**Asfiled with the Securities and Exchange Commission on xxxxxxx, 2003**

 

 

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

 

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**FORM 20-F**

 

**ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**forthe fiscal year ended December 31, 2002**

 

**Commissionfile number 333-73020**

 

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**MesserGriesheim Holding AG**

(Exact name of registrant as specified in itsCharter)

 

# **FEDERAL REPUBLIC OF GERMANY**

(Jurisdiction of incorporation ororganization)

 

**KOOGSTRAAT10, 25870-NORDERFRIEDRICHSKOOG, GERMANY**

(Address of principal executive offices)

 

Securities registered or to be registeredpursuant to Section 12(b) of the Act:

**None**

Securities registered or to be registeredpursuant to Section 12(g) of the Act:

**None**

(Title of Class)

Securities for which there is a reportingobligation pursuant to Section 15(d) of the Act:

**€550,000,000**

| **10.375% Senior Notes due 2011** |
|-----------------------------------|
| (Title of Class)                  |

 

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Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.

 

Yes ý  No o

 

Indicate by check mark which financialstatement item the registrant has elected to follow.

 

Item 17 o  Item 18 ý

 

 

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**TABLEOF CONTENTS**

 
| INTRODUCTION AND USE OF CERTAIN TERMS |
|---------------------------------------|
| FORWARD-LOOKING STATEMENTS            |
| **PART I**                            |   |   |
| ITEM 1.                               | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT  AND ADVISERS |
| ITEM 2.                               | OFFER STATISTICS AND EXPECTED TIMETABLE |
| ITEM 3.                               | KEY INFORMATION |
|                                  | 3.A | SELECTED FINANCIAL DATA |
|                                  | 3.B | CAPITALIZATION AND INDEBTEDNESS |
|                                  | 3.C | REASONS FOR THE OFFER AND USE OF PROCEEDS |
|                                  | 3.D | RISK  FACTORS |
| ITEM 4.                               | INFORMATION ON THE COMPANY |
|                                  | 4.A | HISTORY AND DEVELOPMENT OF MESSER GRIESHEIM  AND MESSER HOLDING |
|                                  | 4.B | BUSINESS OVERVIEW |
|                                  | 4.C | ORGANIZATIONAL STRUCTURE |
|                                  | 4.D | PROPERTY, PLANTS AND EQUIPMENT |
| ITEM 5.                               | OPERATING AND FINANCIAL REVIEW AND  PROSPECTS |
|                                  | 5.A | OPERATING RESULTS |
|                                  | 5.B | LIQUIDITY AND CAPITAL RESOURCES |
|                                  | 5.C | RESEARCH AND DEVELOPMENT, PATENTS AND  LICENSES |
|                                  | 5.D | TRENDS |
| ITEM  6.                              | DIRECTORS,  SENIOR MANAGEMENT AND EMPLOYEES |
|                                  | 6.A | DIRECTORS AND SENIOR MANAGEMENT |
|                                  | 6.B | COMPENSATION |
|                                  | 6.C | BOARD PRACTICES |
|                                  | 6.D | EMPLOYEES |
|                                  | 6.E | SHARE OWNERSHIP |
| ITEM 7.                               | MAJOR  SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
|                                  | 7.A | MAJOR SHAREHOLDERS |
|                                  | 7.B | RELATED PARTY TRANSACTIONS |
|                                  | 7.C | INTERESTS OF EXPERTS AND COUNSEL |
| ITEM 8.                               | FINANCIAL  INFORMATION |
|                                  | 8.A | CONSOLIDATED STATEMENTS AND OTHER FINANCIAL  INFORMATION |
|                                  | 8.B | SIGNIFICANT CHANGES |
| ITEM  9.                              | THE  OFFER AND LISTING |
|                                  | 9.A | LISTING DETAILS |
|                                  | 9.B | PLAN OF DISTRIBUTION |
|                                  | 9.C | MARKET |
|                                  | 9.D | SELLING SHAREHOLDERS |
|                                  | 9.E | DILUTION |
|                                  | 9.F | EXPENSES OF THE ISSUE |
| ITEM  10.                             | ADDITIONAL  INFORMATION |
|                                  | 10.A | SHARE  CAPITAL |
|                                  | 10.B | MEMORANDUM AND ARTICLES OF ASSOCIATION |
|                                  | 10.C | MATERIAL CONTRACTS |

 

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|           | 10.D                                                                          | EXCHANGE CONTROLS           |
|----------------|-------------------------------------------------------------------------------|-----------------------------|
|           | 10.E                                                                          | TAXATION                    |
|           | 10.F                                                                          | DIVIDENDS AND PAYING AGENTS |
|           | 10.G                                                                          | STATEMENT BY EXPERTS        |
|           | 10.H                                                                          | DOCUMENTS ON DISPLAY        |
|           | 10.I                                                                          | SUBSIDIARY INFORMATION      |
| ITEM  11.      | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   |
| ITEM  12.      | DESCRIPTION  OF SECURITIES OTHER THAN EQUITY SECURITIES                       |
| **PART II**    |
| ITEM  13.      | DEFAULTS,  DIVIDEND ARREARAGES AND DELINQUENCIES                              |
| ITEM 14.       | MATERIAL  MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
| ITEM  15.      | CONTROLS  AND PROCEDURES                                                      |
| ITEM 16.       | [RESERVED]                                                                    |
| **PART III**   |
| ITEM  17.      | FINANCIAL  STATEMENTS                                                         |
| ITEM  18.      | FINANCIAL  STATEMENTS                                                         |
| ITEM  19.      | EXHIBITS                                                                      |
|           |                                                                          |                        |
| SIGNATURES     |
| CERTIFICATIONS |
|           |                                                                          |                        |
| EXHIBIT INDEX  |

 

3

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# **INTRODUCTION ANDUSE OF CERTAIN TERMS**

 

In this Form 20-F (with the exception ofthe F-pages):

 

•                                          “MesserHolding”, “the Company”, “we”, “us” and “our” refers to Messer GriesheimHolding AG and, unless the context otherwise requires, its consolidatedsubsidiaries;

 

•                                          “MesserGriesheim” refers to the Messer Griesheim Holding AG’s subsidiary, MesserGriesheim GmbH, which is the operating company whose business and results ofoperations are described in this Form 20-F, including, unless the contextotherwise requires, its consolidated subsidiaries;

 

•                                          “MesserGriesheim Group” and “the Group” refer to the parent of Messer GriesheimHolding AG, Messer Griesheim Group GmbH & Co. KGaA, a GermanPartnership limited by shares, or Messer Griesheim Group GmbH prior to itsconversion on November 1, 2001 to Messer Griesheim Group GmbH &Co. KGaA;

 

•                                          “MesserIndustrie” refers to Messer Industrie GmbH, a holding company for the Messerfamily’s minority interest in Messer Griesheim Group; and

 

•                                          “MGB” refers to Messer GriesheimBeteiligungsverwaltungs GmbH, which is the general partner of Messer GriesheimGroup.

 

•                                          “MesserEmployee” refers to Messer Employee GmbH & Co. KG, a company throughwhich employees participating in our share purchase and option plan are to holdshares in Messer Griesheim Group.

 

•                                          “MEB”refers to Messer Employee Beteiligungsverwaltungs GmbH, which is the generalpartner of Messer Employee.

 

**CURRENCY PRESENTATION**

 

In this Form 20-F:

 

•                                          “DM”means Deutsche Mark;

 

•                                          “€”and “Euros” mean the single currency of the participating Member States ofEuropean Economic and Monetary Union; and

 

•                                          “$”and “dollars” mean U.S. dollars.

 

On January 1, 2000, we adopted the € as our reporting currency andtranslated all amounts previously denominated in DM at the fixed exchange rateof €1.00=DM 1.95583, applicable since January 1, 1999, for all priorperiods presented.

