exhibits previously filed as exhibits to Grohe
                           Holding's Registration Statement on Form F-4, file
                           no. 333-83166, filed on February 21, 2002, and
                           incorporated herein by reference.




                                      111
<PAGE>


                                   SIGNATURES

         Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, we certify that we meet all of the requirements for filing on Form
20-F and have duly caused this Annual Report to be signed on our behalf by the
undersigned, duly authorized officers.

                                           GROHE HOLDING GMBH



                                           By:          /s/ Peter Korfer-Schun
                                                --------------------------------
                                                Name:   Peter Korfer-Schun
                                                Title:  Chief Executive Officer


                                           By:           /s/ Michael Grimm
                                                --------------------------------
                                                Name:    Michael Grimm
                                                Title:   Chief Financial Officer

Dated:   April 30, 2003



                                      112
<PAGE>


                                  CERTIFICATION

         I, Peter Korfer-Schun, certify that:

         1. I have reviewed this annual report on Form 20-F of Grohe Holding
GmbH;

         2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;

         3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

         4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

         a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

         b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

         c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

         5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

         a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

         b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

         6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date:  April 30, 2003

/s/ Peter Korfer-Schun
-----------------------
Peter Korfer-Schun
Chief Executive Officer



                                      113
<PAGE>


                                  CERTIFICATION

         I, Michael Grimm, certify that:

         1. I have reviewed this annual report on Form 20-F of Grohe Holding
GmbH;

         2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;

         3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report ;

         4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

         a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

         b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

         c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

         5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

         a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

         b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

         6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: April 30, 2003

/s/ Michael Grimm
-----------------------
Michael Grimm
Chief Financial Officer



                                      114
<PAGE>

                 INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
<S>                                                                                                        <C>
     Reports of Independent Public Accountants.................................................            F-2
     Consolidated Statements of Operations for the years ended December 31, 2002, December 31,
         2001 and December 31, 2000............................................................            F-6
     Consolidated Balance Sheets as of December 31, 2002 and December 31, 2001.................            F-7
     Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31,
         2002, December 31, 2001 and December 31, 2000.........................................            F-9
     Consolidated Statements of Cash Flows for the years ended December 31, 2002, December 31,
         2001 and December 31, 2000............................................................           F-10
     Notes to the Consolidated Financial Statements............................................           F-11

SCHEDULE I TO CONSOLIDATED FINANCIAL STATEMENTS................................................           F-58
</TABLE>





                                      F-1
<PAGE>



                          INDEPENDENT AUDITORS' REPORT

To Grohe Holding GmbH:

         We have audited the accompanying consolidated balance sheet of Grohe
Holding GmbH and subsidiaries as of December 31, 2002 and the related statements
of operations, cash flows and changes in shareholders' equity for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of Grohe Holding GmbH
and subsidiaries as of December 31, 2001 and for the years ended December 31,
2001 and 2000 were audited by other auditors who have ceased operations as a
foreign associate of the Securities and Exchange Commission Practice Section of
the American Institute of Certified Public Accountants. Those auditors expressed
an unqualified opinion on those financial statements in their report dated April
23, 2002.

         We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. 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 audit provides a reasonable basis
for our opinion.

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Grohe
Holding GmbH and subsidiaries as of December 31, 2002 and the results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States.

Eschborn/Frankfurt, Germany
April 4, 2003





Ernst & Young AG
Wirtschaftsprufungsgesellschaft





Gross                               Voss
Wirtschaftsprufer                   Wirtschaftsprufer



                                      F-2
<PAGE>


                          INDEPENDENT AUDITORS' REPORT

To Grohe Holding GmbH:

         We have audited the accompanying consolidated balance sheet of Grohe
Holding GmbH and subsidiaries as of December 31, 2001 and the related statements
of operations, cash flows and changes in shareholders' equity for the years
ended December 31, 2001 and 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. 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
present fairly, in all material respects, the financial position of Grohe
Holding GmbH and subsidiaries as of December 31, 2001 and the results of their
operations and their cash flows for the years ended December 31, 2001 and 2000
in conformity with accounting principles generally accepted in the United
States.

Eschborn/Frankfurt, Germany
April 23, 2002





Arthur Andersen
Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft mbH





Gross                               Voss
Wirtschaftsprufer                   Wirtschaftsprufer


This independent auditor's report is a copy of the previously issued report, the
predecessor auditor has not reissued the report.



                                      F-3
<PAGE>


                        INDEPENDENT AUDITOR'S REPORT

To Grohe Holding GmbH:

         We have audited in accordance with US generally accepted auditing
standards, the consolidated financial statements of Grohe Holding GmbH as of
December 31, 2002 and for the year then ended included in this annual report on
Form 20-F and have issued our report thereon dated April 4, 2003. The financial
statements of Grohe Holding GmbH and subsidiaries as of December 31, 2001 and
for the years ended December 31, 2001 and 2000 were audited by other auditors
who have ceased operations as a foreign associate of the Securities and Exchange
Commission Practice Section of the American Institute of Certified Public
Accountants. Those auditors expressed an unqualified opinion on those financial
statements in their report dated April 23, 2002.

         Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index above is
the responsibility of the company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.


Eschborn/Frankfurt, Germany
April 4, 2003





Ernst & Young AG
Wirtschaftsprufungsgesellschaft





Gross                      Voss
Wirtschaftsprufer          Wirtschaftsprufer



                                      F-4
<PAGE>


                        INDEPENDENT AUDITOR'S REPORT

To Grohe Holding GmbH:

         We have audited in accordance with US generally accepted auditing
standards, the consolidated financial statements of Grohe Holding GmbH as of
December 31, 2001 and for the years ended December 31, 2001 and 2000 included in
this annual report on Form 20-F and have issued our report thereon dated April
23, 2002. Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index above is
the responsibility of the company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.



Eschborn/Frankfurt, Germany
April 23, 2002





Arthur Andersen
Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft mbH





Gross                      Voss
Wirtschaftsprufer          Wirtschaftsprufer




This independent auditor's report is a copy of the previously issued report, the
predecessor auditor has not reissued the report.


                                      F-5
<PAGE>



                               GROHE HOLDING GMBH
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)

<TABLE>
<CAPTION>
                                                                     YEAR ENDED       YEAR ENDED       YEAR ENDED
                                                                    DECEMBER 31,     DECEMBER 31,     DECEMBER 31,
                                                          NOTE          2002             2001             2000
                                                          ----          ----             ----             ----

Sales                                                      3            898,262          880,781          855,474
Cost of sales                                                          (517,321)        (512,549)        (512,163)
                                                                        -------          -------          -------
Gross profit                                                            380,941          368,232          343,311
                                                                        -------          -------          -------

Selling, general and administrative expenses               3           (235,314)        (228,196)        (221,498)
Research and development                                                (24,190)         (20,066)         (20,873)
Amortization of goodwill                                                      0          (35,758)         (35,397)
Amortization of tradename                                               (19,341)         (19,341)         (19,124)
                                                                        -------          -------          -------
Total operating expenses                                               (278,845)        (303,361)        (296,892)
                                                                        -------          -------          -------


Operating income                                                        102,096           64,871           46,419

Interest income                                                           3,324            3,367            4,425
Interest expense                                                        (70,407)         (80,328)         (88,437)
Income from equity method investees                                         938              216              579
Financial income (loss) from derivatives                                 23,696          (20,494)          (4,734)
Other income                                                              5,000            7,178            9,915
Other expense                                              4            (13,588)          (9,828)         (12,474)
                                                                        -------          -------          -------

Income (loss) before income taxes,
   minority interests and extraordinary items                            51,059          (35,018)         (44,307)

Income tax (expense) benefit                               5            (26,332)           5,828           28,353

Income (loss) before minority interests
   and extraordinary items                                               24,727          (29,190)         (15,954)

Minority interests                                                       (1,176)            (923)          (2,978)

Net income (loss) before extraordinary items                             23,551          (30,113)         (18,932)

Extraordinary loss net of applicable income taxes of
   (euro)1,767 for the year ended December 31, 2000        6                  0                0           (3,008)
                                                                        -------          -------          -------

Net income (loss)                                                        23,551          (30,113)         (21,940)
                                                                        =======          =======          =======



              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                      F-6
<PAGE>


                               GROHE HOLDING GMBH
                           CONSOLIDATED BALANCE SHEETS
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)

                                                                 NOTE      DECEMBER 31, 2002       DECEMBER 31, 2001
                                                                 ----      -----------------       -----------------
<S>                                                               <C>              <C>                    <C>
Assets

   Current assets
      Cash and cash equivalents                                   3                71,299                 50,277
      Restricted cash                                             3                31,274                 29,950

      Accounts receivable
         Trade accounts receivable less allowance for
            doubtful accounts of(euro)6,455 and(euro)6,708
            at December 31, 2002 and 2001, respectively           3               143,203                154,608
         Due from equity method investees                                           1,810                  2,997
                                                                                ---------              ---------
                                                                                  145,013                157,605
                                                                                ---------              ---------

      Inventories                                                 7               108,195                109,580
      Deferred income taxes                                       5                 5,146                  8,081
      Prepaid expenses                                                              1,498                  2,685
      Land and buildings held for sale                            3                     0                  5,881
      Other current assets                                        8                33,050                 24,067
                                                                                ---------              ---------

            Total current assets                                                  395,475                388,126
                                                                                ---------              ---------



      Investments in equity method investees                                        1,510                    970
      Deferred income taxes                                       5                 1,329                  1,866
      Other noncurrent assets                                     11               22,321                 21,844

      Property, plant and equipment                               9
         Land, buildings and improvements, net                                    129,162                136,123
         Equipment and machinery, net                                              28,309                 41,757
         Other factory and office equipment, net                                   48,274                 49,375
         Advances and construction in process                                      13,261                  7,231
                                                                                ---------              ---------
                                                                                  219,006                234,486
                                                                                ---------              ---------


      Intangible assets                                           10
         Tradename, net                                                           226,817                246,004
         Software and other intangible assets, net                                 11,226                  6,980
         Intangible pension asset                                                     202                    286
                                                                                ---------              ---------
                                                                                  238,245                253,270
                                                                                ---------              ---------

         Goodwill, net                                                            445,011                452,555
                                                                                ---------              ---------

            Total assets                                                        1,322,897              1,353,117
                                                                                =========              =========
</TABLE>


              The accompanying notes are an integral part of these
                       consolidated financial statements.



                                      F-7
<PAGE>


                               GROHE HOLDING GMBH
                     CONSOLIDATED BALANCE SHEETS (CONTINUED)
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)

<TABLE>
<CAPTION>
                                                                   NOTE      DECEMBER 31, 2002      DECEMBER 31, 2001
                                                                   ----      -----------------      -----------------
<S>                                                                 <C>            <C>                     <C>
Liabilities and Shareholders' Equity

   Current liabilities
      Current maturities of long-term debt to banks                 14             73,184                  52,707
      Current maturities of capital leases                          14                656                   1,519
      Short-term debt to banks                                      12              4,054                   4,313

      Trade accounts payable                                                       34,599                  26,511
      Current tax liabilities                                                      16,780                  12,254
      Other accrued expenses and current liabilities                13            142,910                 137,491
                                                                                ---------               ---------

         Total current liabilities                                                272,183                 234,795
                                                                                ---------               ---------

Noncurrent liabilities
      Long-term debt to banks                                       14            279,954                 379,201
      Long-term debt to related parties                             14            133,148                 119,415
      Long-term debt to shareholders                                14             39,526                  35,449
      Bonds                                                         14            200,000                 200,000
      Capital leases                                                14                518                     657
      Pension and similar obligations                               15            152,400                 143,436
      Other accrued expenses and noncurrent liabilities                            16,435                  15,514
      Deferred income taxes                                         5              75,297                  83,037
                                                                                ---------               ---------

         Total noncurrent liabilities                                             897,278                 976,709
                                                                                ---------               ---------

      Commitments and contingencies                                 17

      Minority interests in consolidated subsidiaries                               2,068                   1,845

   Shareholders' equity                                             16
      Share capital                                                                51,374                  51,003
      Additional paid in capital, net of subscription
         receivable of(euro)283 and(euro)267 at
         December 31, 2002 and 2001, respectively                                 163,204                 158,472
      Deferred compensation                                                        (1,788)                      0
      Accumulated deficit                                                         (57,510)                (81,061)
      Accumulated other comprehensive income (loss)                                (3,912)                 11,354
                                                                                ---------               ---------

         Total shareholders' equity                                               151,368                 139,768
                                                                                ---------               ---------

            Total liabilities and shareholders' equity                          1,322,897               1,353,117
                                                                                =========               =========
</TABLE>


              The accompanying notes are an integral part of these
                       consolidated financial statements.



                                      F-8
<PAGE>


                               GROHE HOLDING GMBH
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)


<TABLE>
<CAPTION>
                                                                                                   ACCUMULATED OTHER
                                                                                                  COMPREHENSIVE INCOME
                                                                                                  --------------------

                                                                                                   FOREIGN
                                                              ADDITIONAL                           CURRENCY    MINIMUM    TOTAL
                                                       SHARE   PAID IN     DEFERRED   ACCUMULATED TRANSLATION  PENSION SHAREHOLDERS'
                                               NOTE   CAPITAL  CAPITAL   COMPENSATION   DEFICIT   ADJUSTMENT  LIABILITY   EQUITY
                                               ----   -------  -------   ------------   -------   ----------  ---------   ------
<S>                                            <C>    <C>      <C>             <C>    <C>           <C>           <C>   <C>
Balance at December 31, 1999                          50,893   129,639         0      (29,008)      5,912         0     157,436
   Increase in additional paid in capital
      related to the modification of long-
      term debt to shareholders and related
      parties                                    14             28,626                                                   28,626
   Comprehensive income (loss):
      Net loss                                                                        (21,940)                          (21,940)
      Foreign currency translation adjustment                                                       3,902                 3,902
                                                                                                                        -------
         Total comprehensive loss                                                                                       (18,038)
                                                      ------   ------       ------     ------      ------      ------    ------


Balance at December 31, 2000                          50,893   158,265         0      (50,948)      9,814         0     168,024
                                                      ------   ------       ------     ------      ------      ------    ------


   Capital increase                              16      110      267                                                       377
   Subscription receivable                       16              (267)                                                     (267)
   Treasury share transaction                                      97                                                        97
   Increase in additional paid in capital
      related to long-term debt to shareholders
      and related parties                        14               110                                                       110
   Comprehensive income (loss):
      Net loss                                                                        (30,113)                          (30,113)
      Foreign currency translation adjustment                                                       1,765                 1,765
      Minimum pension liability adjustment       15                                                            (225)       (225)
                                                                                                                         ------
         Total comprehensive loss                                                                                       (28,573)
                                                      ------   ------       ------     ------      ------      ------    ------


Balance at December 31, 2001                          51,003   158,472         0      (81,061)     11,579      (225)    139,768
                                                      ------   ------       ------     ------      ------      ------    ------


   Capital increase                              16      371    1,163                                                     1,534
   Deferred compensation charge                  16             3,569     (3,569)                                             0
   Amortization of deferred compensation                                   1,781                                          1,781
   Comprehensive income (loss):
     Net income                                                                        23,551                            23,551
      Foreign currency translation adjustment                                                     (15,008)              (15,008)
      Minimum pension liability adjustment                                                                     (258)       (258)
                                                                                                                         ------
         Total comprehensive income                                                                                       8,285
                                                      ------   ------       ------     ------      ------      ------    ------


Balance at December 31, 2002                          51,374   163,204    (1,788)     (57,510)     (3,429)     (483)    151,368
                                                      ------   ------       ------     ------      ------      ------    ------
</TABLE>


              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                      F-9
<PAGE>


                               GROHE HOLDING GMBH
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)

<TABLE>
<CAPTION>
                                                           YEAR ENDED       YEAR ENDED      YEAR ENDED
                                                          DECEMBER 31,     DECEMBER 31,    DECEMBER 31,
                                                   NOTE       2002             2001            2000
                                                   ----       ----             ----            ----
<S>                                                 <C>      <C>            <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss)                                         23,551         (30,113)         (21,940)
   Minority interests in income of subsidiaries               1,176             923            2,978
   Extraordinary loss                               6             0               0            4,775
   Adjustments  to reconcile net income (loss) to
      net cash provided by operating activities
      Depreciation of fixed assets                  9        47,872          54,078           55,890
      Amortization of goodwill and tradename        10       19,341          55,099           54,521
      Amortization of software and other
       intangibles                                  10        4,020           3,372            3,588
      Impairment of long-lived assets               3         2,858             765            1,793
      Deferred income taxes                                  (4,418)        (24,116)         (47,437)
      Income from equity method investees                      (938)           (216)            (579)
      Noncash compensation                                    1,781               0                0
      Gains from disposal of long lived assets,
       net                                                     (148)            (34)            (409)
      Changes in fair market value of derivative
         financial instruments without impact on
         cash, net                                  19      (16,119)         13,800                0
      Accrued interest on long-term debt
         to shareholders and related parties        14       17,810          15,962           18,741
   Changes in operating assets and liabilities
      Accounts receivable                                     9,910         (15,578)         (23,417)
      Inventories                                   7        (1,297)         22,287           (6,937)
      Prepaid expenses and other assets                       9,217          54,136          (19,287)
      Accounts payable                                        8,088          (3,835)           4,413
      Pension and similar obligations               15        8,947           3,671            9,347
      Other accrued expenses and liabilities                 11,097         (12,342)          21,241
                                                            -------         -------          -------
NET CASH PROVIDED BY OPERATING ACTIVITIES                   142,748         137,859           57,281
                                                            -------         -------          -------

CASH FLOWS USED FOR INVESTING ACTIVITIES:
      Purchases of property, plant and equipment            (36,549)        (32,510)         (35,774)
      Proceeds from sale of property, plant and
         equipment                                            1,435           2,727            5,444
      Proceeds  from sale of property,  plant and
         equipment to related parties                         1,960               0                0
      Purchases of intangible assets                         (8,222)         (4,165)          (3,777)
      Purchases of shares from minorities                      (206)           (209)         (23,542)
      Dividends received from equity method
         investees                                              398             583                0
                                                            -------         -------          -------
NET CASH USED FOR INVESTING ACTIVITIES                      (41,184)        (33,574)         (57,649)
                                                            -------         -------          -------

CASH FLOWS USED FOR FINANCING ACTIVITIES:
   (Increase) decrease in restricted cash           3        (1,324)          7,667          (30,295)
   Increase (decrease) in short-term debt to
         banks                                      12           36               0             (196)
   Decrease in short-term debt to related parties   12            0               0           (1,301)
   Proceeds from issuance of long-term debt
      to shareholders and related parties           14            0             378                0
   Proceeds from issuance of long-term debt to
      banks                                         14            0               0           98,522
   Principal payments on long-term debt to banks    14      (79,722)       (108,216)        (314,147)
   Proceeds from issuance of bonds                  14            0               0          200,000
   Proceeds from issuance of shares                 16        1,534             110                0
   Purchase of treasury shares                      16            0            (905)               0
   Sale of treasury shares                          16            0           1,002                0
   Dividends paid to minorities                                 (22)            (52)            (746)
                                                            -------         -------          -------
NET CASH USED FOR FINANCING ACTIVITIES                      (79,498)       (100,016)         (48,163)
                                                            -------         -------          -------
   Effect of foreign exchange rate changes on
         cash and cash equivalents                           (1,044)           (234)             159
NET INCREASE (DECREASE) IN CASH AND CASH
   EQUIVALENTS                                               21,022           4,035          (48,372)

CASH AND CASH EQUIVALENTS
   AT BEGINNING OF YEAR                                      50,277          46,242           94,614
   AT END OF YEAR                                            71,299          50,277           46,242

Supplemental disclosure of cash flow information
   Interest paid                                             49,388          67,098           73,973
   Income taxes paid (benefits received), net                21,485         (34,409)          18,870
   Other payments to related parties                          1,273           1,153            3,349
</TABLE>


              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                      F-10
<PAGE>


                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------

NOTE 1. THE COMPANY

Grohe Holding GmbH (`Grohe', `Grohe Holding' or `the Company') with its
corporate headquarters in Hemer (Germany) was formed as a limited liability
company under German law and registered with the Commercial Register on July 9,
1999 (date of inception).