 

We furnish to holders of our senior notes reports that include adescription of operations and annual audited consolidated financial statementsprepared in accordance with International Financial Reporting Standards(“IFRS”), which differs in certain significant respects from Generally AcceptedAccounting Principles in the U.S. (“U.S. GAAP”). See Item 18 “FinancialStatements” - Note 40 “Reconciliation to U.S. GAAP” for a description of thesignificant differences between IFRS and U.S. GAAP. The financial statementsincluded in the annual reports are examined and reported upon by Messers’independent auditors. We also furnish holders of our senior notes with anyearly update of our exchange offer prospectus and with unaudited quarterlyconsolidated financial statements prepared in conformity with IFRS with areconciliation to U.S. GAAP.

 

4

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**ENFORCEABILITY OFCIVIL LIABILITIES**

 

Messer Holding is a stock corporation organized under the laws of theFederal Republic of Germany. Most of our management board and supervisory boardmembers and executive officers reside outside the United States. All or asubstantial portion of our assets and most of our management board andsupervisory board members also are located outside the United States. As aresult, it may not be possible for investors to effect service of processwithin the United States upon us or such persons with respect to mattersarising under the United States federal securities laws or to enforce againstus or such persons located outside the United States judgments of United Statescourts predicated upon the civil liability provisions of the United Statesfederal securities laws.

 

**FINANCIAL STATEMENTPRESENTATION**

 

Messer Holding was a dormant company which was activated in 2001 tobecome a holding company for Messer Griesheim’s shares in connection with theacquisition transactions of April 30, 2001, (see Item 18 “Financial Statements”– Note 3 “Acquisition transactions”). Messer Holding has no material assets orsources of revenue other than its shares in Messer Griesheim, which have beenpledged to Messer Griesheim’s senior lenders as security, and an intercompanyloan to Messer Griesheim.

 

Accordingly, this Form 20-F includes:

 

•                                          auditedconsolidated financial statements of Messer Griesheim for the twelve monthsended December 31, 2000 and for the four months ended April 30, 2001;

 

•                                          auditedconsolidated financial statements of Messer Holding for the twelve months endedDecember 31, 2002 and for the eight months ended December 31, 2001; and

 

•                                          auditedfinancial statements of Singapore Syngas Pte Ltd as of December 31,2000 and for the twelve months ended December 31, 2000 and unauditedfinancial statements of Singapore Syngas Pte Ltd as of October 31, 2002,as of December 31, 2001, as of December 31, 1999 and as of December 31,1998 and for the ten months ended October 31, 2002, the twelve months endedDecember 31, 2001 and the twelve months ended December 31, 1999 and the twelvemonths ended December 31, 1998.

 

Both Messer Griesheim’s and Messer Holding’s financial statements areprepared in accordance with International Financial Reporting Standards(“IFRS”) as adopted by the International Accounting Standards Board. The Groupapplied all International Accounting Standards (“IAS”) effective as of December31, 2002, as of April 30, 2001 and as of December 31, 2001 and 2000,respectively. IFRS differ in certain significant respects from generally acceptedaccounting principles in the United States and certain other countries.Material differences between IFRS and generally accepted accounting principlesin the United States, or U.S. GAAP, that affect our financial statements, arediscussed in Note 40 “Reconciliation to U.S. GAAP” to Messer Holding’sconsolidated financial statements contained in this Form 20-F.

 

Singapore Syngas Pte Ltd’s financial statements are prepared inaccordance with Singapore generally accepted accounting principles, or SGAAP.SGAAP differ in certain respects from IFRS. Material differences between SGAAPand IFRS that affect the financial statements of Singapore Syngas Pte Ltd(unaudited) are discussed in Note 17 “Reconciliation of SGAAP to IAS” to theSingapore Syngas Pte Ltd (unaudited) financial statements contained inthis Form 20-F. IFRS differ in certain respects from generally acceptedaccounting principles in the United States. Material differences between IFRSand U.S. GAAP that affect the financial statements of Singapore Syngas Pte Ltd(unaudited) are discussed in Note 18 “Reconciliation of U.S. GAAP” to theSingapore Syngas Pte Ltd financial statements contained in this Form 20-F.

 

**MARKET AND INDUSTRYDATA**

 

Information or other statements presented in this Form 20-F regardingmarket share and industry data relating to our business were obtained fromindustry publications and other publicly available publications. AlthoughMesser Holding 

 

5

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believes that this informationis reliable, Messer Holding cannot guarantee the accuracy or completeness ofthe information neither has Messer Holding independently verified it. Unlessthe context indicates otherwise, all market and industry data is for thecalendar year 2002.

 

6

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**FORWARD LOOKING STATEMENTS**

 

This Form 20-F includes forward-looking statements. We have based theseforward-looking statements on our current expectations and projections aboutfuture events. Although we believe that our expectations are based onreasonable assumptions, we cannot assure you that actual results will not bematerially different from our expectations. Factors that could cause our actualresults to differ materially from our expectations include, among other things:

 

•                                          theamount of proceeds realized from our divestiture program;

 

•                                          thetiming of the receipt of proceeds realized from our divestiture program;

 

•                                          theamount of savings in operational costs that Messer Griesheim is able to achieveas a result of ist on-going cost savings program;

 

•                                          thecosts of implementing Messer Griesheim’s cost savings program;

 

•                                          thetiming to achieve benefits of our cost savings program;

 

•                                          anticipatedtrends and conditions in our industry, including regulatory developments;

 

•                                          ourcapital needs; and

 

•                                          ourability to compete.

 

We are under no obligation to update or revise publicly any forwardlooking statement. The forward looking events discussed in this Form 20-F mightnot happen. In addition, you should not interpret statements regarding pasttrends or activities as promises that those trends or activities will continuein the future. All written, oral and electronic forward looking statementsattributable to us or persons acting on our behalf are expressly qualified intheir entirety by this cautionary statement. Some numbers that appear in thisForm 20-F (including percentage amounts) have been rounded. Numbers in tablesmay not sum precisely to the totals shown due to rounding.

 

**NORMALIZED EBITDA**

 

The Company calculates normalized EBITDA as operating profit beforedepreciation and amortization, after adding back charges for impairment ofintangible assets and property, plant and equipment, restructuring &reorganization charges and cash dividends from non consolidated subsidiaries.

 

Normalized EBITDA is not a measure recognized by IFRS or U.S. GAAP.This and similar measures are used by different companies for differingpurposes and are often calculated in ways that reflect the unique situations ofthose companies. We urge you to be very cautious in comparing our normalizedEBITDA data to the EBITDA data of other companies. Normalized EBITDA is not asubstitute for operating profit as a measure of operating results. Likewise,normalized EBITDA is not a substitute for cash flow as a measure of liquidity.

 

7

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**PART I**

 

**ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS**

 

Not applicable.

 

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

 

Not applicable.

 

**ITEM 3. KEY INFORMATION**

 

**3.A SELECTED FINANCIAL DATA**

 

The following selected financial data for the twelve months endedDecember 31, 2002 and the eight months ended December 31, 2001 has beenderived from Messer Holding’s audited consolidated financial statements. Theselected financial data as of and for the four months ended April 30, 2001and the twelve months ended December 31, 2000 is derived from MesserGriesheim’s revised consolidated financial statements that were audited by KPMGDeutsche Treuhand—Gesellschaft Aktiengesellschaft Wirtschafts­prüfungs­gesellschaft,independent accountants, whose report thereon is based in part upon the reportof other auditors. The selected financial data for the years endedDecember 31, 1999 and 1998 is derived from Messer Griesheim’s revisedconsolidated financial statements which were audited by PwC Deutsche RevisionAktiengesellschaft Wirtschaftsprüfungsgesellschaft, independent accountants.Consolidated balance sheets at December 31, 2002 and 2001 and the relatedconsolidated statements of operations and of cash flows for the twelve monthsended December 31, 2002, and for the eight months ended December 31,2001, for the four months ended April 30, 2001 and the twelve months endedDecember 31, 2000 and notes thereto appear elsewhere in thisForm 20-F.

 

Messer Griesheim adopted in May 2001 a divestiture program pursuant towhich it intends to sell substantially all of the assets and operations in itsnon-core markets, located in Asia, Africa and Latin America, as well as certainnon strategic assets and operations in its core markets. Other than the jointventures in Central America and China (described in Item 4 “Information on theCompany” - 4.A “History and Development of Messer Griesheim and MesserHolding”) and our subsidiaries in Indonesia and Peru, we have completed alldivestitures that were targeted to be completed by the end of calendar year2002.

 

Consideration should be given to the effects of the acquisitiontransactions of April 30, 2001, the refinancing program, and the divestitureprogram when comparing historical financial information, including the selectedfinancial data, for periods prior to April 30, 2001 to periods thereafter.To make this clear, financial information for periods prior to and subsequentto the acquisition transactions have been separated in the following table byinserting a solid vertical line between the columns for such periods.

 

Messer Holding has no material assets or sources of revenue other thanits shares in Messer Griesheim, which have been pledged to Messer Griesheim’ssenior lenders as security, and an intercompany loan of €550 million toMesser Griesheim.

 

The following table should be read together with the financialstatements and related Notes and Item 5 “Operating and Financial Review andProspects” included else where in this Form 20-F.

 

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Periods Prior to the AcquisitionsTransactions

 
|                                                               |   | **Messer  Griesheim GmbH**                       |       | **Messer Griesheim Holding AG**                  |       |
|--------------------------------------------------------------------|--------|--------------------------------------------------|------------|--------------------------------------------------|------------|
|                                                               |   | **Twelve  months  ended  December 31,  1998(1)** |       | **Twelve  months  ended  December 31,  1999(1)** |       | **Twelve  months  ended  December 31,  2000** |   | **Four  months  ended  April 30,  2001** |   | **Eight  months  ended  December 31,  2001** |   | **Twelve  months  ended  December 31,  2002** |   |
|                                                               |   | **(amounts in € million)**                  | ** ** | **(amounts in € million)**                  | ** ** |
| **SELECTED FINANCIAL DATA**                                        |   |                                             |       |                                             |       |   |   |   |   |   |   |   |   |
| **Income statement data**                                          |   |                                             |       |                                             |       |   |   |   |   |   |   |   |   |
| Net sales                                                          |   | 1,477                                            |       | 1,492                                            |       | 1,696 |   | 574 |   | 1,047 |   | 1,526 |   |
| Cost of sales                                                      |   | (696                                             | )          | (701                                             | )          | (845 | ) | (293 | ) | (565 | ) | (749 | ) |
| **Gross profit**                                                   |   | **781**                                          | ** ** | **791**                                          | ** ** | **851** | ** ** | **281** | ** ** | **482** | ** ** | **777** | ** ** |
| Distribution and selling costs                                     |   | (501                                             | )          | (531                                             | )          | (569 | ) | (177 | ) | (314 | ) | (477 | ) |
| Research and development costs                                     |   | (21                                              | )          | (20                                              | )          | (25 | ) | (7 | ) | (10 | ) | (13 | ) |
| General and administrative costs                                   |   | (102                                             | )          | (130                                             | )          | (128 | ) | (45 | ) | (83 | ) | (128 | ) |
| Other operating income                                             |   | 44                                               |       | 34                                               |       | 38 |   | 10 |   | 11 |   | 26 |   |
| Other operating expense                                            |   | (12                                              | )          | (28                                              | )          | (22 | ) | (11 | ) | (24 | ) | (40 | ) |
| Impairment of intangible assets and  property, plant and equipment |   | —                                           |       | (4                                               | )          | (128 | ) | (2 | ) | — |   | (1 | ) |
| Restructuring charges                                              |   | —                                           |       | —                                           |       | (20 | ) | (3 | ) | (25 | ) | (13 | ) |
| **Operating profit (loss)**                                        |   | **189**                                          | ** ** | **112**                                          | ** ** | **(3** | **)** | **46** | ** ** | **37** | ** ** | **131** | ** ** |
| Equity method investments expense, net                             |   | —                                           |       | (14                                              | )          | (208 | ) | (5 | ) | (15 | ) | (13 | ) |
| Other investment expense, net                                      |   | (2                                               | )          | (2                                               | )          | (15 | ) | (5 | ) | (4 | ) | (4 | ) |
| Interest expense, net                                              |   | (48                                              | )          | (62                                              | )          | (88 | ) | (36 | ) | (103 | ) | (140 | ) |
| Changes in fair value of subsidiaries  available for sale          |   | —                                           |       | —                                           |       | — |   | — |   | (6 | ) | (2 | ) |
| Other financial (expense) income, net                              |   | 1                                                |       | (2                                               | )          | (5 | ) | (7 | ) | — |   | (16 | ) |
| Non-operating expense                                              |   | (49                                              | )          | (80                                              | )          | (316 | ) | (53 | ) | (128 | ) | (175 | ) |
| (Loss) income from discontinuing operations                        |   | (4                                               | )          | 5                                                |       | — |   | — |   | — |   | — |   |
| (Loss) gain from disposal of discontinuing  operations             |   | —                                           |       | (3                                               | )          | (17 | ) | — |   | — |   | — |   |
| **Income (loss) before income taxes and  minority interests**      |   | **136**                                          | ** ** | **34**                                           | ** ** | **(336** | **)** | **(7** | **)** | **(91** | **)** | **(44** | **)** |
| Income taxes                                                       |   | (44                                              | )          | (49                                              | )          | 138 |   | (5 | ) | 26 |   | (35 | ) |
| **Income (loss) before minority interests**                        |   | **92**                                           | ** ** | **(15**                                          | **)**      | **(198** | **)** | **(11** | **)** | **(65** | **)** | **(79** | **)** |
| Minority interests, net of income taxes                            |   | (8                                               | )          | (6                                               | )          | (8 | ) | (2 | ) | (5 | ) | (11 | ) |
| **Net income (loss)**                                              |   | **84**                                           | ** ** | **(21**                                          | **)**      | **(206** | **)** | **(13** | **)** | **(70** | **)** | **(90** | **)** |
|                                                               |   |                                             |       |                                             |       |   |   |   |   |   |   |   |   |
| **Cash flow information**                                          |   |                                             |       |                                             |       |   |   |   |   |   |   |   |   |
| Net cash from operating activities                                 |   | 176                                              |       | 357                                              |       | 261 |   | (9 | ) | 138 |   | 370 |   |
| Net cash used in investing activities                              |   | (541                                             | )          | (473                                             | )          | (335 | ) | (66 | ) | (87 | ) | (76 | ) |
| Net cash (used in) from financing  activities                      |   | 361                                              |       | 108                                              |       | 86 |   | 248 |   | (75 | ) | (340 | ) |
| Depreciation and amortization                                      |   | 147                                              |       | 196                                              |       | 342 |   | 77 |   | 183 |   | 253 |   |
| Investments(2)                                                     |   | 634                                              |       | 557                                              |       | 403 |   | 85 |   | 85 |   | 140 |   |
| **Balance sheet information at period end**                        |   |                                             |       |                                             |       |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                                          |   | 61                                               |       | 57                                               |       | 50 |   | 227 |   | 188 |   | 135 |   |
| Total assets                                                       |   | 2,565                                            |       | 3,053                                            |       | 2,976 |   | 3,190 |   | 3,349 |   | 2,942 |   |
| Total corporate debt                                               |   | 1,138                                            |       | 1,470                                            |       | 1,699 |   | 1,951 |   | 1,581 |   | 1,375 |   |
| Total liabilities                                                  |   | 1,835                                            |       | 2,336                                            |       | 2,537 |   | 2,761 |   | 2,446 |   | 2,207 |   |
| Total stockholders’ equity                                    |   | 730                                              |       | 717                                              |       | 439 |   | 429 |   | 903 |   | 735 |   |
|                                                               |   |                                             |       |                                             |       |   |   |   |   |   |   |   |   |
| **U.S. GAAP information(3)(4)**                                    |   |                                             |       |                                             |       |   |   |   |   |   |   |   |   |
| Net loss                                                           |   | n/a                                              |       | (21                                              | )          | (180 | ) | (13 | ) | (67 | ) | (68 | ) |
| Total stockholders’ equity                                    |   | n/a                                              |       | 712                                              |       | 458 |   | 448 |   | 940 |   | 784 |   |
|                                                               |   |                                             |       |                                             |       |   |   |   |   |   |   |   |   |
| **OTHER INFORMATION**                                              |   |                                             |       |                                             |       |   |   |   |   |   |   |   |   |
| Normalized EBITDA(5)                                               |   | **336**                                          | ** ** | **308**                                          | ** ** | **359** | ** ** | **126** | ** ** | **245** | ** ** | **403** |   |