Grohe and its subsidiaries form a group of companies (`Grohe Group') engaged in
the manufacturing and distribution of sanitary fittings, concentrating on the
medium- and high-end of the sanitary products market. Grohe designs,
manufactures and markets an extensive range of (1) sanitary fittings, such as
faucets, showerheads and related accessories, and shower systems, and (2)
sanitary technology products, such as flushing and installation systems and
water management systems.

Grohe's brand strategy focuses on a single global brand, GROHE, under which it
markets the product ranges: GROHEART, GROHETEC, SANITARYSYSTEMS, SHOWERS AND
SHOWER SYSTEMS, AND KITCHEN FITTINGS. The GROHEART product range consists of
high-end sanitary fittings and accessories. The GROHETEC product range consists
of medium-end sanitary fittings and accessories. SANITARYSYSTEMS consists of
flushing and installation systems.

The Company's main customers are sanitary wholesalers who sell sanitary products
to the respective retailers. Grohe's major markets are Germany, rest of Europe,
North America, the Middle East and the Far East.

NOTE 2. FORMATION AND BASIS OF PRESENTATION

Grohe Holding was formed in 1999 to acquire Friedrich Grohe AG. At December 31,
1999 Grohe Holding had acquired 96.9% of the shares of Friedrich Grohe AG.
Subsequently, Friedrich Grohe AG was converted into Friedrich Grohe AG & Co. KG
in the year 2000. Grohe Holding acquired further nonvoting preferred shares from
minority shareholders in different transactions in 2000. The purchase price paid
for the acquisitions in 2000 totaled (euro)23,542. Goodwill arising from the
acquisitions in 2000 totaled (euro)9,348 and as a result the economic ownership
of Friedrich Grohe AG & Co. KG increased from 96.9% as of December 31, 1999 to
99.6% as of December 31, 2000.

The accompanying consolidated financial statements of the Company have been
prepared in accordance with United States generally accepted accounting
principles ("US GAAP").

The Company maintains its financial records in accordance with the German
Commercial Code, which represents accounting principles generally accepted in
Germany ("German GAAP"). Generally accepted accounting principles in Germany
vary in certain significant respects from US GAAP. Accordingly, the Company has
recorded certain adjustments in order that these financial statements are in
accordance with US GAAP.

The assets, liabilities and results of operations of entities in which the
Company has a controlling interest have been consolidated. Investments in which
the Company exercises significant influence, but which it does not control
(generally 20-50% ownership interest) are accounted for under the equity method
of accounting. All significant intercompany accounts and transactions have been
eliminated. Minority interests represent the shares held by outside shareholders
in the fully consolidated companies.

Minority interests represent the 0.4% separate ownership in Friedrich Grohe AG &
Co. KG and Friedrich Grohe AG & Co. KG's wholly owned subsidiaries, the 26.3%
separate ownership in Grohe Siam Ltd.,



                                      F-11
<PAGE>

                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------

Klaeng, the 0.8% separate ownership in AQUA Butzke GmbH (formerly Aqua
Butzke-Werke AG), Ludwigsfelde, and the 30.3% separate ownership in Rotter GmbH
& Co. KG and Rotter Verwaltungsgesellschaft mbH, Berlin, as of December 31, 2002
and 2001.

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

The preparation of financial statements in conformity with US GAAP requires the
management of the Company to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.

REPORTING CURRENCY AND FOREIGN CURRENCY TRANSLATION

The Company's previous reporting currency was the deutsche mark ("DM"). On
January 1, 2001 it determined that its reporting currency should be the euro. It
has therefore restated all periods ended prior to January 1, 2001 as if the euro
was its reporting currency prior to that date.

Effective January 1, 1999 the exchange rate between national currencies of the
euro participating countries, including Germany, were irreversibly fixed against
the euro. Balances at January 1, 1999 have been restated into euro using the
fixed exchange rate of DM 1.95583 to the euro and the financial statements for
the year ending December 31, 2000 have been restated into euro using that fixed
exchange rate.

The Company follows the translation policy as provided by Statement of Financial
Accounting Standards Board SFAS No. 52, "Foreign Currency Translation". The
functional currency of each of the subsidiaries is the currency of the primary
economic environment in which the subsidiary operates, generally the local
currency of the country in which the subsidiary is located. Accordingly, assets
and liabilities of the foreign subsidiaries are translated at the rate of
exchange at the balance sheet dates. Income and expense items are translated at
the average exchange rate prevailing throughout the year. Adjustments to prior
year's translation of assets and liabilities and translation differences between
the balance sheet and the income statement are included in accumulated other
comprehensive income in the consolidated financial statements.

Transactions denominated in foreign currencies are recorded in euro at the rate
of exchange in effect at the date of the transaction and are subsequently
adjusted to the exchange rate in effect at the balance sheet date or settlement
date, if earlier, which resulted in foreign currency transaction gains of
(euro)2,826, (euro)4,365 and (euro)4,673 and losses of (euro)10,660,
(euro)3,314, and (euro)844 for the years ended December 31, 2002, 2001 and 2000,
respectively. These gains and losses have been included in other income or other
expense of the respective periods. Net gains and (losses) from currency
derivatives of (euro)27,952, (euro)(15,438) and (euro)(1,915) are recognized in
financial income from derivatives for the years ended December 31, 2002, 2001
and 2000, respectively. Total net currency gains or (losses) amounted to
(euro)20,118, (euro)(14,387) and (euro)1,914 in the years ended December 31,
2002, 2001 and 2000, respectively.



                                      F-12
<PAGE>

                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------

The exchange rates of the currencies of the European Monetary Union member
states used in the consolidated financial statements correspond to the fixed
euro conversion rates since January 1, 1999. The exchange rates of other
significant currencies reflected in the consolidated financial statements are as
follows:

<TABLE>
<CAPTION>
                                                              Euro exchange rates at
                                                              ----------------------
                                                  December 31, 2002          December 31, 2001
                                                  -----------------          -----------------
<S>                                                        <C>                     <C>
     1  US dollar                                          0.96                    1.13
     1  Canadian dollar                                    0.61                    0.71
     1  pound sterling                                     1.53                    1.64
   100  Singapore dollar                                  55.11                   60.98
   100  Thailand baht                                      2.12                    2.44
   100  Japanese yen                                       0.80                    0.86
</TABLE>



<TABLE>
<CAPTION>
                                                          Euro average exchange rates
                                                          ---------------------------
                                               Year ended          Year ended          Year ended
                                              December 31,        December 31,        December 31,
                                                  2002                2001                2000
                                                  ----                ----                ----
<S>                                               <C>                  <C>                 <C>
     1  US dollar                                 1.06                 1.11                1.08
     1  Canadian dollar                           0.68                 0.72                0.73
     1  pound sterling                            1.59                 1.61                1.64
   100  Singapore dollar                         59.27                62.27               62.44
   100  Thailand baht                             2.36                 2.39                2.58
   100  Japanese yen                              0.85                 0.92                1.01
</TABLE>

CASH AND CASH EQUIVALENTS

All highly liquid investments with original maturities of three months or less
are considered to be cash equivalents. The carrying amounts of cash and cash
equivalents approximate fair value due to the short maturity of these
investments.

RESTRICTED CASH

Pursuant to the Company's senior credit facility agreement, the Company has
agreed to deposit certain cash amounts into a bank account, from which no
withdrawals can be made by the Company other than in accordance with the above
agreements without written consent from the bank administering the above credit
facility.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

Management regularly assesses collectability of accounts receivable and an
allowance for doubtful accounts is provided for risk of non-collectability of
receivables. The allowance for doubtful accounts, deducted from accounts
receivable in the balance sheet, developed as follows:



                                      F-13
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                    Additions
                                                    Balance at      charged to                     Balance at
                                                     beginning      costs and                          end
                                                     of period       expenses      Deductions       of period
                                                     ---------       --------      ----------       ---------
<S>                                                   <C>              <C>            <C>            <C>
Year ended December 31, 2000                          5,195            1,250          (690)          5,755
Year ended December 31, 2001                          5,755            2,558        (1,605)          6,708
Year ended December 31, 2002                          6,708            1,927        (2,180)          6,455
</TABLE>

Deductions comprise of uncollectable accounts written off, less recoveries of
accounts written off in prior years.

INVENTORIES

Inventories consist of raw materials and supplies, work in process, finished
goods, and goods purchased for resale. Inventories are shown at the lower of
cost or market. Actual cost, using the weighted average method, is used to
recognize raw materials and supplies, and goods purchased for resale.
Manufacturing cost is used to value finished goods and work in process.
Manufacturing cost includes direct labor, raw materials and manufacturing
overhead. Obsolete, damaged and excess inventories are carried at the lower of
cost or net realizable value.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at acquisition cost and depreciated
using the straight-line method over the estimated useful life of the assets,
ranging from 3 to 7 years for computer hardware, 3 to 8 years for plant and
machinery, 3 to 10 years for other factory and office equipment and 25 to 40
years for buildings.

Cost includes major expenditures and replacements which extend useful lives or
increase capacity; maintenance and repair costs are expensed as incurred. When
assets are sold or retired, their cost and related accumulated depreciation are
removed from the appropriate accounts. Any gains or losses on disposition of
such assets are recorded as other income/expenses. Fully depreciated assets are
retained in tangible fixed assets and depreciation accounts until they are
removed from service.

Property, plant and equipment with immaterial acquisition cost are expensed as
incurred.

Property held for future development, which consists of land intended to be used
for further expansion of existing plants, is recorded at the lower of cost or
market, amounting to (euro)1,824 as of December 31, 2002 and 2001.

INTANGIBLES

Purchased intangible assets, other than goodwill, are initially recognized at
acquisition cost. Intangible assets with a definite useful life are amortized
over their respective estimated useful lives and reviewed for impairment in
accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" (see below). The useful live is determined separately for
each asset and ranges from 3 to 5 years for software and 15 years for tradename.



                                      F-14
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------


Prior to the adoption of SFAS No. 142, "Goodwill and Other Intangible Assets",
goodwill derived from acquisitions that were completed before July 1, 2001, was
capitalized and amortized over a period of 15 years. Goodwill acquired in
business combinations after June 30, 2001, and intangible assets determined to
have an indefinite useful life acquired after June 30, 2001, are not amortized
in accordance with SFAS No. 142. Goodwill acquired in business combinations that
were completed before July 1, 2001, and intangible assets with an indefinite
useful life acquired before July 1, 2001, were amortized until December 31,
2001. The recoverability of goodwill is evaluated at least annually or when
significant events occur or there are changes in circumstances that indicate the
fair value of one of Grohe's reporting units is less than its carrying value.
Grohe determines the fair value of each of its reporting units by estimating the
present value based on cash flows.

The Company consistently applies AICPA Statement of Position (SOP) 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use". External direct costs of material and services consumed in
developing or obtaining internal use computer software, payroll and payroll
related costs for employees associated with the internal use software project
incurred in the development stage have been capitalized and are amortized on a
straight-line basis over 3 to 5 years.

OTHER NONCURRENT ASSETS

Cost related to the issuance of debt are treated as a deferred charge and
classified as a noncurrent asset. Debt issuance costs are amortized over the
lives of the related debt using the effective interest method and classified as
interest expense in the statement of operations.

ACCRUED LIABILITIES

The valuations of pension liabilities and other post-retirement benefit
obligations are based upon the projected unit credit method in accordance with
SFAS No. 87, "Employers' Accounting for Pensions", and SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions", respectively.

Accrued liabilities for contingencies are recognized when an obligation to a
third party has been incurred, the payment is probable and the amount can be
reasonably estimated.

INCOME TAXES

The Company utilizes the liability method of accounting for income taxes in
accordance with SFAS No. 109, "Accounting for Income Taxes". Under the liability
method, deferred taxes are determined based on the differences between the
financial statements and tax basis of assets and liabilities using enacted tax
rates in effect in the years in which the differences are expected to reverse.
Valuation allowances are recorded to reduce deferred tax assets when it is more
likely than not that a tax benefit will not be realized.

SHARE-BASED COMPENSATION

The Company follows Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25) and the related interpretations in
accounting for share-based employee compensation. The Company includes pro forma
information in NOTE 16, as required by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123).



                                      F-15
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------


PER SHARE INFORMATION

Under a limited liability company in accordance with German law ("GmbH") the
equity interests of the shareholders in the Company are not represented by a
number of equal shares. Accordingly there is no per share amount assignable to
Grohe Holding GmbH for the years ended December 31, 2002, 2001 and 2000.

FAIR VALUE OF FINANCIAL INSTRUMENTS AND ACCOUNTING FOR DERIVATIVE FINANCIAL
INSTRUMENTS AND HEDGING ACTIVITIES

SFAS No. 105, "Disclosure of Information about Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentration of Credit
Risk", SFAS No. 107, "Disclosures About Fair Value of Financial Instruments",
and SFAS No. 119, "Disclosures About Derivative Financial Instruments and Fair
Value Financial Instruments", require disclosure of information with respect to
fair values and nature and terms of financial instruments whether or not
recognized in the consolidated balance sheets. SFAS No. 105 and SFAS No. 119
have been superseded by SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", for all fiscal years beginning after June 15, 2000.
Effective January 1, 2001 Grohe adopted SFAS No. 133 as amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
effective Date of FASB Statement No. 133", and SFAS No. 138, "Accounting for
certain Derivative Instruments and certain Hedging Activities". SFAS No. 133
requires that all derivative instruments be recorded in the consolidated balance
sheet at fair value. Changes in the fair value of derivatives shall be recorded
each period in earnings or other comprehensive income, depending on whether a
derivative is designated as a part of a hedge transaction and, if it is, the
type of hedge transaction. The adoption of SFAS No. 133 and SFAS No. 138 did not
have a material effect on the Company's financial statements.

Information about the fair value of our financial instruments is set forth in
NOTE 19 "Financial instruments".

The Company is exposed to risks from changes in interest rates due to its use of
financial instruments such as bonds and long-term debt to banks. Grohe uses
interest rate derivatives to reduce the risk of interest rate changes on the
Company's cash flow.

The Company is in business in approximately 130 countries outside the European
Union and operates in more than 10 currencies. During the year ended December
31, 2002, Grohe generated approximately 30% of its revenues in currencies other
than the euro. Since production costs are mainly measured in euro the risk from
foreign currency exposure is essentially related to sales denominated in foreign
currencies. The currency exposure relates primarily to the US dollar and to a
lesser extent to the Japanese yen and British pound, resulting from sales to the
United States, the Middle and Far East, Japan, and the United Kingdom. Currency
exposure from sales in other currencies is insignificant.

It is the Company's exchange risk management policy to mitigate the economic
risk from exchange rate fluctuations on foreign currency denominated sales by
entering into hedging transactions. The Company reduces the risk on cash flows
from anticipated sales and accounts receivable in foreign currencies by entering
foreign currency derivative contracts to sell the foreign currency amounts which
will be received from sales in foreign currencies at a fixed euro to foreign
currency exchange rate. This policy has been set up to enable management to plan
future euro cash flows from sales and related accounts receivable. The maximum
length of time to hedge the exposure from forecasted sales is twelve months. The
derivative contracts entered by us may exceed this twelve months period by the
expected collection period of up to



                                      F-16
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------


six months for the related accounts receivable as we may use the same contract
to hedge the currency exposure from sales transactions and the currency exposure
from accounts receivable resulting from that sales transactions. In the year
2002 management decided to economically hedge 12 months of anticipated sales as
actual exchange rates were higher than budgeted exchange rates.

Derivative instruments are not designated as accounting hedges of specific
assets, liabilities, or firm commitments. Derivative instruments are therefore
marked to market and any resulting gain or loss was recognized in income.

REVENUE RECOGNITION

Revenues are mainly generated through sales of finished products and further
through sales of goods purchased for resale.

Revenues from the sales of finished products and goods purchased for resale are
recognized when persuasive evidence of an arrangement exists, delivery of the
products has occurred, the price for the transaction is fixed or determinable,
and collectability is reasonably assured. Revenues are recognized net of sales
incentives such as discounts, customer bonuses and rebates granted. Sales
incentives are recognized as a reduction of revenue at the later of (1) the date
at which the related revenue is recorded or (2) the date the sales incentive is
offered. Shipping and handling fees billed to customers, if any, are recognized
as revenues when the goods are shipped. Shipping costs are classified as selling
costs and amounted to (euro)16,202, (euro)14,458 and (euro)13,828 for the years
ended December 31, 2002, 2001 and 2000, respectively. Costs incurred for
handling are recorded as selling expense and amounted to (euro)9,810,
(euro)10,100 and (euro)9,228 for the yeaRs ended December 31, 2002, 2001 and
2000, respectively.

ADVERTISING COSTS

Advertising costs are expensed as incurred. Advertising costs were (euro)38,746,
(euro)40,618 and (euro)36,212 for the years ended December 31, 2002, 2001 and
2000, respectively.

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentrated
credit risks consist primarily of cash and trade receivables. Concentration of
credit risk with respect to accounts receivable is limited because a large
number of customers in the individual sales regions make up the companies
customer base, thus spreading the credit risk. The counterparties for financial
instruments are major financial institutions. Although in case of failure of
these financial institutions the theoretical risk is the replacement cost of the
estimated fair value of the financial instruments, management believes, that the
risk of incurring losses is remote and that such losses, if any, would be
immaterial.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 141 requires that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001.

Grohe adopted the provisions of SFAS No. 141 and SFAS No. 142 as of July 1, 2001
and January 1, 2002, respectively. SFAS No. 142 required Grohe to evaluate its
existing intangible assets and goodwill



                                      F-17
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------


and to make any necessary reclassifications in order to conform with the new
separation requirements at the date of adoption.

SFAS No. 142 also prohibits the scheduled amortization of goodwill and
indefinite life intangible assets. Instead, goodwill and indefinite life
intangible assets will be tested for impairment at least annually and on an
interim basis when an event occurs or circumstances change between annual tests
that would more-likely-than-not result in impairment. Under SFAS No. 142,
goodwill is assessed for impairment by using a fair value based method. The
Company determines fair value by utilizing discounted cash flows. The fair value
test required by SFAS No. 142 for goodwill and indefinite lived intangible
assets includes a two-step approach. Under the first step, companies must
compare the fair value of a "reporting unit" to its carrying value. A reporting
unit is the level at which goodwill impairment is measured and it is defined as
an operating segment or one level below it if certain conditions are met. If the
fair value of the reporting unit is less than its carrying value, goodwill is
impaired and companies must proceed with step two. Under step two, the amount of
goodwill impairment is measured by the amount that the reporting unit's goodwill
carrying value exceeds the "implied" fair value of goodwill. The implied fair
value of goodwill can only be determined by deducting the fair value of all
tangible and intangible net assets (including unrecognized intangible assets) of
the reporting unit from the fair value of the reporting unit (as determined in
step 1). In this step, companies must allocate the fair value of the reporting
unit to all of the reporting unit's assets and liabilities (a hypothetical
purchase price allocation).

Goodwill acquired in business combinations completed before July 1, 2001 was
amortized until December 31, 2001. Beginning January 1, 2002, goodwill is no
longer amortized. In connection with the transitional impairment evaluation,
SFAS No. 142 required Grohe to perform an assessment of whether there was an
indication that goodwill is impaired as of January 1, 2002. Grohe completed the
first step of the transitional assessment for all of the Company's reporting
units and determined there was no indication that goodwill had been impaired as
of January 1, 2002. Accordingly, no transitional goodwill impairment charge was
necessary. Grohe performed the first annual goodwill impairment test as of July
1, 2002 and there was no indication of goodwill being impaired as of that date.