 

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(1) On January 1, 2000, Messer Griesheimadopted the € as its reporting currency and translated all amounts previouslydenominated in DM to Euros at the fixed exchange rate of €1.00 = DM1.95583,which is the official rate applicable since January 1, 1999 for all periodspresented. Messer Griesheim’s consolidated financial statements reported in €depict the same trends as would have been presented if it had continued topresent its consolidated financial statements in DM. Messer Griesheim’sconsolidated financial statements will, however, not be comparable to the €financial statements of other companies that reported their financialinformation in a currency other than DM prior to January 1, 1999.

 

(2)Includes cash outlays for property, plant and equipment and intangible assetsand purchases of investments and loans to related parties.

 

(3) IFRS differs in certain material respectsfrom U.S. GAAP. See Note 40 “Reconciliation to U.S. GAAP” to the auditedfinancial statements of Messer Holding included in Item 18 “FinancialStatements”for an explanation of these differences.

 

(4) Income (loss) from discontinuingoperations and gain (loss) from disposal of discontinuing operations arecomparable under IFRS and U.S. GAAP for the twelve months ended December 31,1999 and 2000 and the four months ended April 30, 2001. For a description ofthe different treatment under IFRS and U.S. GAAP of discontinuing operationsduring the eight month period ended December 31, 2001 and the twelve monthsended December 31, 2002, (see Note 40 “Reconciliation to U.S. GAAP” to ourconsolidated financial statements).

 

(5) Calculated as operating profit beforedepreciation and amortization, after adding back charges for impairment ofintangible assets and property, plant and equipment, restructuring &reorganization charges and cash dividends from non consolidated subsidiaries.Normalized EBITDA is not a measure recognized by IFRS or U.S. GAAP and may notbe comparable to similar measures presented by our competitors.

 

**3.B CAPITALIZATION AND INDEBTEDNESS**

 

Not applicable.

 

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

 

Not applicable.

 

**3.D RISK FACTORS**

 

You should carefully consider all of the information set forth in thisForm 20-F and the following risk factors. The risks below are not the onlyones we face. Additional risks not currently known by us or that we deemimmaterial may also impair our business operations. Our business, financialcondition or results of operations could be materially adversely affected byany of these risks.

 

**Risks Relating to OurBusiness and the Industrial Gas Industry**

 

***To service our debt,we will require a significant amount of cash, which we may not be able to raiseor generate. Our ability to generate cash depends on economic factors beyondour control.***

 

Our ability to generate cash from operations depends largely on thehealth of the economy in Europe and the United States, as well as on thecompetitive environment for industrial gases in these markets. In addition, ourcash flows from operations outside of Western Europe are subject to devaluationand repatriation risk. If our operating cash flows are not sufficient to meetour operating expenses and debt payment obligations, we may be forced to do oneor more of the following:

 

•                                          delayor reduce capital expenditures or the introduction of new products andapplications;

 

•                                          selladditional assets beyond those we currently plan to divest; and

 

•                                          foregobusiness opportunities, including acquisitions and key research and developmentactivities.

 

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If we are unable to meet our debt service obligations, we may attemptto restructure or refinance our existing debt or to seek additional funding.However, we may not be able to do so on satisfactory terms, if at all. Any suchfailure could result in an event of default under Messer Griesheim’s seniorfacilities and our senior notes.

 

***Ourhigh levels of indebtedness could adversely affect our ability to run ourbusiness.***

 

As of December 31, 2002, we had €1,375.4 million of indebtedness and€294 million of additional availability under undrawn committed creditfacilities within our senior facilities. Our high level of debt could haveimportant consequences, including the following:

 

•                                          wemay have difficulty borrowing money in the future for working capital, capitalexpenditures, research and development or other purposes;

 

•                                          MesserGriesheim will need to use a large portion of its cash flow from operations topay principal and interest on its senior facilities and on the intercompanyloan from us, which will reduce the amount of cash available to MesserGriesheim to finance its operations and other business activities;

 

•                                          wemay be more vulnerable to economic downturns and adverse business developments;and

 

•                                          wemay have a much higher level of debt than certain of our competitors, which mayput us at a competitive disadvantage and may make it difficult for us to pursueour business strategy.

 

Messer Griesheim’s senior facilities and the terms of the indenturegoverning our senior notes restrict our ability to incur additional debt, butthey do not fully prohibit us from doing so. Accordingly, we may be able toincur substantial additional debt in the future. If we do incur additionaldebt, the risks outlined above could intensify.

 

***Weare subject to restrictive debt covenants.***

 

Messer Griesheim’s senior facilities and the indenture governing thesenior notes restrict our ability to do, among other things, any of thefollowing:

 

•                                          incuradditional debt;

 

•                                          paydividends or distributions on, or redeem or repurchase, the shares we hold inMesser Griesheim;

 

•                                          makeinvestments or capital expenditures;

 

•                                          createliens;

 

•                                          enterinto transactions with affiliates; or

 

•                                          sellassets or consolidate or merge with or into other companies.

 

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

 

If Messer Griesheim is not able to comply with any of the covenants setout in the senior facilities agreement, an event of default would occur, andMesser Holding could lose its rights under the intercompany loan. In thatevent, Messer Holding would have no funds available to make payments to theholders of the senior notes. For a description of the Refinancing Program seeItem 4 “Information on the Company – 4.A History and Development of MesserGriesheim and Messer Holding”.

 

In addition, a central part of our strategy is to realize the potentialof capital investments we have made in the United 

 

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States and Europe over the pastfive years. Achieving significant returns from those investments may requirespending additional capital. However, the restrictive nature of the covenantscontained in the senior notes and in Messer Griesheim’s senior facilitiesagreement may limit our ability to invest any additional capital, even whererequired to realize the benefits of prior investments.

 

***Our divestitureprogram adopted in May 2001 may not proceed as quickly as we plan orachieve the economic benefits we anticipate. Our divestiture program may notproduce the significant amounts of cash necessary to repay our seniorfacilities.***

 

A major component of our business strategy is the divestiture ofsubstantially all of the assets and operations located outside of our coremarkets along with certain non strategic assets and operations within our coremarkets. As of December 31, 2002, other than the joint ventures in CentralAmerica and China and our subsidiaries in Indonesia and Peru, we have completedall divestitures that were targeted to be completed by the end of calendar year2002. Pursuant to the divestiture program, as of December 31, 2002, theconsummated dispositions resulted in debt relief (including deconsolidated debtas a result of the divestiture program) of approximately €340 million.Agreements for additional dispositions provided an additional €10 millionof debt relief, resulting, upon consummation, in aggregate consolidated debtrelief as of December 31, 2000 of €350 million. While we havedivested a significant portion of the assets and operations located outside ourcore markets, we cannot predict with any certainty how quickly the remainingdivestitures can be negotiated and completed or the amount of proceeds we wouldrealize from the remaining divestitures. The divestiture of certain of ourassets and operations may require additional expenditures prior to theirdisposal. In most cases, we are attempting to sell these assets through auctionprocesses, although we cannot guarantee that there will be sufficientcompetition in each case. For assets in some countries, there are only one ortwo potential acquirors with whom we can realistically negotiate. There is noassurance that we can realize prices for these assets that correspond to theirvalue in other markets or to the cost we incurred in purchasing and installingthese assets. For all of these reasons, it is difficult to predict withcertainty how quickly all of these divestitures can be negotiated and completedor the amount of proceeds that we will realize from the divestitures. Inaddition, economic and market conditions that generally affect the pace andamount of corporate acquisition activity may also negatively affect the amountof proceeds we receive from, and the timing of, our divestiture program.