SFAS No. 142 requires pro forma disclosure as if SFAS No. 142 had been in effect
in 2001 and 2000. Grohe's income before extraordinary items and net income would
have been as stated below due to reduced goodwill amortization:

<TABLE>
<CAPTION>
                                                                     Year ended       Year ended      Year ended
                                                                    December 31,     December 31,    December 31,
                                                                        2002             2001            2000
                                                                        ----             ----            ----
<S>                                                                    <C>              <C>            <C>
Reported net income (loss) before extraordinary items                  23,551           (30,113)       (18,932)
Add back: Goodwill amortization, net of income tax effects
   of (euro)5,105 and(euro)5,105 in the years
   ended December 31, 2001 and 2000, respectively                           0            30,653         30,292
---------------------------------------------------------------------------------------------------------------------
Adjusted net income before extraordinary items                         23,551               540         11,360
---------------------------------------------------------------------------------------------------------------------
</TABLE>



                                      F-18
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                       Year ended      Year ended      Year ended
                                                                      December 31,    December 31,    December 31,
                                                                          2002            2001            2000
                                                                          ----            ----            ----
<S>                                                                      <C>             <C>             <C>
Reported net income (loss)                                               23,551          (30,113)        (21,940)
Add back: Goodwill amortization, net of income tax effects
   of (euro)5,105 and(euro)5,105 in the years
   ended December 31, 2001 and 2000, respectively                             0           30,653          30,292
---------------------------------------------------------------------------------------------------------------------
Adjusted net income                                                      23,551              540           8,352
---------------------------------------------------------------------------------------------------------------------
</TABLE>

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". The statement applies to legal obligations associated with the
retirement of tangible long-lived assets that result from the acquisition,
construction, development and (or) the normal operation of a long-lived asset,
except for certain obligations of lessees. SFAS No. 143 requires that the fair
value of a liability for an asset retirement obligation be recognized in the
period in which it is incurred if a reasonable estimate of fair value can be
made. The associated asset retirement costs are capitalized as part of the
carrying amount of the long-lived asset and subsequently allocated to expense
over the asset's useful life. Grohe adopted SFAS No. 143 on January 1, 2003. The
adoption of SFAS No. 143 did not have a material impact on Grohe's financial
statements.

Until December 31, 2001 the Company periodically evaluated the recoverability of
the carrying amounts of its long-lived assets including goodwill in accordance
with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of". SFAS No. 121 was superseded by SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (excluding
goodwill), which the Company adopted on January 1, 2002. The adoption of SFAS
No. 144 did not have a material impact on Grohe's financial position or results
of operations. SFAS No. 144 retains the requirement to recognize an impairment
loss only if the carrying amounts of long-lived assets to be held and used are
not recoverable from their expected undiscounted future cash flows. An
impairment of assets to be held and used is measured as the amount by which the
carrying amount of the assets exceeds the fair value of the assets. SFAS No. 144
requires that a long-lived asset to be abandoned, exchanged for a similar
productive asset, or distributed to owners in a spin-off be considered held and
used until it is disposed. SFAS No. 144 requires the depreciable life of an
asset to be abandoned be revised. SFAS No. 144 requires all long-lived assets to
be disposed of by sale be recorded at the lower of its carrying amount or fair
value less cost to sell and to cease depreciation (amortization). Therefore,
discontinued operations are no longer measured on a net realizable value basis,
and future operating losses are no longer recognized before they occur. Fair
values of assets have been determined on the basis of comparable transactions or
expert appraisals.

In the years ended December 31, 2002 and 2000 the Company recorded impairment
losses related to land and buildings to be held and used of (euro)2,328 and
(euro)1,793, respectively, which were included in cost of sales. Impairment
losses related to land and buildings to be disposed of by sale amounted to
(euro)530 and (euro)765 in the years ended December 31, 2002 and 2001,
respectively, and were included in general and administrative expenses.
Impairment charges relate to decreases in market value associated with two
former production sites and training centers of the Company. One of these sites
was sold in January 2001, the other in June 2002 (NOTE 18). In 2002 the Company
adopted a plan to centralize production of three smaller production sites at its
larger facilities. In 2002 impairment charges also relate to two of these three
smaller production facilities, which are still recorded as to be held and used
at year end 2002. Impairment losses in all periods presented relate only to the
Germany and direct exports segment of the Company.



                                      F-19
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------


In May 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections". SFAS
No. 145 rescinds the automatic treatment of gains or losses from extinguishment
of debt as extraordinary unless they meet the criteria for extraordinary items
as outlined in APB Opinion No. 30, "Reporting the Results of Operations,
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions". SFAS No. 145 also
requires sale-leaseback accounting for certain lease modifications that have
economic effects that are similar to sale-leaseback transactions and makes
various technical corrections to existing pronouncements. The provisions of SFAS
No. 145 related to the rescission of FASB Statement 4 are effective for fiscal
years beginning after May 15, 2002, with early adoption encouraged. All other
provisions of SFAS No. 145 are effective for transactions occurring after May
15, 2002, with early adoption encouraged. Grohe adopted the provisions of SFAS
No. 145 related to the rescission of FASB Statement 4 as of January 1, 2003. All
other provisions of SFAS No. 145 were adopted as of January 1, 2002 and did not
have a material impact on Grohe's financial statements.

In June 2002 the FASB issued SFAS No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities". SFAS No. 146 requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than
at the date of a commitment to an exit or disposal plan. Examples of costs
covered by the standard include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. Previous
accounting guidance was provided by EITF Issue No. 94-3, "Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." Statement 146 replaces
EITF Issue 94-3. The principal effect of applying SFAS No. 146 will be on the
timing of recognition of costs associated with exit or disposal activities. In
many cases, those costs will be recognized as liabilities in periods following a
commitment to a plan, not at the date of the commitment. The Company is required
to adopt the provisions of SFAS No. 146 for exit or disposal activities
initiated after December 31, 2002.

In November 2002, the FASB issued FASB Interpretation (FIN) No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others - an interpretation of FASB statements 5,
57, and 107 and rescission of FASB Interpretation 34." This interpretation
elaborates on the disclosures to be made by a guarantor in its financial
statements about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The initial recognition and initial measurement
provisions of FIN 45 are applicable on a prospective basis to guarantees issued
or modified after December 31, 2002. Grohe does not expect that FIN 45 will have
a material impact on the Company's financial statements. The disclosure
requirements in FIN 45 are effective for financial statements of interim or
annual periods ending after December 15, 2002 and have been adopted by the
Company.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement No.
123." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based
Compensation" to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 requires more prominent disclosures in
both interim and annual financial statements about the method of accounting used
for stock-based employee compensation and the effect of the method used on
reported results. Grohe applies APB 25 that uses an intrinsic value based
approach to measure compensation expense.



                                      F-20
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------


NOTE 4. OTHER EXPENSE

Other expense is comprised of the following:

<TABLE>
<CAPTION>
                                                      Year ended         Year ended          Year ended
                                                     December 31,       December 31,        December 31,
                                                         2002               2001                2000
                                                         ----               ----                ----
<S>                                                          <C>             <C>                <C>
Professional services                                        0               4,071              4,062
Real estate transfer tax                                 1,300                   0              3,579
Currency losses                                         10,660               3,314                844
Miscellaneous                                            1,628               2,443              3,989
------------------------------------------------------------------------------------------------------------
                                                        13,588               9,828             12,474
------------------------------------------------------------------------------------------------------------
</TABLE>


NOTE 5. INCOME TAXES

The geographic components of income (loss) before income taxes, minority
interests and extraordinary items are as follows:

<TABLE>
<CAPTION>
                                                       Year ended         Year ended         Year ended
                                                      December 31,       December 31,       December 31,
                                                          2002               2001               2000
                                                          ----               ----               ----
<S>                                                       <C>               <C>                <C>
Income (loss) before income taxes,
   minority interests and extraordinary items
      Germany                                             (10,057)          (76,846)           (66,582)
      Foreign                                              61,116            41,828             22,275
------------------------------------------------------------------------------------------------------------
                                                           51,059           (35,018)           (44,307)
------------------------------------------------------------------------------------------------------------
</TABLE>


The income tax expense (benefit) consists of the following:

<TABLE>
<CAPTION>
                                                     Year ended          Year ended         Year ended
                                                    December 31,        December 31,       December 31,
                                                        2002                2001               2000
                                                        ----                ----               ----
<S>                                                     <C>                 <C>                <C>
Current taxes
      Germany                                           9,628               1,348              6,231
      Foreign                                          21,121              16,942             10,858
------------------------------------------------------------------------------------------------------------
                                                       30,749              18,290             17,089
------------------------------------------------------------------------------------------------------------
Deferred taxes
      Germany                                          (4,387)            (25,490)           (47,279)
      Foreign                                             (30)              1,372              1,837
------------------------------------------------------------------------------------------------------------
                                                       (4,417)            (24,118)           (45,442)
------------------------------------------------------------------------------------------------------------
                                                       26,332              (5,828)           (28,353)
------------------------------------------------------------------------------------------------------------
</TABLE>


                                      F-21
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------


Until December 31, 2000 German corporate tax law applied a split-rate with
regard to the taxation of the income of a corporation. A higher "undistributed"
tax rate was applied to income generated but not distributed to shareholders. In
accordance with the tax law in effect for the year ended December 31, 2000
income was initially subject to a federal corporate tax rate of 40.0% plus
solidarity surcharge of 5.5% on federal taxes payable. Taking the impact of the
surcharge into consideration the federal corporate income tax rate amounted to
42.2%. Upon distribution, the Company was entitled to a tax refund for the
difference between the undistributed and the lower "distributed" tax rate of
30.0%. Accordingly, a tax credit was recorded for differences between the
undistributed and distributed tax rates in the period in which income was
distributed to shareholders, and the related deduction was claimed on the
Company's tax return. Taking the impact of the surcharge into consideration the
Federal corporate income tax rate amounted to 31.7% for distributed earnings in
fiscal year 2000.

Prior to calculating corporate tax, trade tax on income is to be deducted from
the taxable income. Trade tax rates vary from city to city. The weighted average
tax rate for trade taxes applicable for Grohe is 16.0%. Including the expense
effect of the trade tax on corporate income tax the combined tax rate amounted
to 51.4% for undistributed income and 42.6% for distributed income for the year
ended December 31, 2000.

In October 2000, the German parliament passed a new legislation that reduced the
corporate income tax rate for all corporations in Germany from 40.0% to 25.0%
effective January 1, 2001. The lower rate for distributed profits was abolished.
Including the impact of the solidarity surcharge the enacted federal corporate
income tax rate amounts to 26.4% effective January 1, 2001. Including trade tax
the total income tax rate for years subsequent to December 31, 2000 is assumed
to be 38.2%.

In the third quarter 2002 the tax laws were changed to increase the corporate
tax rate for the year 2003 to 26.5%. This tax rate only applies to fiscal year
2003, thereafter, the tax rate will be reduced to 25% again. The increase of the
corporate tax rate for 2003 results in an effective tax rate including trade tax
and solidarity surcharge of 39.5% for fiscal year 2003.

The tax rate of 38.2% was applied to determine applicable deferred tax assets
and deferred tax liabilities of German Grohe Group companies as of December 31,
2001 and 2000. The tax rate of 39.5% was applied to determine applicable
deferred tax assets and deferred tax liabilities of German Grohe Group companies
as of December 31, 2002 if those tax assets and liabilities are expected to be
realized within the year 2003 and the tax rate of 38.2% was applied to determine
applicable deferred tax assets and deferred tax liabilities if those tax assets
and liabilities are expected to be realized in fiscal year 2004 or thereafter.

For foreign Group companies the applicable effective foreign tax rates are used
to determine deferred taxes.



                                      F-22
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------


A reconciliation of income taxes determined using the German corporate tax rate
of 26.4% plus the rate for trade taxes of 11.8% taking the respective tax
deductibility for corporate taxes into consideration resulting in a combined
statutory rate of 38.2% for the years ended December 31, 2002 and 2001 and a
reconciliation of income taxes determined using the German corporate tax rate of
42.2% plus the rate for trade taxes of 9.2% taking the respective tax
deductibility for corporate tax benefits into consideration resulting in a
combined statutory rate of 51.4% for the year ended December 31, 2000 is as
follows:

<TABLE>
<CAPTION>
                                                         Year ended       Year ended       Year ended
                                                        December 31,     December 31,     December 31,
                                                            2002             2001             2000
----------------------------------------------------------------------------------------------------------
<S>                                                       <C>             <C>                <C>
Expected income tax expense (benefit)                     19,507          (13,377)           (22,773)
----------------------------------------------------------------------------------------------------------
Effects of changes in German tax rates                       367                0            (13,304)
Tax benefit from change in tax status
   of subsidiaries                                             0           (2,855)                 0
Tax effects from dividend distributions
   from German subsidiaries                                    0           (2,228)            (2,621)

Amortization of non tax-deductible goodwill                    0            9,343             11,198
Effect of other non tax-deductible expenses                4,386            4,145              3,325
Changes in valuation allowances on
   deferred tax assets                                     1,999              652                  0
Foreign tax rate differential, net                        (2,737)            (976)            (3,041)
Tax on undistributed retained earnings in foreign
subsidiaries                                               1,559              510                115
Other                                                      1,251           (1,042)            (1,252)
----------------------------------------------------------------------------------------------------------
Actual income tax expense (benefit)                       26,332           (5,828)           (28,353)
----------------------------------------------------------------------------------------------------------
</TABLE>

Deferred tax assets and liabilities are summarized as follows:

<TABLE>
<CAPTION>
                                                     December 31,   December 31,
                                                         2002           2001
                                                         ----           ----
<S>                                                     <C>             <C>
Inventories                                             8,398           7,184
Pension liabilities                                     8,553           8,409
Other accrued liabilities                               5,549           4,587
Derivatives                                             2,632           3,663
Net operating loss carryforwards                       49,656          39,353
Receivables                                             1,705               0
Property, plant and equipment                           2,014             103
Other                                                   1,306           1,389
-----------------------------------------------------------------------------------
Deferred tax assets                                    79,813          64,688
-----------------------------------------------------------------------------------
Valuation allowances                                   (6,710)         (4,711)
-----------------------------------------------------------------------------------
Deferred tax assets, net of valuation allowance        73,103          59,977
-----------------------------------------------------------------------------------
Property, plant and equipment                         (13,572)        (13,068)
Intangible assets                                     (65,730)        (63,476)
Derivatives                                            (5,390)           (548)
Debt issuance cost                                     (2,695)         (3,234)
Loans                                                 (50,423)        (52,199)
Other accrued liabilities                              (1,326)           (171)
Receivables                                              (717)              0
Other                                                  (2,072)           (371)
-----------------------------------------------------------------------------------
Deferred tax liabilities                             (141,925)       (133,067)
-----------------------------------------------------------------------------------

-----------------------------------------------------------------------------------
Net deferred tax liabilities                          (68,822)        (73,090)
-----------------------------------------------------------------------------------
</TABLE>



                                      F-23
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------


At December 31, 2002 and 2001, the Grohe Group had German corporate tax net
operating loss carryforwards of (euro)174,882 and (euro)137,228 and foreign
corporate tax net operating loss carryforwards of (euro)11,091 and (euro)9,951
and German trade tax net operating loss carryforwards of (euro)1,728 and
(euro)616, respectively. The deferred tax assets, which have been set up for
these net operating loss carryforwards, have been reduced by a valuation
allowance if it is more likely than not, that some portion or all of the
deferred tax asset will not be realized in the future. Depending upon changes in
tax laws or the financial results of the respective Group companies,
management's estimate of the amount of realizable tax assets may change, and
accordingly, the valuation allowance may increase or decrease.

Various income tax years of the Grohe Group are unresolved with taxing
authorities and are either currently under review or will be subject to review
by taxing authorities. While the ultimate results cannot be predicted with
certainty, the Company's management believes that the examination will not have
a material adverse effect on its consolidated financial condition and results of
operations.

Net deferred income tax assets and liabilities in the consolidated balance
sheets are as follows:

<TABLE>
<CAPTION>
                                                            December 31,     December 31,
                                                                2002             2001
                                                                ----             ----
<S>                                                             <C>              <C>
Deferred tax assets
   Current                                                      5,146            8,081
   Noncurrent                                                   1,329            1,866
---------------------------------------------------------------------------------------------
                                                                6,475            9,947
---------------------------------------------------------------------------------------------
Deferred tax liabilities
   Noncurrent                                                 (75,297)         (83,037)
---------------------------------------------------------------------------------------------
Net deferred tax liabilities                                  (68,822)         (73,090)
---------------------------------------------------------------------------------------------
</TABLE>

The income tax expense (benefit) consists of the following:

<TABLE>
<CAPTION>
                                                       Year ended             Year ended             Year ended
                                                    December 31, 2002      December 31, 2001      December 31, 2000
                                                    -----------------      -----------------      -----------------
<S>                                                      <C>                    <C>                    <C>
Income tax expense (benefit)
   before extraordinary items                            26,332                 (5,828)                (28,353)
Income tax benefit of extraordinary items                     0                      0                  (1,767)
Income tax benefit on additional minimum
   pension liability                                       (155)                  (142)                      0
-----------------------------------------------------------------------------------------------------------------------
                                                         26,177                 (5,970)                (30,120)
-----------------------------------------------------------------------------------------------------------------------
</TABLE>


As of December 31, 2002 and 2001 Grohe provided additional German income taxes
and foreign withholding taxes of (euro)1,559 and (euro)510 on undistributed
retained earnings of (euro)29,198 and (euro)17,528, respectively, in foreign
subsidiaries on future payout of these foreign earnings as dividends because
these earnings are not intended to be permanently reinvested in those
operations.

As of December 31, 2002 and 2001 Grohe did not provide income taxes or foreign
withholding taxes on (euro)42,987 and (euro)41,880, respectively, in retained
earnings of foreign subsidiaries because these earnings are



                                      F-24
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------


intended to be indefinitely reinvested in those subsidiaries. To estimate the
amount of unrecognized deferred tax liabilities for these undistributed earnings
is impracticable.

NOTE 6. EXTRAORDINARY LOSS

The extraordinary loss of (euro)3,008 ((euro)4,775, net of applicable income
taxes of (euro)1,767) recorded for the year ended December 31, 2000, relates to
the early extinguishment of long-term debt to banks in November 2000. There were
no extraordinary items to be recorded for the years ended December 31, 2002 and
2001.