 

If we are unable to repatriate sale proceeds to Germany, MesserGriesheim may not be able to use these proceeds for debt repayment and an eventof default may occur under Messer Griesheim’s senior facilities as a result. Ifthere is an event of default under the terms of the senior facilities, MesserHolding could lose its rights to the intercompany loan and thus its source offunds to make payments on the senior notes.

 

***To implement ourcost savings plan, we will incur significant expenditures of capital. There isno assurance that we will achieve our desired level of savings pursuant to thisplan.***

 

A major component of our business strategy is the realization of costsavings in our core operations, particularly in Europe. In order to implementour cost savings plan, we expect to incur total one time costs of approximately€64.5 million between April 30, 2001 and year end 2003. During theimplementation phase of our cost savings plan, we expect our implementationcosts to exceed realized savings. Moreover, our restructuring costs may be higherthan we anticipate, particularly if implementation is delayed, and ourinformation technology improvements may not yield the cost savings benefitsthat we anticipate. Accordingly, we cannot assure that our cost savings will beat the levels we expect or that the actual savings will be greater than thecosts we incurred in implementing our plan. In addition we also cannot assurethat we will have the necessary cash to implement our cost saving measures on atimely basis.

 

***We operate in ahighly competitive environment, which has tended to reduce industrial gasprices over most of the past five years. Falling prices could reduce ourrevenues or cash flows.***

 

The worldwide industrial gas industry is dominated by seven majorproducers, five of which have large operations in Europe. Additionally, thereare also thousands of smaller, local producers, some of whom operate on a lowcost basis,

 

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primarily in the cylindersegment. Some of our competitors may have greater financial resources than wedo. The past five years have witnessed consolidation among the biggestproducers and an aggressive effort by most large producers to increase marketshare. The resulting price reductions combined with increasing energy prices haverequired us and other major producers to reduce costs to maintain profitlevels. Although prices appear to have stabilized in many of our marketsrecently, we cannot assure that the prices of our products will not continue tofall, which could adversely effect our revenues and cash flows, or that we willbe able to maintain current levels of profitability.

 

***Weare exposed to local business risks in many different countries.***

 

We manufacture and distribute our products in many countries around theworld, with particular focus on 28 countries in Europe and in North America.Some of these countries, particularly those in Eastern Europe have sufferedfrom instability in their political and legal systems over the past ten years.Accordingly, our business is subject to risks related to the differingpolitical, social and economic conditions of these various countries. Theserisks include, among other things:

 

•                                          politicaland economic conditions that could result in our operations being disrupted;

 

•                                          differencesand unexpected changes in regulatory environments;

 

•                                          varyingtax regimes, including the risk that individual countries in which we operatewill impose withholding taxes on our intercompany transfers;

 

•                                          restrictionson the repatriation of capital;

 

•                                          exposureto different legal standards and enforcement mechanisms, including differinginsolvency regimes; and

 

•                                          difficultiesin staffing and managing operations.

 

Our overall success depends, in part, upon our ability to deal withthose risks. We cannot assure that we will continue to succeed in implementingpolicies and practices that are both effective and realistic in each locationwhere we do business. It is possible that, in light of these and similarconsiderations, we may divest or discontinue operations in certain countries,including those that would otherwise be considered to be strategic assetswithin our core markets.

 

***Increasesin energy costs could reduce our profitability.***

 

Energy costs consist principally of electrical power costs. Electricityrepresented approximately 29% of our cost of sales in 2002. Our air separationand other production processes require significant amounts of electric energy.Though we pass a portion of these energy costs through to our customers undersome of our long term contracts, increases in energy costs can reduce ourprofitability significantly. A significant portion of our total energy costsare not passed through to customers. It is difficult to predict general trendsin electricity prices for our various production facilities. We cannot assurethat energy prices will not continue to rise or remain volatile. Any suchincreases or volatility could have a direct impact on our operating costs andprofitability.

 

***We will have ongoingenvironmental costs. If environmental laws in Europe become more stringent, wecould be exposed to further clean-up costs on some of our properties.***

 

We are subject to laws and regulations relating to the protection ofthe environment and natural resources. These include, among other things, themanagement of hazardous substances and wastes, air emissions and waterdischarges. Violations of some of these laws can result in substantialpenalties, temporary or permanent plant closures and criminal convictions.Moreover, the nature of our existing and historical operations exposes us tothe risk of liabilities to third parties. These potential claims includeproperty damage, personal injuries and clean-up obligations.

 

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We own several properties that may have been contaminated by us orprior users. While to date we have not spent material amounts on environmentalmatters, future costs associated with cleaning up contamination and otherwisemanaging our environmental liabilities may be significant and could negativelyaffect our revenues, cash flows and ability to service our indebtedness. Wecannot assure you that we will not be found to be responsible for additionalviolations of existing environmental laws. If that happens, compliance couldprove expensive for us and may negatively affect our results of operations andour ability to service our indebtedness.

 

We anticipate that the German and U.S. governments and othergovernments in countries where we do business will continue to develop increasinglystrict environmental laws and regulations and to interpret and enforce moreaggressively existing laws and regulations. This trend may have an adverseeffect on our business, financial condition or results of operations.

 

***Changes in foreignexchange rates could have adverse effects on our financial results and abilityto repay indebtedness. Our hedging efforts may be unsuccessful.***

 

We maintain our books and records, and measure our results, in Euros.In 2002, 22.1% of our net sales came from North America, and more than 22,9%came from countries where the functional currency is neither the Euro nor theU.S. dollar. Fluctuations in exchange rates could decrease the income, asexpressed in Euro, that we derive from operations in those countries where the functionalcurrency is not the Euro. While we enter into hedging transactions to minimizethe effects of changes in exchange rates, with respect to certain transactionswe cannot assure that we will continue to do so or that our efforts will besuccessful.

 

Most of our indebtedness is denominated in Euros or U.S. dollars, andour ability to use cash received in currency other than the Euro or U.S. dollarto service that indebtedness could be adversely affected by changes in exchangerates against the Euro or the U.S. dollar. Moreover, we anticipate that aportion of the proceeds from our divestiture program will be in currenciesother than the U.S. dollar or Euro. Fluctuations in exchange rates coulddecrease the income, as expressed in Euros or U.S. dollars, which we derivefrom these asset sales.

 

**Risks Relating to theCapital Structure**

 

***If Messer Griesheimdoes not make payments to Messer Holding under the intercompany loan, MesserHolding will not be able to make payments to the noteholders.***

 

Messer Holding is a holding company, and its only assets and sources ofrevenue will be the shares of Messer Griesheim and its intercompany loan toMesser Griesheim. This intercompany loan is subordinated to Messer Griesheim’sobligations under the senior facilities. In addition, the intercompany loan iseffectively subordinated to all existing and future debt of Messer Griesheim’ssubsidiaries. The scheduled payments due on the intercompany loan are adequateto make scheduled payments on the senior notes. However, if Messer Griesheimfails to make payments to Messer Holding under the intercompany loan, MesserHolding does not expect to have any other sources of funds that would allow itto make payments to the senior noteholders.