NOTE 7. INVENTORIES

Inventories at December 31, 2002 and 2001 were comprised as follows:

<TABLE>
<CAPTION>
                                                          December 31, 2002       December 31, 2001
                                                          -----------------       -----------------
<S>                                                             <C>                     <C>
Raw materials and supplies                                      27,581                  28,598
Work in process                                                 24,439                  24,804
Finished goods and goods purchased for resale                   56,175                  56,178
--------------------------------------------------------------------------------------------------------
                                                               108,195                 109,580
--------------------------------------------------------------------------------------------------------
</TABLE>


NOTE 8. OTHER CURRENT ASSETS

Other current assets consist of the following:

<TABLE>
<CAPTION>
                                                        December 31, 2002         December 31, 2001
                                                        -----------------         -----------------
<S>                                                           <C>                      <C>
Tax receivables                                               14,112                   17,313
Currency and interest rate derivatives                        15,485                    1,435
Prepayments and receivables from vendors                       2,333                    1,868
Receivables from sale of land                                      0                    1,023
Miscellaneous                                                  1,120                    2,428
--------------------------------------------------------------------------------------------------------
                                                              33,050                   24,067
--------------------------------------------------------------------------------------------------------
</TABLE>




                                      F-25
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------


NOTE 9. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

<TABLE>
<CAPTION>
                                                        December 31, 2002         December 31, 2001
                                                        -----------------         -----------------
<S>                                                         <C>                        <C>
COST
   Land, buildings and improvements                         151,968                    152,498
   Equipment and machinery                                   70,848                     94,995
   Other factory and office equipment                       100,001                    104,449
   Advances and construction in process                      13,261                      7,231
--------------------------------------------------------------------------------------------------------
                                                            336,078                    359,173
--------------------------------------------------------------------------------------------------------

ACCUMULATED DEPRECIATION
   Land, buildings and improvements                          22,806                     16,375
   Equipment and machinery                                   42,539                     53,238
   Other factory and office equipment                        51,727                     55,074
--------------------------------------------------------------------------------------------------------
                                                            117,072                    124,687
--------------------------------------------------------------------------------------------------------

CARRYING AMOUNT
   Land, buildings and improvements                         129,162                    136,123
   Equipment and machinery                                   28,309                     41,757
   Other factory and office equipment                        48,274                     49,375
   Advances and construction in process                      13,261                      7,231
--------------------------------------------------------------------------------------------------------
                                                            219,006                    234,486
--------------------------------------------------------------------------------------------------------
</TABLE>


Depreciation expense incurred is as follows:

<TABLE>
<CAPTION>
                                                    Year ended             Year ended              Year ended
                                              December 31, 2002         December 31, 2001      December 31, 2000
                                              -----------------         -----------------      -----------------
<S>                                                     <C>                    <C>                    <C>
Land, buildings and improvements                        6,570                  6,518                  7,198
Equipment and machinery                                18,822                 23,006                 22,354
Other factory and office equipment                     22,480                 24,554                 26,338
---------------------------------------------------------------------------------------------------------------------
                                                       47,872                 54,078                 55,890
---------------------------------------------------------------------------------------------------------------------
</TABLE>



                                      F-26
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------


NOTE 10. INTANGIBLE ASSETS

Intangible assets comprise of:

<TABLE>
<CAPTION>
                                                                   December 31,        December 31,
                                                                       2002                2001
                                                                       ----                ----
<S>                                                                    <C>                <C>
INTANGIBLE ASSETS SUBJECT TO AMORTIZATION
   COST
      Tradename                                                        290,269            290,115
      Software                                                          18,501             15,060
-------------------------------------------------------------------------------------------------------
                                                                       308,770            305,175
-------------------------------------------------------------------------------------------------------

   ACCUMULATED AMORTIZATION
      Tradename                                                         63,452             44,111
      Software                                                           7,275              8,080
-------------------------------------------------------------------------------------------------------
                                                                        70,727             52,191
-------------------------------------------------------------------------------------------------------

   CARRYING AMOUNT
      Tradename                                                        226,817            246,004
      Software                                                          11,226              6,980
-------------------------------------------------------------------------------------------------------
                                                                       238,043            252,984
-------------------------------------------------------------------------------------------------------

INTANGIBLE ASSETS NOT SUBJECT TO AMORTIZATION
   Goodwill                                                            445,011            452,555
   Intangible pension asset                                                202                286

-------------------------------------------------------------------------------------------------------
Total carrying amount of intangible assets                             683,256            705,825
-------------------------------------------------------------------------------------------------------
</TABLE>


The carrying amount of goodwill changed as follows:

<TABLE>
<CAPTION>
                                             GERMANY AND       EUROPEAN        OVERSEAS
                                           DIRECT EXPORTS    SUBSIDIARIES    SUBSIDIARIES        TOTAL
-------------------------------------------------------------------------------------------------------------
<S>                                           <C>               <C>             <C>             <C>
Balance as of December 31, 2001               338,833           57,714          56,008          452,555
-------------------------------------------------------------------------------------------------------------
   Effects of foreign currency
      exchange rate changes                         0              (47)         (7,497)          (7,544)
-------------------------------------------------------------------------------------------------------------
Balance as of December 31, 2002               338,833           57,667          48,511          445,011
-------------------------------------------------------------------------------------------------------------
</TABLE>


Additions relating to software of (euro)8,222, (euro)4,451 and (euro)3,387 were
recognized in the years ended December 31, 2002, 2001 and 2000, respectively.
Additions relating to tradename of (euro)154, (euro)148 and (euro)5,034 were
recognized in the years ended December 31, 2002, 2001 and 2000, respectively.
Software is amortized over 3 to 5 years and tradename is amortized over 15
years.



                                      F-27
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------


Amortization expense incurred is as follows:

<TABLE>
<CAPTION>
                                                    Year ended             Year ended              Year ended
                                                 December 31, 2002      December 31, 2001      December 31, 2000
                                                 -----------------      -----------------      -----------------
<S>                                                        <C>               <C>                   <C>
Goodwill                                                   0                 35,758                35,397
Tradename                                             19,341                 19,341                19,124
Software                                               4,020                  3,372                 3,588
---------------------------------------------------------------------------------------------------------------------
Aggregated amortization expense                       23,361                 58,471                58,109
---------------------------------------------------------------------------------------------------------------------
</TABLE>


Estimated aggregate amortization expenses related to intangible assets for the
years 2003 to 2007 are as follows:

    Year ended December 31,           Amortization expense
    -----------------------           --------------------
              2003                           22,776
              2004                           22,497
              2005                           21,328
              2006                           21,105
              2007                           20,223


NOTE 11. OTHER NONCURRENT ASSETS

Other noncurrent assets consist of the following:

<TABLE>
<CAPTION>
                                                      December 31, 2002        December 31, 2001
                                                      -----------------        -----------------
<S>                                                         <C>                    <C>
Debt issuance cost                                          16,353                 19,043
Receivable from sale of real property to
   related parties                                           3,475                      0
Deposits                                                     1,090                  1,282
Miscellaneous                                                1,403                  1,519
-----------------------------------------------------------------------------------------------------
                                                            22,321                 21,844
-----------------------------------------------------------------------------------------------------
</TABLE>


Cost related to the issuance of debt are capitalized and amortized to interest
expense over the lives of the related debt using the effective interest method.
The various recorded debt issuance costs relate to long term debt to banks,
shareholders, related parties, and to the bonds. Amortization charges of
capitalized debt issuance costs were (euro)4,079, (euro)4,071 and (euro)4,384
for the years ended December 31, 2002, 2001 and 2000, respectively. Estimated
future amortization charges are as follows: 2003, (euro)3,209; 2004,
(euro)2,820; 2005, (euro)2,389; 2006, (euro)2,009; 2007, (euro)1,130, and
thereafter, (euro)4,796.

The receivable from the sale of real property to related parties (see NOTE 18)
of nominally (euro)3,920 at December 31, 2002, which results from the sale of
one of the Company's former production sites, is due in two installments of
(euro)1,960 in June 2004 and June 2006, respectively. As the receivable does not
bear



                                      F-28
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------


interest, interest has been imputed at a rate of 5% resulting in a net carrying
amount of (euro)3,475 at December 31, 2002.

NOTE 12. SHORT-TERM DEBT

SHORT-TERM DEBT TO BANKS

Short-term debt to banks is mainly comprised of two short-term loans denominated
in Japanese yen of Grohe Japan, Ltd. The interest rates for these loans were
0.87% and 1.17% at December 31, 2002 and 0.89% and 1.12% at December 31, 2001.
The weighted average interest rate on short-term debt to banks was 0.93% and
0.94% at December 31, 2002 and 2001, respectively.

CREDIT FACILITIES

Unused credit lines available to the Company at December 31, 2002 and 2001
amounted to (euro)70,058 and (euro)30,051, respectively. Under the respective
credit arrangements, the Company has the option to borrow amounts for general
purposes. An amount of (euro)51,129 of the credit lines as of December 31, 2002
represents senior bank loan facility E. The interest rate for facility E as of
December 31, 2002 was EURIBOR plus 2%. Regarding the covenants relating to the
senior credit facility we refer to Note 14.

NOTE 13. OTHER ACCRUED EXPENSES AND CURRENT LIABILITIES

         Other accrued expenses and current liabilities are comprised of the
following:

<TABLE>
<CAPTION>
                                                           December 31, 2002    December 31, 2001
                                                           -----------------    -----------------
<S>                                                             <C>                   <C>
Customer bonuses and rebates                                    45,448                43,687
Accrued payroll and personnel related expenses                  38,767                30,105
Accrued interest on long-term debt and bonds                     9,163                10,576
Other taxes                                                     11,135                10,644
Warranty and service costs                                       9,494                 8,534
Credit balances in receivables                                   2,206                 3,479
Outstanding invoices                                             4,439                 4,800
Accrued fees for professional services                           2,859                 3,280
Liabilities to independent sales agents                          4,060                 2,797
Liabilities from currency and interest rate derivatives          7,144                 9,536
Environmental remediation liabilities                              100                   307
Other                                                            8,095                 9,746
-----------------------------------------------------------------------------------------------------
                                                               142,910               137,491
-----------------------------------------------------------------------------------------------------
</TABLE>





                                      F-29
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------



Grohe guarantees the performance of products delivered and services rendered
generally for a period of up to two years in Germany and up to five years in
other countries. Grohe accrues a liability for expected warranty costs and
similar obligations when a product is sold. Estimates for accrued warranty costs
are primarily based on historical experience. Accruals for product warranties
changed as follows:

<TABLE>
<CAPTION>
                                                        Year ended            Year ended            Year ended
                                                    December 31, 2002     December 31, 2001     December 31, 2000
                                                    -----------------     -----------------     -----------------
<S>                                                     <C>                   <C>                   <C>
Balance at beginning of period                          8,534                 8,157                 7,822
Foreign currency changes                                  (57)                  (14)                  (11)
Utilizations                                           (7,006)               (6,396)               (5,878)
Additions for warranties issued in respective year      8,023                 6,787                 6,224
---------------------------------------------------------------------------------------------------------------------
Balance at end of period                                9,494                 8,534                 8,157
---------------------------------------------------------------------------------------------------------------------
</TABLE>

NOTE 14. LONG-TERM DEBT

A)       LONG-TERM DEBT TO BANKS

Long-term debt to banks is as follows:

<TABLE>
<CAPTION>
                                                                Secured     December 31, 2002     December 31, 2001
                                                                -------     -----------------     -----------------
<S>                                                               <C>              <C>                   <C>
Senior bank loan facility B maturing December 30,
   2006 with principal payments each year and interest
   payable at 2.25% above EURIBOR                                 a)               12,373                64,028

Senior bank loan facility C maturing December 30, 2006
   with principal payments each year and interest
   payable at 2.50% above EURIBOR                                 a)               59,171                59,171

Senior bank loan facility D maturing December 30, 2006
   with principal payments each year and interest payable
   at 2.25% and 2.00% above EURIBOR prior and
   subsequent to October 29, 2001, respectively                   b)              187,178               208,096

Senior bank loan facility F maturing December 30, 2006
   with interest payable at 3.00% above EURIBOR                   a)               76,694                     0

Supplementary bank loan originally maturing
   December 30, 2007 with  interest payable
   at 3.00% above EURIBOR                                         c)                    0                76,694

Bank loans of subsidiaries maturing between 2003
   and 2018 with interest payable at 4.95% to 7.25%
   at December 31, 2002 and 2001                                  d)               17,722                23,919
-----------------------------------------------------------------------------------------------------------------------
TOTAL LONG-TERM DEBT TO BANKS                                                     353,138               431,908
-----------------------------------------------------------------------------------------------------------------------
Less current maturities of long-term debt to banks                                 73,184                52,707
-----------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT TO BANKS                                                           279,954               379,201
-----------------------------------------------------------------------------------------------------------------------
</TABLE>


                                      F-30
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------


In January 2002, Grohe repaid the supplementary facility with the proceeds of a
new facility under the senior facility, facility F.

Grohe entered into swap and collar agreements during the year 2000 with a total
volume of (euro)526,631. With the swap agreements, the Company exchanged the
short term variable rate related to the bank debt for a long term variable rate
with a capped total interest rate. The volume of the interest rate derivatives
decreases with the amortization of the related senior debt until the swaps and
the collar mature on July 28, 2004 and July 29, 2004, respectively. At December
31, 2002 the total interest rate derivatives volume was at (euro)347,167.

All of the above loans are denominated in euro except for the following. The
bank loans of Grohe Siam, Ltd. included above in "bank loans of subsidiaries" in
an amount of (euro)4,570 and (euro)7,324 at December 31, 2002 and 2001,
respectively, were payable in Thailand baht.

         SECURITIZATION

a)   first ranking secured by Grohe Beteiligungs GmbH & Co. KG's present or
     future limited partnership interest in Friedrich Grohe AG & Co. KG with a
     carrying value of (euro)649,689 and (euro)670,493, its 25% ownership
     interest in Grohe A/S with a carrying value of (euro)175 and (euro)52, its
     shares in Friedrich Grohe Geschaftsfuhrungs AG with a carrying value of
     (euro)55 and (euro)55, all claims from its interest rate derivatives and
     its escrow account of (euro)31,274 and (euro)29,950 at December 31, 2002
     and 2001, respectively.

b)   secured by mortgages of(euro)12,541 and(euro)19,083 on properties of
     Friedrich Grohe AG & Co. KG, mortgages of (euro)84,852 and(euro)91,931 on
     properties of domestic subsidiaries of Friedrich Grohe AG & Co. KG, the
     assignment as security of movable tangible assets of(euro)30,180
     and(euro)24,735 and inventories of(euro)25,362 and(euro)24,647 of Friedrich
     Grohe AG & Co. KG, the blanket assignment of all receivables of Friedrich
     Grohe AG & Co. KG and Grohe Deutschland Vertriebs GmbH of(euro)181,701
     and(euro)199,549, including receivables from group companies, the
     assignment as security of all patents, brands and other industrial property
     rights of Friedrich Grohe AG & Co. KG of(euro)226,817 and(euro)246,004, all
     shares in domestic subsidiaries held directly by Friedrich Grohe AG & Co.
     KG with a carrying value of(euro)351,683 and(euro)362,420 and almost all
     shares in the foreign subsidiaries held directly by Grohe International
     GmbH with a carrying value of(euro)176,184 and(euro)174,517 at December 31,
     2002 and 2001, respectively.

c)   second ranking secured by Grohe Beteiligungs GmbH & Co. KG's present or
     future limited partnership interest in Friedrich Grohe AG & Co. KG with a
     carrying value of (euro)649,689 and (euro)670,493, its 25% ownership
     interest in Grohe A/S with a carrying value of (euro)175 and (euro)52, its
     shares in Friedrich Grohe Geschaftsfuhrungs AG with a carrying value of
     (euro)55 and (euro)55, all claims from its interest rate derivatives and
     its escrow account of (euro)31,274 and (euro)29,950 at December 31, 2002
     and 2001, respectively.

d)   mainly secured by mortgages on properties of subsidiaries of (euro)24,330
     and (euro)25,788 at December 31, 2002 and 2001, respectively.

COVENANTS

The senior credit facility contains customary operating and financial covenants,
including, without limitation:



                                      F-31
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------


o        requirement to maintain minimum ratios of Weighted Consolidated EBITDA
         to Consolidated Net Finance Charges, each as defined in the senior
         credit facility;

o        the requirement to maintain Minimum Consolidated EBITDA, as defined in
         the senior credit facility;

o        maximum ratios of Net Total Debt I, as defined in the senior credit
         facility, to Weighted Consolidated EBITDA, and Net Total Debt II, as
         defined in the senior credit facility, to Weighted Consolidated EBITDA;
         and

o        limits on capital expenditures.

In addition, the senior credit facility includes covenants relating to
limitations on

o        sales and other disposals;

o        indebtedness;

o        acquisitions;

o        investments; and

o        hedging.

As of December 31, 2002 and 2001 the Company was in compliance with above
covenants.

CONTINGENT PRINCIPAL PAYMENTS ON THE SENIOR FACILITIES

Mandatory prepayment in full is required if there is a material alteration of
the corporate structure of Grohe Holding, including:

o        the shareholders of Grohe Holding cease to own or hold in the aggregate
         less than 51% of the capital or voting rights to Grohe Holding;

o        Grohe Holding ceases to own or hold all shares in Grohe Consult GmbH;

o        Grohe Beteiligungs GmbH & Co. KG ceases to own 99% of the capital or
         the voting rights in Friedrich Grohe AG & Co. KG;

o        Grohe Holding ceases to be the sole general partner of Grohe
         Beteiligungs GmbH & Co. KG or Grohe Consult GmbH ceases to be the sole
         limited partner of Grohe Beteiligungs GmbH & Co. KG; or

o        Grohe Beteiligungs GmbH & Co. KG ceases to own or hold all shares in
         Friedrich Grohe Geschaftsfuhrungs AG.

Certain mandatory partial prepayments are required to be made, including:

o        100% of the Excess Cash Flow of Grohe Beteiligungs GmbH & Co. KG in any
         fiscal year, as defined in the senior credit facility;

o        75% of Grohe Group Excess Cash Flow of Friedrich Grohe AG & Co. KG and
         its consolidated subsidiaries in any fiscal year, as defined in the
         senior credit facility;

o        any amounts received by Grohe Beteiligungs GmbH & Co. KG or Friedrich
         Grohe AG & Co. KG in connection with a refund of taxes other than
         amounts received by way of an assignment of corporate tax refund claims
         from Grohe Holding to Grohe Beteiligungs GmbH & Co. KG up to an amount
         of


                                      F-32
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------


         (euro)49,544; (on July 24, 2001 the Company received a tax refund of
         (euro)49,340. This tax refund was used for a principal payment on the
         senior bank loans of (euro)23,520 on July 30, 2001 and for a further
         principal payment on the senior bank loans of (euro)25,820 on August
         30, 2001);

o        any amounts received by Grohe Beteiligungs GmbH & Co. KG or Friedrich
         Grohe AG & Co. KG under an insurance policy, unless applied within
         three months against the loss for which such amounts were received; or

o        proceeds from asset sales by Grohe Beteiligungs GmbH & Co. KG or
         Friedrich Grohe AG & Co. KG, other than in the ordinary course of
         business, not immediately reinvested in replacement assets.

B) BONDS

On November 13, 2000 Grohe Holding GmbH issued a debenture (`bonds') totaling
(euro)200,000. The bonds were issued at the nominal value of (euro)1 or in
multiples of (euro)1 and are due at par on November 15, 2010. The bonds bear
11.5% interest per year. Interest payments are made on May 15 and November 15 of
each year. Accrued interest of (euro)2,875 and (euro)3,250 as of December 31,
2002 and 2001, respectively, were included in current liabilities.

The bonds are subordinated to any indebtedness incurred under the senior credit
facility. The indenture includes certain rules regarding the early redemption of
the notes.

The indenture describes certain criteria that have to be met in order to avoid
an event of default. Certain deadlines regarding the timely provision of
consolidated financial statements in accordance with US GAAP for the year ended
December 31, 2000 to the trustee and the noteholders as well as the timely
filing of a registration statement with the U.S. Securities and Exchange
Commission (SEC) were not met by the Company. However, a default under the
related clause does not constitute an event of default prior to a notification
by the trustee and the failure to cure such default within the time specified in
the indenture agreement after receipt of such notice.

The bonds provide for penalty interest in the event that certain requirements
have not been met at the specified dates. The penalty interest rate starts at
0.5% and increases to a maximum of 1.5%. As a consequence of the failure to meet
above deadlines Grohe had been subject to additional interest from May 14, 2001
to February 22, 2002.

Grohe's last remaining default was cured upon the effectiveness of its
registration statement with the SEC on February 22, 2002 and as of this date
interest was reduced to 11.5% again.

C) LONG-TERM DEBT TO SHAREHOLDERS AND LONG-TERM DEBT TO RELATED PARTIES

In July 1999 shareholders and related parties of Grohe Holding have provided the
Company with loans totaling (euro)259,225. This amount bears a nominal interest
at a rate of 5% per year. Originally, principal and interest payments were not
due prior to the complete settlement of all claims of the creditors under the
senior and junior credit facility in December 2006. In the course of the
issuance of the bonds in November 2000, principal and interest payments were
subordinated to the repayment of the bonds until November 2010.

As the loans carry a rate of interest less than market rate, interest has been
imputed using a discount rate of 11.5% to arrive at the loans' net present value
of (euro)158,680 at July 31, 1999. The cash provided of (euro)259,225 in excess
of the imputed long term debt to shareholders and related parties balance
((euro)158,680)



                                      F-33
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------


has been recorded as a credit to additional paid in capital ((euro)48,865) and a
credit to deferred taxes ((euro)51,680).

Due to the subordination of these loans from shareholders and related parties to
the bonds, the debt instrument has substantially different terms such that the
modification has to be accounted for in a manner like an early extinguishment of
debt.