 

In addition, Messer Holding has pledged the shares of Messer Griesheimto Messer Griesheim’s senior lenders in order to secure Messer Griesheim’spayment obligations under the senior facilities. Messer Holding has agreed notto pursue its rights under the intercompany loan if there is an event ofdefault under those facilities. These events of default include failure tocomply with financial maintenance ratios and other covenants. Messer Holdinghas also irrevocably waived all of its rights to receive payments under theintercompany loan if, after an event of default, Messer Griesheim’s seniorlenders accelerate Messer Griesheim’s obligations under the senior facilities.In any such event, the senior lenders have the right to sell the shares ofMesser Griesheim pledged to secure their loans, in which case MesserGriesheim’s obligations under the intercompany loan will be released. If MesserHolding’s rights under the intercompany loan are released, its only source offunds to repay the senior notes will be the proceeds, if any, remaining after thesenior lenders have been repaid in full from the proceeds of the share sale.

 

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***MesserGriesheim’s ability to service its debt depends in part on dividends fromsubsidiaries.***

 

Messer Griesheim conducts a majority of its business through direct andindirect subsidiaries. Its ability to service indebtedness, including theintercompany loan, is partially dependent upon the receipt of funds from MesserGriesheim subsidiaries, by means of payments under intercompany loans,dividends, interest or otherwise. The ability of these subsidiaries to makefunds available to Messer Griesheim is subject to applicable corporate andother laws and restrictions contained in agreements to which such subsidiariesmay be subject. In addition, the intercompany loan is effectively subordinatedto all existing and future debt of Messer Griesheim’s subsidiaries. Certain ofMesser Griesheim’s subsidiaries are direct borrowers under the seniorfacilities and these and other subsidiaries have provided guarantees to thelenders under the senior facilities.

 

***Messer Holding’sshareholders may sell their interests to third parties. Any such sale couldtrigger change of control provisions, which could result in a default underMesser Griesheim’s senior facilities and the senior notes.***

 

Messer Griesheim Group owns 100% of Messer Holding. As atDecember 31, 2002, Messer Griesheim Group is held 32.11% by the Messerfamily through Messer Industrie, 33.08% by Allianz Capital Partners, 33.08% bycertain private equity funds managed by affiliates of The Goldman Sachs Group,Inc. and 1.73% by Messer Employee reflecting ownership interests of ouremployees and shareholders’ committee participants in the share purchase andoption plan. If these investors cease to have a specified minimum interest inMesser Griesheim, that would constitute change of control that would triggercertain requirements under the senior notes and under Messer Griesheim’s seniorfacilities. A change of control would require Messer Holding to offer torepurchase the senior notes, which repurchase is backed by a similarrequirement in its intercompany loan to Messer Griesheim, and would alsorequire Messer Griesheim to repay its senior facilities. Messer Holding may nothave the funds needed for any such repurchase and, if Messer Griesheim isunable to repay its senior facilities at that time, or if Messer Griesheim isunwilling to do so, a default would result, and Messer Holding could lose itsability to make payments to the noteholders.

 

**ITEM 4. INFORMATION ON THE COMPANY**

 

**4.A HISTORY AND DEVELOPMENT OF MESSERGRIESHEIM AND MESSER HOLDING**

 

**General**

 

Messer Holding, incorporated on November 22, 1996, as a German stockcorporation under the laws of Germany with an indefinite duration, was adormant company until it was activated to become a holding company for theshares of Messer Griesheim. Messer Holding is domiciled in and governed by thelaws of Germany.

 

Headquartered in Norderfriedrichskoog, Germany, we are a holdingcompany with no material assets other than 100% of the shares of MesserGriesheim and our rights under an intercompany loan to Messer Griesheim. Ourregistered office is located at D-25870 Norderfriedrichskoog and our telephonenumber is 049-4864-1401.

 

The principal predecessor company and main operating company of MesserHolding was founded by the Messer family in 1898 in Hoechst, Germany, toproduce acetylene generators and lamps. Until its merger in 1965 with theHoechst AG subsidiary Knapsack-Griesheim AG, Messer Griesheim operated as aprivate, family owned company. Beginning in the 1970s, Messer Griesheimexpanded its operations from Germany into other western European countries andthe United States. In 1989, it continued to expand its operations geographicallyto capitalize on opportunities presented by the political and commercialchanges occurring in Eastern Europe and the reunification of Germany.

 

Like most major industrial gas companies, Messer Griesheim followed aprogram of rapid global expansion from 1997 through 1999. During this period,we made substantial investments in our core markets of North America and Europeand expanded into Latin America, Asia and Africa.

 

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**The Acquisition ofthe Shares of Messer Griesheim**

 

***TheAcquisition Transactions***

 

Prior to April 30, 2001, Messer Griesheim was 33 1/3%owned by the Messer family, through their subsidiary Messer Industrie GmbH, and66 2/3% owned by Hoechst AG, a subsidiary of Aventis.Aventis was formed by the merger in December 1999 of Hoechst AG andRhône-Poulenc S.A., two of Europe’s largest chemical companies. OnDecember 31, 2000, a consortium of financial investors agreed to acquireHoechst’s interest in Messer Griesheim under a business combination agreement.This consortium, referred to in this Form 20-F as the sponsors, consists ofAllianz Capital Partners and six private equity funds managed by affiliates ofthe Goldman Sachs Group, Inc., which we refer to as the GS Funds. AtDecember 31, 2000, Messer Griesheim had capital stock of €276.1 millionpar value.

 

In preparation for selling its interest in Messer Griesheim and as partof Hoechst’s tax planning, Hoechst activated Messer Holding and transferred itsshares in Messer Griesheim to it. Hoechst then loaned its shares in MesserHolding to a wholly owned subsidiary, Diogenes 20. Vermögensverwaltungs GmbHthat we refer to as Newco 3. The sponsors formed Messer Griesheim Group GmbH(formerly named Cornelia Verwaltungsgesellschaft mbH), referred to as MesserGriesheim Group, which then acquired all of Messer Holding’s outstanding sharecapital from Newco 3 for a purchase price of €618 million, thereby acquiring anindirect 66 2/3% interest in Messer Griesheim. Of thatpurchase price, €388 million was paid at completion of the acquisition. Thebalance of €230 million is due from Messer Griesheim Group on November 11,2011, together with interest which, although not currently payable, will accruethereon at a rate of 250 basis points above three month EURIBOR. In certaincircumstances, the deferred purchase price may be payable earlier.

 

As part of the acquisition transactions, Messer Industrie contributedits 33 1/3% shareholding in Messer Griesheim to MesserHolding in exchange for 33 1/3% of the shares of MesserHolding. As a result, Messer Griesheim became a wholly owned subsidiary ofMesser Holding. To complete the acquisition transactions, Messer Industriecontributed its shares in Messer Holding to Messer Griesheim Group in exchangefor shares representing 32.67% of Messer Griesheim Group, cash of €33.2million, and rights to receive additional cash consideration of up to €35.8million upon the occurrence of certain events.

 

As a result of the transfer and acquisition transactions describedabove, Messer Griesheim Group owned 100% of Messer Holding. Messer Griesheim washeld, indirectly through Messer Griesheim Group, 32.67% by the Messer familythrough Messer Industrie, 33.665% by Allianz Capital Partners and 33.665% bythe Goldman Sachs Funds.

 

The acquisition transactions have been accounted for in a mannersimilar to a “purchase” business combination and, accordingly, the cost of theacquisition has been allocated to the assets acquired and liabilities assumed,including those to be disposed of under our divestiture program describedelsewhere in this Form 20-F, based on their estimated fair values as of April30, 2001, the acquisition date. The resulting excess of such cost over the fairvalue of the net assets acquired is accounted for as goodwill. In connectionwith the acquisition transactions, substantially all of Messer Griesheim’sexisting indebtedness was refinanced. Additionally, following the acquisitiontransactions, Messer Griesheim adopted in May 2001 a divestiture programpursuant to which it intends to sell substantially all of the assets andoperations in its non-core markets, located in Asia, Africa and Latin America,as well as certain non strategic operations in its core markets.

 

Consideration should be given to the effects of the acquisitiontransactions, the refinancing program and the divestiture program whencomparing historical financial information for periods prior to April 30, 2001to periods thereafter. To highlight this lack of comparability, a solidvertical line has been inserted, where applicable, between columns in thetables of selected and summary financial data, in the financial statements andelsewhere in Form 20-F to distinguish information pertaining to thepre-acquisition and post-acquisition periods.

 

As part of the acquisition transactions, the sponsors contributed €500million to Messer Griesheim Group, of which €388 million was used to pay thecash portion of the purchase price to acquire Hoechst’s share of MesserHolding’s 

 

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outstanding share capital andto make a cash payment to Messer Industrie. The remainder of this contributionhas been used to, among other things, pay fees and expenses in connection withthe acquisition transactions and contribute additional equity to MesserHolding.

 

Messer Griesheim Group also agreed, subject to certain conditions yetto be met, that Messer Griesheim would acquire from Aventis certain assets inChina for €32 million, as described more fully below under “ChinaTransactions”.

 

Under the business combination agreement, Hoechst has receivedsecurities of Messer Griesheim Group convertible into 3% of the share capitalof Messer Griesheim Group for a nominal effective conversion price. These areconvertible only in the event of an initial public offering, a sale of MesserGriesheim or a sale of shares in Messer Griesheim Group by the sponsors if, ineach case, the sponsors realize a minimum rate of return on their investment inMesser Griesheim.

 

**Call and Put Options**

 

In order to meet German tax planning requirements of Hoechst, under thebusiness combination agreement described above, Messer Griesheim Group granteda “call” option to Diogenes 20. Vermögensverwaltungs GmbH, initially a whollyowned shell subsidiary of Hoechst (“Newco 3”) to acquire 66 2/3%of Messer Holding’s share capital for a promissory note in the amount of thepurchase price Messer Griesheim Group paid Newco 3 for its interest in MesserHolding. Newco 3 exercised this call option between January 1 and January 11,2002. In addition, Hoechst granted an option to Messer Griesheim Group toacquire all the outstanding share capital of Newco 3 for a nominal amount.Messer Griesheim Group exercised its counter call option between January 16 andJanuary 23, 2002 and merged Newco 3 into itself and canceled the promissorynote. As a result of these transactions, Messer Griesheim Group became thedirect holder of the shares of Messer Holding.

 

**RefinancingProgram**

 

In connection with the acquisition transactions described above, asubstantial portion of Messer Griesheim’s then existing debt became due andpayable upon the change in control, which occurred on April 30, 2001. As aresult, Messer Griesheim entered into refinancing transactions with aconsortium of banks during April and May 2001. The refinancing transactionsinvolved borrowings under a senior facilities agreement with aggregateavailable funds of €1,650 million (€1,340 million of term loan facilities and€310 million under a revolving facility), and a mezzanine bridge facility inthe aggregate amount of €400 million.

 

The amounts borrowed under the senior facilities agreement (€1,160million) and under the mezzanine bridge facility (€400 million) were used torepay Messer Griesheim’s existing debt obligations of €1,303 million. As theexisting debt was repaid in connection with the acquisition transactions, theprepayment penalties aggregating €19.1 million have been reflected as part ofthe purchase accounting adjustments. No part of the debt existing prior toApril 30, 2001, was used to finance the acquisition transactions.Refinancing costs of €90.0 million were capitalized, and are being amortizedover the period of maturities of the borrowings using the effective interestrate method.

 

On May 16, 2001, the Company issued €550 million principal amount of10.375% senior notes maturing on June 1, 2011. At any time prior to June 1,2006, the Company may redeem all but not part of the senior notes at aredemption price equal to 100% of the principal amount thereof, plus aredemption premium and unpaid interest, and special interest, if any, to theredemption date. At any time on or after June 1, 2006, the Company may redeemall or part of the senior notes at specific redemption prices, expressed aspercentages of the principal amount, accrued and unpaid interest, specialinterest, if any, and additional amounts, if any, to the applicable redemptiondate on a sliding scale. In addition, prior to June 1, 2004, the Company mayredeem up to 35% of the senior notes with the proceeds of one or more publicequity offerings at a redemption price equal to 110.375% of the principalamount of the senior notes redeemed.

 

The proceeds from these senior notes have been used by the Company tomake an inter-company loan to Messer Griesheim. Messer Griesheim used theinter-company loan to extinguish the mezzanine bridge facility of €400 million,prepay €115 million principal of the outstanding term borrowings under the seniorfacilities agreement, and the balance of 

 

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€35 million for generalcorporate purposes. The issuance cost of the senior notes of €14.4 million hasbeen capitalized and is being amortized over the period to maturity under theeffective interest rate method. The Company is dependent upon the payments itreceives under the inter-company loan to make interest and repayments on thesenior notes. The claims of the Company under the inter-company loan are subordinatedto the claims of the lenders under the senior facilities. Payments on theinter-company loan are not permitted in certain cases involving payment andnon-payment defaults under the senior facilities.

 

The aggregate facilities, outstanding amounts borrowed as of December31, 2002 and the maturity profile is given below:

 
| **Description**                                   |   | **Interest  rate** |   | **Available  amount**     |   | **Amounts  outstanding**  |   | **Maturity  date(7)** |   |
|---------------------------------------------------|--------|--------------------|--------|---------------------------|--------|---------------------------|--------|-----------------------|--------|
|                                              |   |               |   | **(in €  millions)** |   | **(in €  millions)** |   |                  |   |
|                                              |   |               |   |                      |   |                      |   |                  |   |
| €300 Million Senior Term A facility(4)(5)(6) |   | 5.35               | %(2)   | 237.1                     | (1)    | 237.1                     |   | April 20, 2008        |   |
| €170 Million Senior Term B facility(4)       |   | 6.15               | %(2)   | 167.6                     |   | 167.6                     |   | April 30, 2009        |   |
| $124 Million Senior Term B facility(4)            |   | 4.58               | %(2)   | 117.9                     | (1)    | 117.9                     |   | April 30, 2009        |   |
| €115 Million Senior Term C facility(4)       |   | 6.65               | %(2)   | 52.4                      |   | 52.4                      |   | April 30, 2010        |   |
| $162 Million Senior Term C facility(4)(6)         |   | 4.99               | %(2)   | 154.7                     | (1)    | 154.7                     |   | April 30, 2010        |   |
| €260 Million Senior Revolving facility I     |   | —             |   | 260.0                     |   | —                    |   | March 31, 2008        |   |
| €50 Million Senior Revolving facility II     |   | —             |   | 34.0                      | (3)    | —                    |   | March 31, 2008        |   |
| Senior Notes                                      |   | 10.375             | %      | 550.0                     |   | 493.7                     | (8)    | June 1, 2011          |   |
| Other existing debt(6)                            |   | 5.65               | %      | 215.5                     |   | 215.5                     |   |                  |   |
|                                              |   |               |   |                      |   | 1,438.9                   |   |                  |   |
| Unamortized debt issuance costs                   |   |               |   |                      |   | (63.5                     | )      |                  |   |
|                                              |   |               |   |                      |   |                      |   |                  |   |
| Total                                             |   |               |   | 1,789.2                   |   | 1,375.4                   |   |                  |   |

 

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(1)               U.S. Dollar (US-$) amounts under thefacility have been converted into EURO at the rate of €1 = US-$ 1.0415, BritishPound (GBP) amounts at the rate of €1 = GBP 0.6502, the exchange rates atDecember 31, 2002.

(2)               Variable interest rates as of December31, 2002.

(3)               €16.0 million drawn as trade andcommercial guarantees.

(4)               The Senior Term Facilities (Tranches A,B and C) are non-revolving credit facilities, i.e. the available facilities arereduced by the amount of repayments.