The difference in net present values of the original debt instrument
((euro)183,015 at November 15, 2000) and the debt instrument after the
aforementioned modification ((euro)136,694 at November 15, 2000) has been
recorded as a credit to additional paid in capital ((euro)28,626) and a credit
to deferred taxes ((euro)17,695).

In July 2001 Cornelius Geber and Dr. Hellmut K. Albrecht became shareholders of
the Company and provided the Company with additional shareholder loans of
(euro)378. Principal and interest payments are subordinated to the repayment of
the bonds until November 2010. As the loans bear a nominal interest at a rate of
5% per year, which is less than the market rate, interest has been imputed using
a discount rate of 11.5% to arrive at the loans' net present value of (euro)200.
The difference of (euro)178 between the cash provided of (euro)378 and the net
present value of the loans of (euro)200 has been recorded as a credit to
additional paid in capital ((euro)110) and a credit to deferred taxes
((euro)68).

Long-term debt to related parties at December 31, 2002 and 2001 is comprised as
follows:

<TABLE>
<CAPTION>
                                                         December 31, 2002           December 31, 2001
                                                         -----------------           -----------------
<S>                                                             <C>                         <C>
BC Funds, Channel Islands                                       67,569                      60,600
Teabar Capital Corp., Toronto, Canada                           36,981                      33,167
Capital d'Amerique CDPQ, Montreal, Canada                       28,362                      25,436
Dr. Hellmut K. Albrecht, Munich, Germany                           193                         174
Cornelius Geber, Hamburg, Germany                                   43                          38
-------------------------------------------------------------------------------------------------------------
Total related parties                                          133,148                     119,415
-------------------------------------------------------------------------------------------------------------
</TABLE>




                                      F-34
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------



Long-term debt to shareholders at December 31, 2002 and 2001 is comprised as
follows:

<TABLE>
<CAPTION>
                                                           December 31, 2002         December 31, 2001
                                                           -----------------         -----------------
<S>                                                              <C>                        <C>
BdW GmbH & Co. KG, Frankfurt, Germany                            9,742                      8,738
HVB-Offene Unternehmensbeteiligungs-AG,
   Munich, Germany                                               9,742                      8,738
South Light Investment Pte Limited, Singapore                    9,742                      8,738
HarbourVest III-Direct Fund L.P., Delaware, USA                  5,845                      5,242
Crescat Equity 1 Beteiligung GmbH & Co. KG,
   Hamburg, Germany                                              2,269                      2,035
Laranjedo Servicios e Gestao Lda., Madeira, Portugal             1,949                      1,747
Michel Guillet, Paris, France                                      115                        103
Patrice Hoppenot, La Celle Saint Coud, France                       57                         51
Raymond Svider, Paris, France                                       57                         51
Celia Guillet, Paris, France                                         3                          2
Edouard Guillet, Paris, France                                       3                          2
Vincent Festquet, Paris, France                                      1                          1
Remi Terrail, Paris, France                                          1                          1
-------------------------------------------------------------------------------------------------------------
Total shareholders                                              39,526                     35,449
-------------------------------------------------------------------------------------------------------------
</TABLE>

D) CAPITAL LEASES

Office equipment includes computer hardware and telecommunication equipment
under capital lease agreements of (euro)3,132 and (euro)4,809 as of December 31,
2002 and 2001, respectively. Accumulated depreciation includes depreciation of
computer hardware and telecommunication equipment under capital lease agreements
of (euro)2,026 and (euro)2,847 at December 31, 2002 and 2001, respectively.
Depreciation expense on assets under capital lease agreements were (euro)1,419,
(euro)1,556 and (euro)1,547 for the years ended December 31, 2002, 2001 and
2000, respectively.

Total minimum lease payments under the above capital lease contracts are
comprised as follows:

2003                                                               736
2004                                                               336
2005                                                               179
2006                                                                56
2007                                                                 8
Thereafter                                                           0
-----------------------------------------------------------------------
Total minimum lease payments                                     1,315
-----------------------------------------------------------------------
Less: amount representing interest                                 141
-----------------------------------------------------------------------
Present value of capital lease obligations                       1,174
-----------------------------------------------------------------------
Current portion                                                    656
Long-term portion                                                  518


Lease terms range from 36 to 63 months.



                                      F-35
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------


E) FUTURE MATURITIES OF LONG-TERM DEBT

Financial liabilities maturing during the next five years and thereafter are as
follows:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
                                                                 LONG-TERM DEBT TO
                                                                  RELATED PARTIES
                                 BANK DEBT          BOND         AND SHAREHOLDERS    CAPITAL LEASES        TOTAL
-----------------------------------------------------------------------------------------------------------------------
<C>                                 <C>                 <C>               <C>               <C>            <C>
2003                                73,184              0                 0                 656            73,840
2004                                78,529              0                 0                 298            78,827
2005                                83,522              0                 0                 162            83,684
2006                               113,701              0                 0                  50           113,751
2007                                   701              0                 0                   8               709
Thereafter                           3,501        200,000           172,674                   0           376,175
-----------------------------------------------------------------------------------------------------------------------
Total long-term debt               353,138        200,000           172,674               1,174           726,986
-----------------------------------------------------------------------------------------------------------------------
</TABLE>


NOTE 15. PENSION AND SIMILAR OBLIGATIONS

PENSION LIABILITIES

The Company maintains a number of unfunded pension plans, covering substantially
all German employees. The plans provide for payment of retirement benefits and
certain disability and survivors benefits. After meeting certain qualifications,
an employee acquires a vested right for future benefits. In most cases, the
benefits payable are determined on the basis of an employee's length of service,
earnings and ranking. The German plans have been closed for new hires effective
January 1, 2001. For its employees in the United States the Company maintains a
funded pension plan.

The Projected Benefit Obligation (PBO) developed as follows:

<TABLE>
<CAPTION>
                                                   December 31, 2002        December 31, 2001
--------------------------------------------------------------------------------------------------
<S>                                                    <C>                      <C>
Projected benefit obligation
   at beginning of year                                151,000                  140,776
--------------------------------------------------------------------------------------------------
      Foreign currency exchange rate changes              (698)                     193
      Service cost                                       4,975                    5,151
      Interest cost                                      9,096                    8,770
      Curtailments                                           0                   (5,358)
      Plan amendments                                      314                      142
      Actuarial losses                                   7,715                    5,913
      Benefits paid                                     (5,093)                  (4,587)
--------------------------------------------------------------------------------------------------
Projected benefit obligation at end of year            167,309                  151,000
--------------------------------------------------------------------------------------------------
</TABLE>

The Accumulated Benefit Obligation (ABO) totaled (euro)147,273 and (euro)132,112
on December 31, 2002 and 2001.




                                      F-36
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------



Changes in plan assets relate only to the funded US pension plan and were as
follows:

<TABLE>
<CAPTION>
                                                   December 31, 2002       December 31, 2001
--------------------------------------------------------------------------------------------------
<S>                                                       <C>                     <C>
Fair value of plan assets at beginning of year            2,508                   2,410
--------------------------------------------------------------------------------------------------
   Foreign currency exchange rate changes                  (415)                    130
   Actual return on plan assets                            (122)                   (227)
   Employer contributions                                   479                     336
   Actual benefit payments                                  (35)                   (141)
--------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year                  2,415                   2,508
--------------------------------------------------------------------------------------------------
</TABLE>


A reconciliation of the funded status to the amounts recognized in the
consolidated balance sheets is as follows:

<TABLE>
<CAPTION>
                                                    December 31, 2002       December 31, 2001
--------------------------------------------------------------------------------------------------
<S>                                                      <C>                     <C>
Funded status*)                                          (164,894)               (148,492)
   Unrecognized prior service cost                            993                     878
   Unrecognized actuarial losses                           13,729                   6,091
--------------------------------------------------------------------------------------------------
Net amount recognized                                    (150,172)               (141,523)
--------------------------------------------------------------------------------------------------
</TABLE>

         *) Difference between the projected benefit obligation and the fair
            value of plan assets.


Amounts recognized in the consolidated balance sheets consist of:

<TABLE>
<CAPTION>
                                                 December 31, 2002       December 31, 2001
---------------------------------------------------------------------------------------------------
<S>                                                      <C>                     <C>
Accrued pension liability                                (151,155)               (142,176)
Intangible assets                                             202                     286
Accumulated other comprehensive income                        781                     367
---------------------------------------------------------------------------------------------------
Net amount recognized                                    (150,172)               (141,523)
---------------------------------------------------------------------------------------------------
</TABLE>


The assumptions used in calculating the actuarial values for the German pension
plans are as follows:

<TABLE>
<CAPTION>
                                                   Year ended        Year ended        Year ended
                                                  December 31,      December 31,      December 31,
                                                      2002              2001              2000
                                                        %                %                 %
                                                ------------------------------------------------------
<S>                                                   <C>               <C>               <C>
Discount rate                                         5.50              6.00              6.25
Rate of compensation increase                         2.75              3.00              3.00
Increase in social security ceiling                   2.75              3.00              3.00
Cost of living                                        1.75              2.00              2.00
</TABLE>





                                      F-37
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------



The assumptions used in calculating the actuarial values for the US pension plan
are as follows:

<TABLE>
<CAPTION>
                                                   Year ended        Year ended       Year ended
                                                  December 31,      December 31,     December 31,
                                                      2002              2001             2000
                                                       %                 %                 %
                                               ------------------------------------------------------
<S>                                                   <C>               <C>              <C>
Discount rate                                         6.50              6.50             6.75
Rate of compensation increase                         5.00              5.00             5.00
Expected return on assets                             6.00              8.00             8.00
</TABLE>


Net periodic pension cost for the years ended December 31, 2002, 2001 and 2000
comprised the following:

<TABLE>
<CAPTION>
                                                     Year ended        Year ended        Year ended
                                                    December 31,      December 31,      December 31,
                                                        2002              2001              2000
                                                 -------------------------------------------------------
<S>                                                    <C>                <C>              <C>
Service cost                                           4,975              5,151            5,233
Interest cost                                          9,096              8,770            8,367
Expected return on plan assets                          (148)              (187)            (247)
Amortization of unrecognized losses                      115                 58               47
Amortization of prior service cost                       168                109              109
Gain from curtailment                                      0             (5,358)               0
--------------------------------------------------------------------------------------------------------
Net periodic pension cost                             14,206              8,543           13,509
--------------------------------------------------------------------------------------------------------
</TABLE>


OTHER POST-RETIREMENT BENEFITS

Grohe provides certain post-retirement benefits to its employees in the US. The
plan covers medical, dental and life insurance premiums. The following tables
set out information in respect to this plan.

The projected post-retirement benefit obligation developed as follows:

<TABLE>
<CAPTION>
                                                  December 31,       December 31,
                                                      2002               2001
-------------------------------------------------------------------------------------
<S>                                                    <C>                  <C>
Projected post-retirement benefit obligation
at beginning of year                                   1,887                706
-------------------------------------------------------------------------------------
     Foreign currency exchange rate changes             (497)                56
     Service cost                                         99                 48
     Interest cost                                       131                 53
     Actuarial losses                                  1,935              1,024
     Benefits paid                                       (67)                 0
-------------------------------------------------------------------------------------
Projected post-retirement benefit obligation
at end of year                                         3,488              1,887
-------------------------------------------------------------------------------------
</TABLE>




                                      F-38
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------


A reconciliation of the funded status to the amounts recognized in the
consolidated balance sheets is as follows:

<TABLE>
<CAPTION>
                                                        December 31,      December 31,
                                                            2002              2001
-----------------------------------------------------------------------------------------
<S>                                                       <C>                <C>
Funded status                                             (3,488)            (1,887)
-----------------------------------------------------------------------------------------
   Unrecognized actuarial losses                           2,243                627
-----------------------------------------------------------------------------------------
Net amount recognized                                     (1,245)            (1,260)
-----------------------------------------------------------------------------------------
</TABLE>


The assumptions used in calculating the actuarial values for post-retirement
benefits are as follows:

<TABLE>
<CAPTION>
                                                   Year ended        Year ended        Year ended
                                                  December 31,      December 31,      December 31,
                                                      2002              2001              2000
                                                ------------------------------------------------------
<S>                                                  <C>              <C>               <C>
Discount rate                                        7.00%            7.00%             6.75%
First year health care cost trend rate               6.00%            5.00%             8.00%
Ultimate health care cost trend rate                 6.00%            5.00%             5.00%
Years to reach ultimate cost trend rate               n.a.             n.a.                6
</TABLE>

Net periodic post-retirement benefit costs for the years ended December 31,
2002, 2001 and 2000 comprised the following:

<TABLE>
<CAPTION>
                                                     Year ended        Year ended        Year ended
                                                    December 31,      December 31,      December 31,
                                                        2002              2001              2000
                                                 -------------------------------------------------------
<S>                                                       <C>                <C>              <C>
Service cost                                              99                 43               53
Interest cost                                            131                 47               58
Amortization of unrecognized (gains) losses               33                (23)               0
--------------------------------------------------------------------------------------------------------
Net periodic post-retirement costs                       263                 67              111
--------------------------------------------------------------------------------------------------------
</TABLE>

The effects of a one-percentage point change in assumed health care cost trend
rates are presented in the following table:

<TABLE>
<CAPTION>
                                                     1-percentage       1-percentage
                                                    point increase     point decrease
                                                 ---------------------------------------
<S>                                                       <C>                <C>
Effect on total of service and interest
    cost components                                       45                 (41)
Effect on accumulated post-retirement benefit
   obligation
                                                         600                (485)
</TABLE>




                                      F-39
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------


NOTE 16. SHAREHOLDERS' EQUITY

SHARE CAPITAL

As Grohe has been established in the legal form of a GmbH according to the
German Limited Liability Companies Act (GmbH-Gesetz), its equity is not
represented by a number of equal shares.

Grohe shareholders and their respective shares in nominal amounts and as
percentages at December 31, 2002 and 2001 are presented in the following table:

<TABLE>
<CAPTION>
                                                            DECEMBER 31, 2002       DECEMBER 31, 2001
                                                            -----------------       -----------------
Shareholder                                                 shares         %       shares          %
-----------                                                 ------         -       ------          -
<S>                                                       <C>            <C>       <C>            <C>
Teabar Capital Corp., Toronto, Canada                     10,723         20.87     10,723         21.02
Capital d'Amerique CDPQ, Montreal, Canada                  8,224         16.01      8,224         16.12
BdW GmbH & Co. KG, Frankfurt, Germany                      2,825          5.50      2,825          5.54
HVB-Offene Unternehmensbeteiligungs-AG,
    Munich, Germany                                        2,825          5.50      2,825          5.54
South Light Investment Pte Limited, Singapore              2,825          5.50      2,825          5.54
BC European Capital VI-1, Channel Islands                  1,837          3.58      1,837          3.60
BC European Capital VI-2, Channel Islands                  1,837          3.58      1,837          3.60
BC European Capital VI-3, Channel Islands                  1,837          3.58      1,837          3.60
BC European Capital VI-9, Channel Islands                  1,812          3.53      1,812          3.56
BC European Capital VI-4, Channel Islands                  1,804          3.51      1,804          3.54
BC European Capital VI-5, Channel Islands                  1,791          3.49      1,791          3.52
BC European Capital VI-6, Channel Islands                  1,789          3.48      1,789          3.51
BC European Capital VI-10, Channel Islands                 1,787          3.48      1,787          3.50
BC European Capital VI-7, Channel Islands                  1,780          3.46      1,781          3.49
BC European Capital VI-8, Channel Islands                  1,779          3.46      1,779          3.49
HarbourVest III-Direct Fund L.P., Delaware, USA            1,695          3.30      1,695          3.32
Crescat Equity 1 Beteiligung GmbH & Co. KG,
    Hamburg, Germany                                         658          1.28        658          1.29
Laranjedo Servicios e Gestao Lda., Madeira, Portugal         565          1.10        565          1.11
BC European Capital VI-12, Channel Islands                   368          0.71        368          0.72
Peter Korfer-Schun, Dortmund, Germany                        353          0.69        353          0.69
Dr. Rainer S. Simon, Isernhagen, Germany                     353          0.69        353          0.69
Detlef Spigiel, Gevelsberg, Germany                          228          0.44        228          0.45
Michael Grimm, Dreieich-Buchschlag, Germany                  186          0.36          0          0.00
Stephan M. Heck, Mannheim, Germany                           186          0.36          0          0.00
BC European Capital V-3, Channel Islands                     179          0.35        179          0.35
BC European Capital V-5, Channel Islands                     178          0.35        178          0.35
BC European Capital V-4, Channel Islands                     176          0.34        176          0.34
BC European Capital V-1, Channel Islands                     164          0.32        164          0.32
BC European Capital V-2, Channel Islands                     164          0.32        164          0.32
BC European Capital V-6, Channel Islands                     156          0.30        156          0.31
BC European Capital VI-11, Channel Islands                   134          0.26        134          0.27
Dr. Hellmut K. Albrecht, Munich, Germany                      60          0.12         60          0.12
Michel Guillet, Paris, France                                 33          0.07         33          0.07
BC European Capital VI-14, Channel Islands                    17          0.03         17          0.03
Patrice Hoppenot, La Celle Saint Coud, France                 17          0.03         17          0.03
Raymond Svider, Paris, France                                 17          0.03         17          0.03
Cornelius Geber, Hamburg, Germany                             10          0.02         10          0.02
Celia Guillet, Paris, France                                   1          0.00          1          0.00
Edouard Guillet, Paris, France                                 1          0.00          1          0.00
Vincent Festquet, Paris, France                                0          0.00          0          0.00
Remi Terrail, Paris, France                                    0          0.00          0          0.00
---------------------------------------------------------------------------------------------------------------
Total                                                     51,374        100.00     51,003        100.00
---------------------------------------------------------------------------------------------------------------
</TABLE>



                                      F-40
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------


Peter Korfer-Schun, Detlef Spigiel, Michael Grimm and Stephan M. Heck are
officers of the Company. Dr. Hellmut K. Albrecht, Cornelius Geber and Dr. Rainer
S. Simon are members of the supervisory board of Friedrich Grohe
Geschaftsfuhrungs AG.

COMPREHENSIVE INCOME

The changes in the components of other comprehensive income are as follows:

<TABLE>
<CAPTION>
                                        Year ended                Year ended                 Year ended
                                    December 31, 2002          December 31, 2001          December 31, 2000
                                          Tax                         Tax                       Tax
                                 Pretax  effect    Net      Pretax   effect   Net     Pretax   effect   Net
                                ----------------------------------------------------- --------------------------
<S>                              <C>         <C> <C>       <C>           <C> <C>      <C>          <C> <C>
Foreign currency                 (15,008)    0   (15,008)  1,765         0   1,765    3,902        0   3,902
   translation adjustment
Additional minimum
   pension liability                (413)  155     (258)    (367)      142    (225)       0        0       0
----------------------------------------------------------------------------------------------------------------
Total other                      (15,421)  155   (15,266)  1,398       142   1,540    3,902        0   3,902
   comprehensive income
----------------------------------------------------------------------------------------------------------------
</TABLE>


RETAINED EARNINGS

Under the German Limited Liability Companies Act (GmbH Gesetz), the amount of
dividends available for distribution to shareholders is based on the earnings of
Grohe Holding GmbH (parent company only) as reported in its statutory financial
statements determined in accordance with the German Commercial Code
(Handelsgesetzbuch). In addition, dividend payments are restricted under the
indenture related to the issuance of the bond. As a result of the above, no
dividend distributions could be made as of December 31, 2002, 2001 and 2000.

SHARE BASED COMPENSATION

During 2002 and 2001 in accordance with a shareholders' agreement certain
management executives were awarded shares of Grohe. The awards are subject to
certain restrictions stipulated in a management equity participation agreement
between the shareholders and the executives. In accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
No. 25), the awards qualify for fix plan accounting treatment. Accordingly,
compensation cost is measured as the excess, if any, of the fair market value of
the Company's shares at the measurement date over the exercise price.
Compensation cost is recognized over the vesting period of the awards. The
awards vest over the related executives employment contracts and are subject to
accelerated vesting provisions when certain defined conditions are met such as a
change in control or an initial public offering. The Company determines fair
market value of the awards based on discounted cash flows when no other market
related information is available. Deferred compensation costs represent the
portion of unvested awards and are included as a component of shareholders'
equity. The Company has no other share based compensation plans.

The employment contract of one of the managing directors was terminated in June
2001. In connection with this termination, the shares of the managing director
were transferred at (euro)905 to Grohe as of July 24, 2001. In July 2001, these
shares were granted at an exercise price of (euro)1,002 to a managing director
of



                                      F-41
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------


Grohe and two members of the supervisory board of Friedrich Grohe
Geschaftsfuhrungs AG, a wholly owned subsidiary of Grohe. The grant date
aggregate fair value of the shares was (euro)2,442.

In August 2001, Grohe granted shares in the nominal value of (euro)110 to
managing directors of the Company and a member of the advisory board. The
aggregate exercise price of the shares was (euro)370. The payment of (euro)259
in excess of the nominal value of the granted shares is deferred until June 30,
2006. The deferred amounts bear interest at 6% per annum and interest is due at
maturity. The cumulative unpaid interest in arrears was (euro)24 and (euro)8 at
December 31, 2002, and 2001, respectively. The aggregate grant date fair value
of the shares was (euro)900.

In July 2002, Grohe granted shares in the nominal value of (euro)371 to managing
directors of the Company. The aggregate exercise price of the shares was
(euro)1,534. The aggregate grant date fair value of the shares was (euro)3,132.

Had the compensation cost for the Company's share awards been determined based
on the fair value at the grant dates consistent with the method prescribed by
SFAS No. 123, the Company's net income or loss on a pro forma basis would have
been as follows for the years ending December 31:

<TABLE>
<CAPTION>
                                                            2002            2001            2000
                                                            ----            ----            ----
<S>                                                        <C>            <C>             <C>
Net income (loss), as reported                             23,551         (30,113)        (21,940)
------------------------------------------------------------------------------------------------------
Add: Share-based compensation expense included in
   reported net income (loss)                               1,781               0               0
Deduct: Total share-based compensation expense
   determined under fair value method                       1,923               0               0
------------------------------------------------------------------------------------------------------
Pro forma net income (loss)                                23,409         (30,113)        (21,940)
------------------------------------------------------------------------------------------------------
</TABLE>


The preceding pro forma amounts were determined using the minimum value method
used for non-public companies and were based on the following weighted average
assumptions (results may vary depending on the assumptions applied within the
model):

<TABLE>
<CAPTION>
                                                            2002            2001           2000
                                                            ----            ----           ----
<S>                                                         <C>             <C>            <C>
Dividend yield                                              0.0%            0.0%           n.a.
Risk-free interest rate                                     4.1%            4.1%           n.a.
Expected lives in years                                     3.4             1.7            n.a.
</TABLE>


NOTE 17. COMMITMENTS AND CONTINGENCIES

PURCHASE COMMITMENTS

All purchase commitments are in the normal course of business and comprise the
following:




                                      F-42
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------




<TABLE>
<CAPTION>
                                                         December 31,     December 31,
                                                             2002             2001
                                                             ----             ----
<S>                                                        <C>                <C>
Raw material and supplies                                  127,617            96,085
Fixed assets                                                 6,699             1,841
------------------------------------------------------------------------------------------
                                                           134,316            97,926
------------------------------------------------------------------------------------------
</TABLE>


LITIGATION

Concerning the conversion of Friedrich Grohe AG into Friedrich Grohe AG & Co.
KG, some minority shareholders have used various legal remedies to appeal
against the conversion into a limited partnership, the cash settlement offer and
certain resolutions of the shareholders meeting of Friedrich Grohe AG and
Friedrich Grohe AG & Co. KG.

Some minority shareholders have requested that the entry of the conversion in
the commercial register be revoked. The Upper Regional Court of Hamm refused
this request, and, under German rules of procedure, the court's decision is
final. Some minority shareholders have filed an appeal to the Federal
Constitutional Court (Bundesverfassungsgericht), claiming that the Upper
Regional Court's decision has affected their fundamental rights under the German
constitution. At the same time, these minority shareholders have threatened to
appeal to the European Court of Human Rights if the Federal Constitutional Court
does not decide in their favor. If the minority shareholders are successful in
any of these appeals, there is a risk that the courts may rule to annul the
conversion. However, we consider it to be remote that these claims will prevail.

Some minority shareholders have filed claims with German courts challenging the
resolution approving the conversion. The Regional Court (Landgericht) of Hagen
has dismissed the challenges to the conversion resolution. Each of the minority
shareholders has filed an appeal to the Upper Regional Court (Oberlandesgericht)
of Hamm. The upper regional court has decided to stay the matter until the
Federal Constitutional Court has made a decision regarding the challenge to the
commercial register entry. Any decision of the Upper Regional Court in this
matter may be appealed to the Federal Supreme Court (Bundesgerichtshof) and
thereafter to the Federal Constitutional Court (Bundesverfassungsgericht). If,
after the conclusion of the foregoing appeals process, the German courts
declared the resolution invalid, which scenario we consider remote, the
following may be the result in case the minority shareholders initiate
additional legal proceedings:

o    The plaintiffs could be entitled to the damages that the court finds that
     they have actually incurred. Damages might include compensation for, among
     other things, certain tax disadvantages resulting from the conversion and
     the reduced liquidity of their investment.

o    The partnership agreement that was adopted by the resolution could cease to
     be effective as of the date that the resolution was declared null and void.
     A new partnership agreement that maintains the former minority
     shareholders' legal position would then be prepared. If any shareholder
     refused to execute the new partnership agreement, the majority shareholder
     or Friedrich Grohe AG & Co. KG could then try to force them to do so
     through legal actions. On the other hand, the minority shareholders
     refusing to execute the new partnership agreement could try to initiate
     liquidation proceedings with respect to Friedrich Grohe AG & Co. KG.



                                      F-43
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------


o    A court could require that Friedrich Grohe AG & Co. KG and/or the majority
     shareholder undertakes steps to convert Friedrich Grohe AG & Co. KG back
     into a stock corporation and then apply for public listing. This might
     cause the tax benefits resulting from the conversion to be eliminated; on
     the other hand, the majority shareholder then could squeeze out the
     minority shareholders, and a procedure to convert back into a limited
     partnership could be commenced.

Moreover, it is not clear whether the Federal Constitutional Court will consider
the complaints of unconstitutionality.

Some minority shareholders are having the amount of the cash settlement offer of
(euro)330.20 per share with a nominal value of DM 50 examined in the arbitration
procedure provided for by law. There is the risk that the court may determine a
higher cash settlement in the course of the arbitration procedure. Such higher
cash settlement would apply to 50,195 shares of minority shareholders of
Friedrich Grohe AG who objected to the resolution authorizing the conversion of
Friedrich Grohe AG into Friedrich Grohe AG & Co. KG. We cannot comment on the
outcome of these proceedings and are not in the position to estimate an
additional redemption amount that may be determined by the court. In case of a
determination of a higher redemption amount by the court, the corresponding cash
outflow would lead to additional acquisition costs for the above mentioned
shares of Friedrich Grohe AG and consequently to additional goodwill. Goodwill
is not amortized subsequent to January 1, 2002 and is subject to at least an
annual impairment test.

One minority shareholder has filed a claim with the Regional Court of Hagen
objecting to the adoption of the Friedrich Grohe AG & Co. KG financial
statements of year 2000. The Regional Court of Hagen has decided to stay the
matter until the Federal Constitutional Court has made a decision regarding the
challenge to the commercial register entry. If the claim is successful, the
financial statements and withdrawals from Friedrich Grohe AG & Co. KG for year
2000 could be declared invalid. If the financial statements are declared
invalid, the minority shareholders could then try to initiate liquidation
proceedings with respect to Friedrich Grohe AG & Co. KG. However, we consider it
to be remote that they would be successful.

Other legal disputes currently are being pursued with regard to normal business
activity. The Company's management is of the opinion that these proceedings will
not have any substantial effect on financial position or operating results of
the Company. Legal costs are expensed as incurred.

ENVIRONMENTAL MATTERS

In Germany and other jurisdictions where Grohe does business, the Company is
subject to strict environmental laws and regulations. Violators of these and
other laws and regulations can be subject to substantial criminal and civil
penalties, and temporary or permanent plant closures. In 2000, Grohe completed
environmental assessments for each of its production facilities. These
assessments, which included investigations into soil and groundwater quality,
revealed contamination at six of the Company's current or former properties. As
a result of these assessments, Grohe estimated the total maximum remediation
costs at (euro)3,375 as of December 31, 2000. Grohe has taken remedial actions
and conducted further evaluations of environmental remediation issues in the
years 2001 and 2002 and, as a result, by the end of 2002, at two sites, we had
reduced the contamination to the extent required. In addition, we sold one site
in 2002, and, as a condition to the sale, the purchaser assumed the costs for
any further needed remediation measures related to the site. Although the
purchaser has assumed the remediation obligations as a condition to the sale,
under German law, the environmental authorities still have the ability to assert
claims against us with respect to this site. At the remaining three sites, we
are continuing to conduct



                                      F-44
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------


further investigation or remediation activities as appropriate. The Company
believes that the remediation activities in the years 2001 and 2002
significantly reduced identified environmental risks. However, we are not in a
position to estimate total maximum possible remediation costs as of the date of
this report due to factors beyond our control such as changes in environmental
laws, uncertainties surrounding the nature and application of environmental
regulations, and the discovery of previously unidentified contamination. Grohe
establishes reserves for environmental risks when a loss is probable and
reasonably estimable. Probable remediation costs provided for in the financial
statements amount to (euro)100 and (euro)307 at December 31, 2002 and 2001,
respectively.

OPERATING LEASES

Future minimum lease payments under the terms of noncancelable operating leases
for automobile fleet leases, IT equipment and other factory and office equipment
as well as for real estate in effect at December 31, 2002 are as follows:

2003                                                      4,820
2004                                                      3,801
2005                                                      2,693
2006                                                        652
2007                                                        357
Thereafter                                                5,057
---------------------------------------------------- -----------
Total minimum rental payments                            17,380
---------------------------------------------------- -----------


Operating lease terms generally range from 3 to 60 months for automobile fleet
leases, IT equipment, and other factory and office equipment. Remaining lease
terms for real estate as of December 31, 2002 are 14 years for land and
buildings and up to 90 years for hereditary leases of land.

Total rental expenses for all operating leases were (euro)7,802, (euro)6,988 and
(euro)3,862 for the years ended December 31, 2002, 2001 and 2000, respectively.

FINANCIAL GUARANTEES

As is customary in the industry, Grohe sells its products against bills of
exchange to some customers. A bill of exchange provides legal evidence of the
debt and orders the drawee, who can be the customer or, on its behalf, a
financial institution, to pay a specified amount against the bill of exchange at
maturity. If Grohe endorses these bills of exchange to a bank, Grohe receives
its value in cash after deduction of discount. Should the drawee default upon
maturity of the bill of exchange, Grohe is liable for the debt. At December 31,
2002 the maximum possible recourse against Grohe upon default of the drawee on
these transactions amounted to (euro)4,300.

NOTE 18. RELATED PARTY TRANSACTIONS

CIE Management II Limited is the general partner of the 19 BC Funds limited
partnerships, which if calculated together, own 38.1% of Grohe Holding as of
December 31, 2002. CIE Management II Limited charged Grohe with fees of
(euro)2,556 on January 26, 2000 for arranging the financing of Grohe's
acquisition of Friedrich Grohe AG.



                                      F-45
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------


Capital d'Amerique CDPQ Inc. is the pension fund of the public servants of the
Province of Quebec, Canada, and has an interest of 16.0% in Grohe Holding as of
December 31, 2002. The Caisse de Depot group, to which Capital d'Amerique CDPQ
Inc. belongs, has an interest in the BC Funds of approximately 6.4%. Capital
d'Amerique CDPQ charged Grohe with fees of (euro)383 on February 7, 2000 in
connection with the financing of Grohe's acquisition of Friedrich Grohe AG.

Fees relating to financing of debt are capitalized and amortized over the
respective lives (NOTE 12).

Funds advised by BC Partners Limited collectively are the largest shareholders
of the company Sanitec International S.A., owning over a 77% indirect interest
in Sanitec. In addition, Dr. Rainer S. Simon, a director of Sanitec, was one of
Grohe's management directors until March 2002 and currently is a member of the
supervisory board of Grohe's subsidiary, Friedrich Grohe Geschaftsfuhrungs AG.
Also, Grohe's managing director Peter Korfer-Schun is a member of the board of
directors of a subsidiary of Sanitec. In the years ended December 31, 2002, 2001
and 2000 Grohe sold to subsidiaries of Sanitec various products for the
approximate aggregate total amount of (euro)899, (euro)815 and (euro)601,
respectively.

Dr. Udo Simmat and Dr. Karsten Heider are members of the Company's advisory
board and are also partners of the law firm CMS Hasche Sigle, counsel to Grohe
Holding. In addition, CMS Hasche Sigle, has represented, and continues to
represent, BC Partners Limited, which is the advisor to the 19 BC Funds limited
partnerships. Fees paid for above advisory services were (euro)1,145,
(euro)1,007 and (euro)2,453 for the years ended December 31, 2002, 2001 and
2000, respectively.

Dr. Hanns Ostmeier and Jens Reidel are members of the supervisory board of
Friedrich Grohe Geschaftsfuhrungs AG, a subsidiary of Grohe Holding, and Jens
Reidel also is, and until December 9, 2002 Dr. Ostmeier was, a managing director
of BC Partner Beteiligungsberatung GmbH, which provides advisory services to
Friedrich Grohe AG & Co. KG, subsidiary of Grohe Holding, in connection with its
intention to further grow the business through internal growth as well as
acquisitions. BC Partner Beteiligungsberatung GmbH committed to a minimum amount
of annual consulting services for which they receive a fixed fee of (euro)128
per full calendar year. The total amounts paid to BC Partner GmbH were
(euro)128, (euro)146 and (euro)128 for the years ended December 31, 2002, 2001
and 2000, respectively.

Dr. Klaus Hovermann was a managing director of Grohe Holding until June 5, 2001.
His spouse, Beate Hovermann, has a 75% interest in a company called H. Lenberg
GmbH. H. Lenberg GmbH has been delivering springs, for use in various Grohe
products, to the Company and its predecessor used in the manufacturing of its
products for over 40 years. Average sales to Grohe Holding and its predecessor
for the five years ending December 31, 2001 have been approximately (euro)281
per year. This represented approximately five per cent of H. Lenberg GmbH's
annual sales and less than one per cent of Grohe Holding's annual procurement.

Dr. Bernd Kortum is a member of the supervisory board of Grohe Holding GmbH's
subsidiary Friedrich Grohe Geschaftsfuhrungs AG and also a managing director of
Norddeutsche Vermogen Holding GmbH & Co. Norddeutsche Vermogen Holding GmbH &
Co. is the parent company of Immobilienverwaltungsgesellschaft "Aqua-Carre
Berlin" mbH & Co. KG. In March 2002 Grohe's subsidiary Friedrich Grohe AG & Co.
KG and Immobilienverwaltungsgesellschaft "Aqua-Carre Berlin" mbH & Co. KG
concluded a purchase contract under which Grohe sold one of its former
production sites located in Berlin, Germany, for (euro)5,880 to
Immobilienverwaltungsgesellschaft "Aqua-Carre Berlin" mbH & Co. KG. According to
the purchase contract, the sale was consummated at the time the first
installment on the purchase price was paid in June 2002. This installment
amounted to (euro)1,960. The remaining purchase price of (euro)3,920 is due in
two further installments of (euro)1,960 in June 2004 and June 2006,


                                      F-46
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------


respectively. As the receivable from Immobilienverwaltungsgesellschaft
"Aqua-Carre Berlin" mbH & Co. KG does not bear interest, interest has been
imputed at a rate of 5% resulting in a net present value of all payments of
(euro)5,350 as of the date the purchase contract was consummated.

NOTE 19. FINANCIAL INSTRUMENTS

FAIR VALUE OF FINANCIAL INSTRUMENTS

The amounts reported in the consolidated balance sheets for cash and cash
equivalents, trade receivables, accounts payable, accrued expenses and short
term debt approximate fair value based on the short-term maturity of these
instruments. The amounts included in the consolidated balance sheets relating to
the Company's long-term debt to banks generally approximates fair value since
the various interest rates on such long-term debt obligations either approximate
the current market interest rates or are in fact variable short-term interest
rates. Shareholder loans and loans due to related parties bear interest lower
than market; therefore, interest has been imputed at an appropriate rate and the
loans are recorded at fair value.

The following methods and assumptions were used to estimate the fair value of
the financial instruments held by the Company for which it is practicable to
estimate fair value:

o    receivables from sale of real property: the fair values of receivables from
     sale of real property with a maturity of more than twelve months are
     estimated by discounting future cash flows using interest rates currently
     available for debt with identical terms and remaining maturities;

o    bonds: the fair values of the bonds are based upon available quoted market
     prices;

o    long term bank loans: the carrying amounts of variable interest bearing
     debt approximate fair value. Fair values of fixed interest rate bearing
     debt are estimated by discounting future cash flows using interest rates
     currently available for debt with identical terms and remaining maturities;

o    long term debt to shareholders and related parties: because these loans
     carry a rate of interest which is below market, interest has been imputed
     at an appropriate rate and the debt has been recorded at its fair value;

o    derivative financial instruments: fair values of interest rate derivatives
     are determined by discounting estimated future cash flows using market
     interest rates over the remaining terms of the instruments. The estimated
     fair values of foreign currency contracts represent the amounts to enter
     into similar contracts for the remaining maturity of the foreign currency
     contracts.

Considering the variability of value determining drivers, the fair values
presented may not be those the Company could realize under the current market
conditions.



                                      F-47
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------


Fair values of financial instruments, which are not derivative financial
instruments, approximate carrying amounts except as follows:

<TABLE>
<CAPTION>
                                               December 31, 2002              December 31, 2001
                                               -----------------              -----------------
                                          Carrying           Fair         Carrying           Fair
                                           amount            value         amount           value
                                           ------            -----         ------           -----
<S>                                           <C>             <C>                <C>              <C>
Assets
   Receivables from sale of real
      property with a maturity of
      more than twelve months                 3,475           3,565              0                0

Liabilities
   Bonds                                    200,000         227,000        200,000          217,000
   Long-term debt to banks with
      fixed interest rates                   17,722          18,197         23,919           23,977
</TABLE>

Fair values of derivative financial instruments are as follows:

<TABLE>
<CAPTION>
                                               December 31, 2002              December 31, 2001
                                          Carrying           Fair         Carrying           Fair
                                           amount            value         amount           value
                                           ------            -----         ------           -----
<S>                                          <C>             <C>             <C>              <C>
Assets
   Foreign currency contracts                15,485          15,485          1,435            1,435

Liabilities
   Foreign currency contracts                     0               0          4,396            4,396
   Interest rate contracts                    7,144           7,144          5,140            5,140
</TABLE>


DERIVATIVE FINANCIAL INSTRUMENTS

Grohe conducts business on a worldwide basis in various international currencies
and is exposed to adverse movements in foreign currency exchange rates.
Furthermore, Grohe uses financial instruments such as bonds and long term debt
to banks. As a consequence, Grohe might be exposed to risks from changes in
interest and currency exchange rates. Grohe uses derivative financial
instruments to reduce such risks. Therefore, in the course of day to day
financial management, Grohe purchases financial instruments such as forward
exchange contracts and currency options. Grohe also uses interest rate swaps and
collars. Without the use of these instruments, Grohe would face even higher
market risks. Grohe does not enter into financial instruments for trading or
speculative purposes. The counterparties are international financial
institutions.

Currency contracts include foreign currency forward contracts, which are
supposed to reduce the exposure to risks from existing intercompany accounts
receivable and accounts receivable from third parties and anticipated
transactions in foreign currency, especially US dollar, British pounds and
Japanese yen on an aggregated basis. At inception date the contracts generally
have a maturity of 1 to 18 months. Gains and losses from derivative currency
contracts are reported net as financial income from derivatives.



                                      F-48
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------


As of December 31, 2002 and 2001, the Company had arranged the following
combined interest rate swap and cap agreements and collar agreement for
financial expenses of debt which are settled quarterly and semiannually and
mature in July 2004:

o    combined interest rate swap and cap agreement with notional amounts of
     (euro)82,573 and (euro)145,718 at December 31, 2002 and 2001, respectively,
     with a pay rate at 5-year swap rate for 6-months EURIBOR with a cap at
     5.07% and a receive rate at 3-months EURIBOR;

o    combined interest rate swap and cap agreement with a notional amount of
     (euro)63,912 at December 31, 2002 and 2001, with a pay rate at 5-year swap
     rate for 3-months EUROLIBOR with a cap at 4.99% and a receive rate at
     3-months LIBOR; and

o    interest rate collar agreement with notional amounts of (euro)200,682 and
     (euro)200,426 at December 31, 2002 and 2001, respectively, with the
     6-months EURIBOR as the basic pay and receive rate. The floor pay rate is
     3.00% with an excess interest rate of 1.65% in case the floor is effective.
     The cap pay rate is 5.20% if the basic rate is 8.00% or lower and 8.00% if
     the basic rate is higher than 8.00%.

The notional amount and estimated fair values of the derivative financial
instruments at December 31, 2002 and 2001 are as follows.


<TABLE>
<CAPTION>
                                        December 31, 2002               December 31, 2001
                                        -----------------               -----------------
                                     Notional          Fair          Notional          Fair
                                      amount          value           amount           value
                                      ------          -----           ------           -----
<S>                                    <C>              <C>            <C>               <C>
Foreign currency contracts             165,460          15,485         171,710           (2,961)
Interest rate contracts                347,167          (7,144)        410,055           (5,140)
</TABLE>


The Company may be exposed to credit-related losses in the event of
nonperformance by counterparties to financial instruments. Counterparties to the
Company's financial instruments generally represent international financial
institutions. The Company believes that the overall credit risk related to
derivatives is insignificant.

To minimize the risk of fluctuations in the market price of major raw material
commodities, especially brass, Grohe may enter commodity purchase contracts over
the counter with suppliers instead of closing commodity forward contracts.

ACCOUNTING AND REPORTING FOR FINANCIAL INSTRUMENTS

The income or expense from financial instruments is recognized in financial
income.

The carrying amounts of financial instruments other than derivative financial
instruments are recorded under the related caption. The interest rate derivative
instruments entered into by the Company do not qualify for hedge accounting.
Interest differentials paid or received under interest rate swaps and changes in
fair market value of interest rate swaps are accounted for as financial income
from derivatives.

Foreign currency derivatives purchased to offset Grohe's exposure to currency
risks for anticipated cash flows are not designated as accounting hedges and,
therefore, do not meet the requirements for hedge accounting and are marked to
market at each reporting period with unrealized gains and losses classified in
financial income and presented on a net basis.



                                      F-49
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------


The financial income (loss) from derivative financial instruments amounting to
(euro)23,696 and (euro)(20,494) for the years ended December 31, 2002 and 2001,
respectively, includes income (losses) from changes in fair market value of
derivative financial instruments without impact on cash of (euro)16,119 in 2002
and (euro)(13,800) in 2001. Accordingly, net income has been adjusted for such
changes in fair market value of derivative financial instruments in order to
reconcile net income to net cash provided by operating activities. Changes in
fair market value of derivative financial instruments without impact on cash for
the year ended December 31, 2000 were immaterial.

NOTE 20. BUSINESS SEGMENTS

The Grohe Group mainly produces sanitary fittings, including electronic and
hydraulic faucets, showers and shower systems, flushing valves, safety and
self-closing faucets as well as flushing cisterns and water management systems
primarily for private and also for public/commercial use. Most of these products
are sold worldwide. Due to the different dynamics across the geographic areas,
the business is managed by the chief operating decision maker on the basis of a
segmentation into the following individual geographical regions.

o    GERMANY AND DIRECT EXPORTS. This segment comprises Grohe Group's activities
     in Germany and direct exports through Friedrich Grohe AG & Co. KG to
     foreign customers.

o    EUROPEAN SUBSIDIARIES. This segment covers operations in the most important
     European markets outside Germany in which the Grohe Group is represented by
     foreign subsidiaries.

o    OVERSEAS SUBSIDIARIES. This segment comprises Grohe's activities outside
     Europe where the Company has subsidiaries.

o    HOLDING. This segment contains holding and managing companies.

The Grohe Group's management reporting and controlling systems are generally
based upon group accounting principles, which are within the scope of German
GAAP. Grohe measures the performance of its operating segments through "EBIT"
according to German GAAP. Earnings before interest and taxes (EBIT) is defined
as income (loss) before income taxes, minority interests and extraordinary items
adjusted for interest. EBIT reported for the segments does not represent actual
earnings for the operating segments, as margins included in transfer prices on
products sourced from production plants in Germany are included in EBIT of the
segment "Germany and direct exports". The transfer prices between the segments
are generally based on standard production costs plus a reasonable profit
markup. Margins generated in Germany for intercompany sales to other segments
are not identified on segment level in the internal reporting system. It would
therefore be impractical to provide such disclosure.

Revenues to third parties are allocated to the segments based on the location of
the sales generating subsidiary; direct exports primarily to customers located
in the Middle East and eastern Europe, are made and reported for directly from
Germany. Assets are defined as total assets according to the Group accounting
standards; assets also include interests in associated companies. Assets are
allocated according to the location of the respective legal entity. Debt as used
in the management reporting is defined as total current and noncurrent
liabilities less pension liabilities.





                                      F-50
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------



Segmental information for the year ended and as of December 31, 2002 is as
follows:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                            Germany                                               Elimination
                              and                                                  of inter-
       Year ended           direct       European      Overseas       Holding       segment       US GAAP        GROHE
   December 31, 2002        exports    subsidiaries  subsidiaries      level     transactions   adjustments      Group

                         million euro  million euro  million euro  million euro  million euro   million euro  million euro
----------------------------------------------------------------------------------------------------------------------------
<S>                            <C>           <C>           <C>             <C>           <C>          <C>          <C>
Sales

   To third parties            349.5         370.6         181.6           0.0           0.0          (3.4)        898.3

   To other segments           395.4          41.2           5.8           0.0        (442.4)          0.0           0.0

EBIT                           102.0          31.8          29.3         (83.6)        (16.9)         55.5         118.1

Of which:

   Depreciation of
   tangible assets              28.5           5.3           2.0          12.4           0.0          (0.3)         47.9

   Amortization of
   goodwill and other
   intangibles                   4.1           0.1           0.1          65.9           0.0         (46.8)         23.4

   Noncash items
   other than
   depreciation and
   amortization
   expense                       9.3           0.4           0.2           0.0           0.0          (8.3)          1.6

   Income from
   equity method
   investees                     0.9           0.0           0.0           0.0           0.0           0.0           0.9

Interest income                  3.3           0.3           0.1           1.2          (1.6)          0.0           3.3

Interest expense                12.5           0.5           0.6          51.8          (1.6)          6.6          70.4

Assets                         449.1         131.3          95.7         665.8        (126.5)        107.5       1,322.9

Investments in equity
method investees                 1.5           0.0           0.0           0.0           0.0           0.0           1.5

Capital expenditures            37.8           3.0           4.0           0.0           0.0           0.0          44.8

Debt                           307.2          84.4          38.4         697.4         (27.0)        (83.3)      1,017.1
----------------------------------------------------------------------------------------------------------------------------
</TABLE>






                                      F-51
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------



Segmental information for the year ended and as of December 31, 2001 is as
follows:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                              Germany                                               Elimination
                                and                                                  of inter-
       Year ended             direct       European      Overseas       Holding       segment       US GAAP        GROHE
   December 31, 2001          exports    subsidiaries  subsidiaries      level     transactions   adjustments      Group

                           million euro  million euro  million euro  million euro  million euro   million euro  million euro
----------------------------------------------------------------------------------------------------------------------------
<S>                             <C>           <C>            <C>             <C>           <C>           <C>         <C>
  Sales

     To third parties           354.3         357.2          167.3           0.0           0.0           2.0         880.8

     To other segments          359.2          40.8            4.2           0.0        (404.2)          0.0           0.0

  EBIT                           90.7          27.2           23.8         (90.1)         (8.2)         (1.5)         41.9

  Of which:

     Depreciation of
     tangible assets             27.2           5.2            2.5          17.7           0.0           1.5          54.1

     Amortization of
     goodwill and other
     intangibles                  3.0           0.2            0.1          66.3           0.0         (11.1)         58.5

     Noncash items
     other than
     depreciation and
     amortization
     expense                      8.2           0.2            0.6           0.4           0.0          11.1          20.5

     Income from
     equity method
     investees                    0.2           0.0            0.0           0.0           0.0           0.0           0.2

  Interest income                 2.5           0.4            0.2           1.6          (1.3)          0.0           3.4

  Interest expense               16.6           0.4            0.7          57.6          (1.3)          6.3          80.3

  Assets                        446.8         133.0          106.1         743.1        (140.5)         64.6       1,353.1

  Investments in equity
  method investees                1.0           0.0            0.0           0.0           0.0           0.0           1.0

  Capital expenditures           27.5           3.6            4.8           0.0           0.0           0.8          36.7

  Debt                          306.9          87.3           54.5         736.4         (32.9)        (84.1)      1,068.1
----------------------------------------------------------------------------------------------------------------------------
</TABLE>



                                      F-52
<PAGE>

                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------

Segmental information for the for the year ended and as of December 31, 2000 is
as follows:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                              Germany                                               Elimination
                                and                                                  of inter-
       Year ended             direct       European      Overseas       Holding       segment       US GAAP        GROHE
   December 31, 2001          exports    subsidiaries  subsidiaries      level     transactions   adjustments      Group

                           million euro  million euro  million euro  million euro  million euro   million euro  million euro
----------------------------------------------------------------------------------------------------------------------------
<S>                            <C>           <C>           <C>             <C>           <C>           <C>         <C>
Sales

   To third parties            356.7         340.3         153.9           0.0           0.0           4.6         855.5

   To other segments           361.7          35.1           4.9           0.0        (401.7)          0.0           0.0

EBIT                            89.9          17.2          14.7        (110.3)         (6.1)         34.3          39.7

Of which:

   Depreciation of
   tangible assets              28.1           5.1           2.5          18.7           0.0           1.5          55.9

   Amortization of
   goodwill and other
   intangibles                   2.4           0.3           0.1          68.3           0.0         (13.0)         58.1

   Noncash items
   other than
   depreciation and
   amortization
   expense                      10.1          (0.4)          0.1           5.2           0.0         (22.8)         (7.8)

   Income from
   equity method
   investees                     0.6           0.0           0.0           0.0           0.0           0.0           0.6

Interest income                 12.8           0.4           0.3          10.9         (19.5)         (0.5)          4.4

Interest expense                19.0           0.6           0.4          80.3         (19.5)          7.6          88.4

Capital expenditures            27.1           5.4           4.0           0.0           0.0           3.1          39.6
---------------------------------------------------------------------------------------------------------------------------
</TABLE>





                                      F-53
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------



A reconciliation of consolidated segments' earnings before interest and taxes to
the group's consolidated income (loss) before taxes, minority interests and
extraordinary items is as follows:

<TABLE>
<CAPTION>
                                                        Year ended               Year ended              Year ended
                                                     December 31,2002        December 31, 2001       December 31, 2000
---------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>                      <C>                      <C>
Earnings before interest and income taxes
   according to German GAAP                            62,636                   43,370                   5,470
---------------------------------------------------------------------------------------------------------------------------
Adjustments from German GAAP to US GAAP
   Debt issuance cost                                   3,193                    2,374                  15,645
   Business combinations                               47,644                   12,799                  12,654
   Derivative financial instruments                    13,107                  (14,868)                  7,180
   Cost of computer software and other
      intangible assets                                  (493)                     (96)                  1,022
   Provisions and contingencies                           687                     (187)                  1,530
   Special reserves under German GAAP                  (1,547)                    (980)                 (1,940)
   Pension and similar obligations                     (1,525)                   1,726                  (1,882)
   Foreign currency translation                        (4,091)                  (2,296)                   (107)
   Other                                               (1,469)                     101                     133
---------------------------------------------------------------------------------------------------------------------------
Earnings before interest and income taxes,
   minority interests and extraordinary
   items according to US GAAP                         118,142                   41,943                  39,705
---------------------------------------------------------------------------------------------------------------------------
Interest income (expense), net (US GAAP)              (67,083)                 (76,961)                (84,012)
---------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes,
   minority interests and extraordinary
   items according to US GAAP                          51,059                  (35,018)                (44,307)
---------------------------------------------------------------------------------------------------------------------------
</TABLE>


A reconciliation of consolidated segments' revenues to the group's consolidated
revenues is as follows:

<TABLE>
<CAPTION>
                                                    Year ended             Year ended              Year ended
                                                 December 31, 2002      December 31, 2001      December 31, 2000
---------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>                   <C>                      <C>
Total revenues according to German GAAP               901,750               878,868                  850,860
---------------------------------------------------------------------------------------------------------------------
Adjustments from German GAAP to US GAAP
Derivative financial instruments                       (3,488)                1,913                    4,614
---------------------------------------------------------------------------------------------------------------------
Total revenues according to US GAAP                   898,262               880,781                  855,474
---------------------------------------------------------------------------------------------------------------------
</TABLE>




                                      F-54
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------


A reconciliation of consolidated segments' assets to consolidated total assets
is as follows:

<TABLE>
<CAPTION>
                                                      December 31, 2002      December 31, 2001
--------------------------------------------------------------------------------------------------
<S>                                                         <C>                   <C>
Total assets according to German GAAP                       1,215,427             1,288,509
--------------------------------------------------------------------------------------------------
Adjustments from German GAAP to US GAAP
   Debt issuance cost                                           7,056                 8,466
   Business combinations                                       78,265                30,621
   Derivative financial instruments                            16,801                 6,467
   Costs of computer software and other
      intangibles                                               1,000                 1,493
   Provisions and contingencies                                (2,503)               (2,335)
   Special reserves under German GAAP                          (5,378)               (5,366)
   Pension and similar obligations                             16,936                16,284
   Foreign currency translation                                (2,612)                7,515
   Leasing                                                      1,131                 2,041
   Other                                                       (3,226)                 (578)
--------------------------------------------------------------------------------------------------
Total assets according to US GAAP                           1,322,897             1,353,117
--------------------------------------------------------------------------------------------------
</TABLE>


On account of the largely homogeneous product range, product-based divisional
organization and divisional accounting do not exist except for sales information
by product groups; instead, almost the entire sales range is marketed under the
brand `GROHE'. Under this brand name the Company sells the product ranges
GROHEART, GROHETEC, SANITARYSYSTEMS, SHOWERS AND SHOWER SYSTEMS and KITCHEN
FITTINGS. The target group for GROHEART products is the consumer of high-end,
design-oriented sanitary fittings and related accessories. GROHETEC with its
strategy value for money represents the functional bathroom faucet line and its
target market are brand-, quality- and value-conscious customers.
SANITARYSYSTEMS consists of flushing and installation systems. The strategic
product groups focus on the management of the product development and innovation
processes as well as the management of the product life cycle and supplement our
functional organizational structure.

Revenues from external customers for each group of similar products according to
US GAAP are as follows:

<TABLE>
<CAPTION>
                                                    Year ended     Year ended      Year ended
                                                   December 31,   December 31,    December 31,
                                                       2002           2001            2000
                                                 -------------------------------------------------
<S>                                                    <C>             <C>            <C>
GROHEART                                               77,713          65,180         55,835
GROHETEC                                              369,287         373,951        367,960
SANITARYSYSTEMS                                        87,901          88,622         89,063
SHOWERS AND SHOWER SYSTEMS                            141,664         130,236        119,313
KITCHEN FITTINGS                                      103,942          98,211         94,272
Other                                                 117,755         124,581        129,031
--------------------------------------------------------------------------------------------------
                                                      898,262         880,781        855,474
--------------------------------------------------------------------------------------------------
</TABLE>




                                      F-55
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------


Sales by geographical markets are as follows:

<TABLE>
<CAPTION>
                                                    Year ended     Year ended       Year ended
                                                   December 31,   December 31,     December 31,
                                                       2002           2001             2000
                                                 ---------------------------------------------------
<S>                                                  <C>             <C>            <C>
Germany                                              225,939         245,382        264,868
Rest of Europe                                       433,047         410,615        380,675
Overseas                                             239,276         224,784        209,931
----------------------------------------------------------------------------------------------------
                                                     898,262         880,781        855,474
----------------------------------------------------------------------------------------------------
</TABLE>

Direct exports included in the segment Germany and direct exports have been
allocated to the various regional markets. During the periods reported, there
were no sales in which a single customer achieved a sales volume of more than
10% of total sales.

NOTE 21. SUBSEQUENT EVENTS

Effective January 1, 2003 Grohe's subsidiary Aqua Butzke GmbH acquired the
remaining minority interests in the Company's subsidiaries Rotter GmbH & Co. KG
and Rotter Verwaltungsgesellschaft mbH for a total purchase price of
(euro)2,200.

In March 2003 Grohe entered into an agreement with a syndicate of banks for a
new senior credit facility. The new senior credit facility consists of four
facilities, three term loan facilities, A1, A2 and B in an aggregate amount of
up to (euro)550,000, and the new revolving facility, in an aggregate amount of
up to (euro)50,000. Principal payments on facilities A1 and A2 are due
semi-annually with the final payment due on December 20, 2009. The principal
amount of facility B is due in one bullet payment on July 20, 2010. Interest on
all facilities is payable at EURIBOR or, in relation to any loan in a currency
other than euro, LIBOR plus margin at the end of each interest period or, if the
interest period should exceed six months, at the end of six months. The initial
margin per year is 2.25% for facilities A1 and A2 and 2.75% for facility B. The
margin will be reduced if the Company achieves certain ratios of total net debt
to EBITDA, as defined in the senior credit facility agreement. Interest on
outstanding amounts under the revolving credit facility is EURIBOR or, in
relation to any loan in a currency other than euro, LIBOR plus margin. The
margin for the revolving credit facility is the same as for facilities A1 and
A2. In addition, the Company pays a commitment fee of no more than 0.625% for
the amount available under the revolving credit facility.

Grohe used the new senior credit facilities to repay the old senior credit
facilities and a portion of the outstanding loans from related parties and
shareholders. The loans from related parties and shareholders are subordinated
to Grohe's 11.5% senior notes (also referred to as bonds in the financial
statements). The repayment of the loans from related parties and shareholders
required the consent of the noteholders. This consent was obtained in March
2003, and the consenting noteholders received a fee of 7.25% of the nominal
value of the bonds in April 2003. The aggregate fee amounted to approximately
(euro)12.9 million. The consent fee and any expenses related to the consent
solicitation process will be included in other expense in the consolidated
statements of operations as incurred.

Unamortized debt issuance cost related to the refinanced senior bank loans and
the repaid portion of the loans from shareholders and related parties will be
charged to interest expense at the respective repayment dates. Debt issuance
costs related to the issuance of the new senior credit facility are capitalized
and amortized to interest expense pursuant to the effective interest method.



                                      F-56
<PAGE>
                               GROHE HOLDING GMBH
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------


As the contractual interest rate of 5% on the loans from related parties and
shareholders was below market rate at inception of the loans, interest had been
imputed at a rate of 11.5% for accounting purposes. The difference between the
loans net present value at inception of the loans and the cash amount received
from shareholders and related parties was credited against additional paid in
capital and deferred taxes at inception of the loans. As of December 31, 2002,
the total amount accrued in the balance sheet for these loans amounted to
(euro)172,674, which approximates fair market value.

The partial repayment of the loans from shareholders and related parties will be
accounted for as a capital transaction.


                                      F-57
<PAGE>

                                                                      SCHEDULE I

                               GROHE HOLDING GMBH
                            STATEMENTS OF OPERATIONS
                               (EURO IN THOUSANDS)

<TABLE>
<CAPTION>
                                                      YEAR ENDED           YEAR ENDED          YEAR ENDED
                                                     DECEMBER 31,         DECEMBER 31,        DECEMBER 31,
                                                         2002                 2001                2000
                                                         ----                 ----                ----
<S>                                                     <C>                   <C>               <C>
Interest income                                         27,843                27,110            10,633
Interest expense                                       (41,332)              (40,199)          (72,877)
Income (loss) from affiliated companies                 28,168               (35,494)            9,163
Financial income from derivatives                            0                     0             3,405
Other expense                                           (2,408)                 (414)             (316)
                                                        ------                ------            ------
Income (loss) before income taxes                       12,271               (48,997)          (49,992)
Income tax benefit (NOTE 2)                             11,280                18,884            28,052
                                                        ------                ------            ------
Net income (loss)                                       23,551               (30,113)          (21,940)
                                                        ======                ======            ======
</TABLE>


                 The accompanying notes are an integral part of
                      these condensed financial statements


                                      F-58
<PAGE>



                               GROHE HOLDING GMBH
                                 BALANCE SHEETS
                               (EURO IN THOUSANDS)



<TABLE>
<CAPTION>
                                               DECEMBER 31, 2002          DECEMBER 31, 2001
                                               -----------------          -----------------
<S>                                                        <C>                      <C>
Assets
  Current assets
     Cash and cash equivalents                             6,001                    4,614
     Accounts receivable
       Due from affiliated companies                     134,727                   88,346
     Other current assets                                  3,639                    6,484
                                                         -------                  -------
         Total current assets                            144,367                   99,444
                                                         -------                  -------
     Investments in affiliated
       companies                                         188,714                  215,610
     Loans to affiliated companies                       200,000                  200,000
     Other noncurrent assets                                 767                      864
                                                         -------                  -------
         Total assets                                    533,848                  515,918
                                                         =======                  =======
</TABLE>

                 The accompanying notes are an integral part of
                      these condensed financial statements



                                      F-59
<PAGE>


                               GROHE HOLDING GMBH
                           BALANCE SHEETS (CONTINUED)
                               (EURO IN THOUSANDS)



<TABLE>
<CAPTION>
                                                                 DECEMBER 31, 2002          DECEMBER 31, 2001
                                                                 -----------------          -----------------
<S>                                                                         <C>                           <C>
Liabilities and Shareholders' Equity
   Current liabilities
     Accounts payable
       Due to affiliated companies                                          115                           6
     Current deferred tax liabilities                                         0                       1,776
     Other accrued expenses and current liabilities                       3,207                       3,377
                                                                        -------                     -------
       Total current liabilities                                          3,322                       5,159
                                                                        -------                     -------
     Long-term debt to related parties (NOTE 4)                         133,148                     119,415
     Long-term debt to shareholders (NOTE 4)                             39,526                      35,449
     Bonds (NOTE 4)                                                     200,000                     200,000
     Noncurrent deferred tax liabilities                                  6,484                      16,127
                                                                        -------                     -------
       Total noncurrent liabilities                                     379,158                     370,991
                                                                        -------                     -------
     Commitments and contingencies
     Shareholder's equity
     Share capital                                                       51,374                      51,003
     Additional paid in capital, net of subscription
       receivable of(euro)283 and(euro)267 at
       December 31 2002, and 2001, respectively                         163,204                     158,472
     Deferred compensation                                               (1,788)                          0
     Accumulated deficit                                                (57,510)                    (81,061)
     Accumulated other comprehensive income                              (3,912)                     11,354
                                                                        -------                     -------
       Total shareholders' equity                                       151,368                     139,768
                                                                        -------                     -------

         Total liabilities and shareholders' equity                     533,848                     515,918
                                                                        =======                     =======
</TABLE>



                 The accompanying notes are an integral part of
                      these condensed financial statements


                                      F-60
<PAGE>


                               GROHE HOLDING GMBH
                  STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                               (EURO IN THOUSANDS)



<TABLE>
<CAPTION>
                                                                                             ACCUMULATED OTHER
                                                                                           COMPREHENSIVE INCOME
                                                                                           --------------------
                                                                                           FOREIGN
                                                      ADDITIONAL DEFERRED                  CURRENCY      MINIMUM      TOTAL
                                              SHARE    PAID IN    COMPEN-   ACCUMULATED   TRANSLATION    PENSION   SHAREHOLDERS'
                                             CAPITAL   CAPITAL    SATION      DEFICIT      ADJUSTMENT   LIABILITY     EQUITY
                                             -------   -------    ------      -------      ----------   ---------     ------
<S>                                          <C>      <C>              <C>   <C>             <C>              <C>     <C>
Balance at December 31, 1999                 50,893   129,639          0     (29,008)        5,912            0       157,436
      Increase in additional paid in
         capital related to the
         modification of long-term debt
         to shareholders and related parties          28,626                                                           28,626
      Comprehensive income (loss):
         Net loss                                                            (21,940)                                 (21,940)
         Foreign currency translation
           adjustment                                                                        3,902                      3,902
                                                                                                                   --------------
                Total comprehensive loss                                                                              (18,038)
                                             -------- ---------- ---------- ------------ -------------- ---------- --------------

Balance at December 31, 2000                 50,893   158,265          0     (50,948)        9,814            0       168,024
                                             -------- ---------- ---------- ------------ -------------- ---------- --------------
       Capital increase                        110       267                                                              377
       Subscription receivable                          (267)                                                            (267)
       Treasury share transaction                         97                                                               97
       Increase in additional paid in
         capital related to long-term debt
         to shareholders and related
         parties                                         110                                                              110
       Comprehensive income (loss):
          Net loss                                                           (30,113)                                 (30,113)
          Foreign currency translation
            adjustment                                                                       1,765                      1,765
          Minimum pension liability
            adjustment                                                                                     (225)         (225)
                                                                                                                   --------------
                 Total comprehensive loss                                                                             (28,573)
                                             -------- ---------- ---------- ------------ -------------- ---------- --------------

Balance at December 31, 2001                 51,003   158,472           0    (81,061)       11,579         (225)      139,768
                                             -------- ---------- ---------- ------------ -------------- ---------- --------------
       Capital increase                        371      1,163                                                           1,534
       Deferred compensation charge                     3,569     (3,569)                                                   0
       Amortization of deferred compensation                       1,781                                                1,781
       Comprehensive income (loss):
          Net income                                                          23,551                                   23,551
          Foreign currency translation
            adjustment                                                                     (15,008)                   (15,008)
          Minimum pension liability
            adjustment                                                                                     (258)         (258)
                                                                                                                   --------------
                 Total comprehensive income                                                                             8,285
                                             -------- ---------- ---------- ------------ -------------- ---------- --------------

Balance at December 31, 2002                 51,374   163,204     (1,788)    (57,510)       (3,429)        (483)      151,368
                                             -------- ---------- ---------- ------------ -------------- ---------- --------------
</TABLE>


                 The accompanying notes are an integral part of
                      these condensed financial statements



                                      F-61
<PAGE>


                               GROHE HOLDING GMBH
                            STATEMENTS OF CASH FLOWS
                               (EURO IN THOUSANDS)

<TABLE>
<CAPTION>
                                                       YEAR ENDED          YEAR ENDED          YEAR ENDED
                                                   DECEMBER 31, 2002    DECEMBER 31,2001    DECEMBER 31, 2000
                                                   -----------------    ----------------    -----------------
<S>                                                       <C>                <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss)                                      23,551             (30,113)            (21,940)
   Adjustments to reconcile net income (loss) to
      net cash provided by operating activities
         Deferred income taxes                           (11,419)            (16,196)            (33,745)
         (Income) loss from affiliated companies         (28,168)             35,494              (9,163)
         Noncash compensation                              1,781                   0                   0
         Accrued interest on long-term debt
            to shareholders and related parties           17,810              15,962              18,741
   Changes in operating assets and liabilities
         Due from affiliated companies                    (3,728)              2,147                 104
         Prepaid expenses and other assets                    87              (3,427)             (2,045)
         Due to affiliated companies                         109                   4                   2
         Other accrued expenses and liabilities             (170)                 68              (2,609)
                                                          ------              ------              ------
   NET CASH PROVIDED BY OPERATING ACTIVITIES                (147)              3,939             (50,655)
                                                          ------              ------              ------

CASH FLOWS USED FOR INVESTING ACTIVITIES:
         Purchases of shares                                   0                   0              (3,512)
         Loans to affiliated companies                         0                   0            (200,000)
                                                          ------              ------              ------
   NET CASH USED FOR INVESTING ACTIVITIES                      0                   0            (203,512)
                                                          ------              ------              ------

CASH FLOWS USED FOR FINANCING ACTIVITIES:
         Increase in restricted cash                           0                   0             (18,385)
         Increase in short-term debt to related
            parties                                            0                   0               2,822
         Proceeds from issuance of long-term debt
            to shareholders and related parties                0                 378                   0
         Proceeds from issuance of long-term
            debt to banks                                      0                   0              21,454
         Principal payments on long-term debt to
            banks                                              0                   0             (24,731)
         Proceeds from issuance of bonds                       0                   0             200,000
         Proceeds from issuance of long-term
            debt to affiliated companies                       0                   0              71,581
         Proceeds from issuance of shares                  1,534                 110                   0
         Purchase of treasury shares                           0                (905)                  0
         Sale of treasury shares                               0               1,002                   0
                                                          ------              ------              ------
   NET CASH PROVIDED BY/USED FOR FINANCING
     ACTIVITIES                                            1,534                 585             252,741
                                                          ------              ------              ------

   NET INCREASE (DECREASE) IN CASH AND CASH
     EQUIVALENTS                                           1,387               4,524              (1,427)

   CASH AND CASH EQUIVALENTS
      AT BEGINNING OF YEAR                                 4,614                  90               1,517
      AT END OF YEAR                                       6,001               4,614                  90

   Supplemental disclosure of cash flow information
      Interest paid                                       23,375              23,889              41,001
      Income taxes paid                                        0                   0                   0
      Other payments to related parties                        0                   0               2,940

Noncash investing and financing activities: NOTE 3
</TABLE>


                 The accompanying notes are an integral part of
                      these condensed financial statements


                                      F-62
<PAGE>


NOTE 1.



                               GROHE HOLDING GMBH
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------

NOTE 1.           BASIS OF PREPARATION

These condensed financial statements of the company have been prepared using the
same accounting policies as set out in our consolidated financial statements for
the years ended December 31, 2002, 2001 and 2000 except that subsidiaries are
not consolidated but instead are accounted for using the equity method.

NOTE 2.           Income taxes

The income tax benefit includes German deferred tax benefits of (euro)11,419,
(euro)16,197 and (euro)28,052 for the years ended December 31, 2002, 2001 and
2000, respectively, and German current tax (expenses) and benefits of (euro)
(139) and (euro)2,687 for the years ended December 31, 2002 and 2001,
respectively. The deferred taxes result from temporary differences between the
tax bases of assets and liabilities and their reported amounts and from tax net
loss carryforwards. At December 31, 2002, 2001 and 2000, Grohe Holding GmbH had
corporate tax net loss carryforwards of (euro)166,594, (euro)130,033 and
(euro)76,694, respectively. These corporate tax net loss carryforwards include
tax deductible losses of Grohe Holding GmbH as well as taxable income from the
subsidiaries Grohe Beteiligungs GmbH & Co. KG and Friedrich Grohe AG & Co. KG,
respectively. As both subsidiaries are partnerships, corporate income tax on
taxable income of these subsidiaries is due at the shareholders level, i.e. at
the level of Grohe Holding GmbH. Deferred tax assets of (euro)43,939,
(euro)34,296 and (euro)19,173 have been set up as of December 31, 2002, 2001 and
2000 for these tax loss carryforwards resulting in tax benefits of (euro)9,643,
(euro)15,123 and (euro)16,770 for the years ended December 31, 2002, 2001 and
2000, respectively.

NOTE 3.           Noncash Investing and Financing Activities

On October 4, 2000 Grohe Beteiligungs GmbH & Co. KG was founded in order to
establish a favorable financing structure within the Grohe Group. Grohe Holding
GmbH transferred almost its entire business activities to Grohe Beteiligungs
GmbH & Co. KG in accordance with a contribution and transfer agreement dated
October 26, 2000. The effective date of contribution was October 1, 2000. The
following assets and liabilities were transferred to Grohe Beteiligungs GmbH &
Co. KG for new shares of Grohe Beteiligungs GmbH & Co. KG:

Investments in affiliated companies                            1,085,151
Restricted cash                                                   25,707
Other assets                                                      20,953
---------------------------------------------------------- ------------------
     Assets contributed                                        1,131,811
---------------------------------------------------------- ------------------
Long-term debt to banks                                         (789,010)
Short-term debt to related parties                                (4,123)
Other liabilities                                                (15,120)
---------------------------------------------------------- ------------------
     Liabilities contributed                                    (808,253)
---------------------------------------------------------- ------------------
     Net assets contributed for new shares                       323,558
---------------------------------------------------------- ------------------

NOTE 4. Long-term Debt

A) BONDS

On November 13, 2000 Grohe Holding GmbH issued a debenture (`bonds') totaling
(euro)200,000. The bonds were issued at the nominal value of (euro)1 or in
multiples of (euro)1 and are due at par on November 15, 2010. The bonds bear
11.5% interest per year. Interest payments are made on May 15 and November 15 of
each year. Accrued interest of (euro)2,875 and (euro)3,250 as of December 31,
2002 and 2001, respectively, were included in current liabilities.

The bonds are subordinated to any indebtedness incurred under the senior credit
facility. The indenture includes certain rules regarding the early redemption of
the notes.



                                      F-63
<PAGE>
                               GROHE HOLDING GMBH
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------


The indenture describes certain criteria that have to be met in order to avoid
an event of default. Certain deadlines regarding the timely provision of
consolidated financial statements in accordance with US GAAP for the year ended
December 31, 2000 to the trustee and the noteholders as well as the timely
filing of a registration statement with the U.S. Securities and Exchange
Commission (SEC) were not met by the Company. However, a default under the
related clause does not constitute an event of default prior to a notification
by the trustee and the failure to cure such default within the time specified in
the indenture agreement after receipt of such notice.

The bonds provide for penalty interest in the event that certain requirements
have not been met at the specified dates. The penalty interest rate starts at
0.5% and increases to a maximum of 1.5%. As a consequence of the failure to meet
above deadlines Grohe had been subject to additional interest from May 14, 2001
to February 22, 2002.

Grohe's last remaining default was cured upon the effectiveness of its
registration statement with the SEC on February 22, 2002 and as of this date
interest was reduced to 11.5% again.

B) LONG-TERM DEBT TO SHAREHOLDERS AND LONG-TERM DEBT TO RELATED PARTIES

In July 1999 shareholders and related parties of Grohe Holding GmbH have
provided the Company with loans totaling (euro)259,225. This amount bears a
nominal interest at a rate of 5% per year. Originally, principal and interest
payments were not due prior to the complete settlement of all claims of the
creditors under the senior and junior credit facility in December 2006. In the
course of the issuance of the bonds in November 2000, principal and interest
payments were subordinated to the repayment of the bonds until November 2010.

As the loans carry a rate of interest less than market rate, interest has been
imputed using a discount rate of 11.5% to arrive at the loans net present value
of (euro)158,680 at July 31, 1999. The cash provided of (euro)259,225 in excess
of the imputed long-term debt to shareholders and related parties balance
((euro)158,680) has been recorded as a credit to additional paid in capital
((euro)48,865) and a credit to deferred taxes ((euro)51,680).

Due to the subordination of these loans from shareholders and related parties to
the bonds, the debt instrument has substantially different terms such that the
modification has to be accounted for in a manner like an early extinguishment of
debt.

The difference in net present values of the original debt instrument
((euro)183,015 at November 15, 2000) and the debt instrument after the
aforementioned modification ((euro)136,694 at November 15, 2000) has been
recorded as a credit to additional paid in capital ((euro)28,626) and a credit
to deferred taxes ((euro)17,695).

In July 2001 Cornelius Geber and Dr. Hellmut K. Albrecht became shareholders of
the Company and provided the Company with additional shareholder loans of
(euro)378. Principal and interest payments are subordinated to the repayment of
the bonds until November 2010. As the loans bear a nominal interest at a rate of
5% per year, which is less than the market rate, interest has been imputed using
a discount rate of 11.5% to arrive at the loans net present value of (euro)200.
The difference of (euro)178 between the cash provided of (euro)378 and the net
present value of the loans of (euro)200 has been recorded as a credit to
additional paid in capital ((euro)110) and a credit to deferred taxes
((euro)68).




                                      F-64
<PAGE>
                               GROHE HOLDING GMBH
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------



Long-term debt to related parties at December 31, 2002 and 2001 is comprised as
follows:

<TABLE>
<CAPTION>
                                                               DECEMBER 31,                DECEMBER 31,
                                                                   2002                        2001
                                                     ---------------------------------------------------------
<S>                                                               <C>                          <C>
BC Funds, Channel Islands                                         67,569                       60,600
Teabar Capital Corp., Toronto, Canada                             36,981                       33,167
Capital d'Amerique CDPQ, Montreal, Canada                         28,362                       25,436
Dr. Hellmut K. Albrecht, Munich, Germany                             193                          174
Cornelius Geber, Hamburg, Germany                                     43                           38
--------------------------------------------------------------------------------------------------------------
Total related parties                                            133,148                      119,415
--------------------------------------------------------------------------------------------------------------
</TABLE>

Long-term debt to shareholders at December 31, 2002 and 2001 is comprised as
follows:

<TABLE>
<CAPTION>
                                                                      DECEMBER 31,          DECEMBER 31,
                                                                          2002                  2001
                                                                  --------------------------------------------
<S>                                                                        <C>                   <C>
BdW GmbH & Co. KG, Frankfurt, Germany                                      9,742                 8,738
HVB-Offene Unternehmensbeteiligungs-AG,
    Munich, Germany                                                        9,742                 8,738
South Light Investment Pte Limited, Singapore                              9,742                 8,738
HarbourVest III-Direct Fund L.P., Delaware, USA                            5,845                 5,242
Crescat Equity 1 Beteiligung GmbH & Co. KG,
    Hamburg, Germany                                                       2,269                 2,035
Laranjedo Servicios e Gestao Lda., Madeira, Portugal                       1,949                 1,747
Michel Guillet, Paris, France                                                115                   103
Patrice Hoppenot, La Celle Saint Coud, France                                 57                    51
Raymond Svider, Paris, France                                                 57                    51
Celia Guillet, Paris, France                                                   3                     2
Edouard Guillet, Paris, France                                                 3                     2
Vincent Festquet, Paris, France                                                1                     1
Remi Terrail, Paris, France                                                    1                     1
--------------------------------------------------------------------------------------------------------------
Total shareholders                                                        39,526                35,449
--------------------------------------------------------------------------------------------------------------
</TABLE>






                                      F-65
<PAGE>
                               GROHE HOLDING GMBH
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                    (EURO IN THOUSANDS, EXCEPT WHERE STATED)
--------------------------------------------------------------------------------




C) FUTURE MATURITIES OF LONG-TERM DEBT

Financial liabilities maturing during the next five years and thereafter are as
follows:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
                                                   LONG-TERM DEBT TO
                                                       RELATED
                                                      PARTIES AND
                                      BOND            SHAREHOLDERS          TOTAL
---------------------------------------------------------------------------------------
<S>                                     <C>                  <C>               <C>
 2003                                   0                    0                 0
 2004                                   0                    0                 0
 2005                                   0                    0                 0
 2006                                   0                    0                 0
 2007                                   0                    0                 0
 Thereafter                       200,000              172,674           372,674
---------------------------------------------------------------------------------------
 Total long-term debt             200,000              172,674           372,674
---------------------------------------------------------------------------------------
</TABLE>