(5)               Tranche A is a multicurrency facility.Interest rate is a weighted rate.

(6)               Interest rate is a weighted rate.

(7)               The Company is required to use 50% ofthe excess cash flow, as defined under the senior facilities agreement, in anygiven year to repay the outstanding loans.

(8)               From September until October 2002, MesserGriesheim made open market purchases in aggregate principal amount of €56.3million senior notes at an average price of 102.9%. The purchased senior noteshave been deducted from the outstanding amount of €550 million. In connectionwith the purchase, unamortized financing costs of €4.0 million, fees and tenderpremium of €2.2 million were expensed and are classified as other financialexpense for the twelve months ended December 31, 2002.

 

Messer Holding is dependent upon the payments it receives under theintercompany loan to make payments to the holders of its senior notes. MesserHolding’s claims under the intercompany loan are subordinated to the claims ofthe lenders under the senior facilities. Payments on the intercompany loan alsoare not permitted in certain cases involving payment and non-payment defaultsunder the senior facilities. In addition, Messer Holding has pledged all of itsshares in Messer Griesheim to the senior lenders as security for the seniorfacilities. Moreover, Messer Holding has agreed that if the senior lendersforeclose on that share pledge following an event of default and seek to sellMesser Holding’s shares of Messer Griesheim, Messer Holding will release itsclaims against Messer Griesheim for payment of the intercompany loan. If MesserHolding is ever required to release its claims for repayment of theintercompany loan, its only source of repayment for the senior notes will bethe net proceeds, if any, from a foreclosure sale of the Messer Griesheimshares after the senior lenders have been repaid in full. In addition, theintercompany loan is effectively subordinated to all existing and future debtof Messer Griesheim’s subsidiaries.

 

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**Divestiture Program**

 

***Overview***

 

In May 2001, immediately following our change in ownership throughthe acquisition transactions described elsewhere in this Form 20-F, weadopted a divestiture program under which we intend to divest substantially allof our assets and operations outside of our core regions as well as certain nonstrategic operations in our core regions. By divesting these operations, ourmanagement believes that we can reduce our consolidated debt and focus on ourmost profitable geographic markets.

 

As of December 31, 2002, other than the joint ventures in CentralAmerica and China as described in Item 4 "Information on the Company"- 4.A "History and Development of Messer Griesheim and Messer HoldingChina Transactions" and our subsidiaries in Indonesia and Peru, we havecompleted all divestitures that were targeted to be completed by the end ofcalendar year 2002.

 

During the twelve months ended December 31, 2002, we have completeddisposals of our home care business in Germany, our health care business inCanada and our non-cryogenic plant production operations in Germany, the UnitedStates, Italy and China. We also have completed disposals of our operations inArgentina, Brazil, Canada, Egypt, Mexico, South Africa, South Korea, Trinidad& Tobago and Venezuela, our nitric oxide business in Austria, substantiallyall our carbon dioxide business in the United States and our nitrogen servicesbusiness in the United Kingdom. As a result of our divestitures, we completedrepayment of our senior term disposal facility in the second quarter of 2002.In January 2003, we sold our operations in Indonesia to PT Tira Austenite Tbk.

 

We are required under Messer Griesheim’s senior facilities agreement touse the proceeds of these divestitures to repay borrowings under the seniorfacilities, and the senior facilities agreement requires us to repay at least$198.6 million of borrowings (the entire senior term disposal facility) byApril 2003. As of April 29, 2002, the senior term disposal facility has beenfully repaid. Separately, Messer Griesheim is required to ensure that thecombination of the repayment of the senior term disposal facility and theassumption of indebtedness by third parties in connection with divestments ofassets will result in the reduction of the aggregate indebtedness, as of April 30,2001, of Messer Griesheim and its consolidated subsidiaries by at least €255million by April 30, 2003. Upon completion of the entire divestiture program,we expect that our divestitures will permit us to reduce our consolidated debtreflected on the December 31, 2000 balance sheet by approximately €400million.

 

Pursuant to the divestiture program, as of December 31, 2002, theconsummated dispositions resulted in debt relief (including deconsolidated debtas a result of the divestiture program) of approximately €340 million.

 

Separate from the divestiture program, in light of unstable politicalconditions in certain countries or the prevalence of business practices whichare inconsistent with the standards we apply generally in our core markets andoperations or for other reasons, we may decide to sell or discontinueoperations in those countries, including operations that would otherwise beviewed as strategic assets within our core markets.

 

***ChinaTransactions***

 

Messer Griesheim operates in the People’s Republic of China throughseven directly owned subsidiaries as well as through interests in six jointventures held by Aventis (China) Investment Co. Ltd., or ACIC, and managed byemployees of Messer Griesheim. Pursuant to the business combination agreementand a related China sale and purchase agreement, Messer Griesheim has agreed topurchase ACIC’s interests in the six ACIC joint ventures. Although China is nota core market for us, Aventis required this purchase in order to enable Aventisto divest all of its interests in the industrial gases business, not simply itsinterest in Messer Griesheim. Although we expect to divest to one or more thirdparty buyers both the Messer Griesheim China joint ventures and the ACIC jointventures, we can provide no assurance as to when these divestitures will becompleted.

 

Pursuant to the China sale and purchase agreement, the assets currentlyheld by ACIC will be transferred into Messer Griesheim China Holding, a whollyowned subsidiary of Messer Griesheim GmbH registered in Frankfurt am Main. Thecompletion of the purchase will depend on the consent and outcome ofdiscussions with third parties, including Chinese regulatory authorities andlocal joint venture partners, and the satisfaction of certain other conditions.In the event that such 

 

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conditions cannot be satisfiedbefore April 30, 2003 under the business combination agreement, MesserGriesheim’s obligations to purchase ACIC’s interests in the ACIC joint ventureswill terminate.

 

The purchase price for the ACIC joint ventures is €32 million plusinterest from April 30, 2001 until the completion of the purchase of the ACICjoint ventures at the rate of 200 basis points over three month EURIBOR. Uponacquiring the ACIC interests, Messer Griesheim has agreed to assume the debt ofthe ACIC joint ventures upon the date of completion of the transactionsdescribed above. As of December 31, 2002, such debt amounted to approximately€12.1 million. The incurrence of any further debt by ACIC relating to the ACICjoint ventures between the date hereof and the closing of the transactionscontemplated by the China sale and purchase agreement will be subject to theprior approval of Messer Griesheim. Payment of the purchase price is guaranteedby Messer Holding’s parent, Messer Griesheim Group.

 

### **Singapore Transactions**

 

Prior to restructuring its Singapore investments as described below,Messer Griesheim had a joint venture with Texaco Nederland B.V., through acompany called Singapore Syngas Pte Ltd, or Syngas. In February 1998,Syngas agreed to build a synthetic gas plant in Singapore for CelaneseSingapore Pte. Ltd, this was at that time a subsidiary of Hoechst. MesserGriesheim guaranteed to Celanese that the plant would be completed byJuly 1, 2000. Messer Griesheim also provided financial guarantees for bankloans incurred by Syngas to finance construction of the plant.

 

Syngas encountered significant plant specific difficulties and delayswhich gave rise to potential claims under the completion guarantee and couldentitle the bank lenders of Syngas to accelerate their loans to Syngas.

 

Messer Griesheim also operated in Singapore through its wholly ownedsubsidiary, Messer Singapore Pte. Limited.

 

***Restructuringthe Singapore Investment***

 

In contemplation of the acquisition transactions, Messer Griesheim wasrequired to limit its exposure to the Syngas project. Accordingly, onApril 30, 2001 Messer Griesheim entered into an agreement with Hoechsteffectively limiting its entire exposure to the Singapore operations (includingboth Syngas and Messer Singapore) to €92 million, measured fromSeptember 1, 2000.

 

Under the agreement, Messer Griesheim transferred on April 30,2001 its 100% interest in Messer Singapore and 50% interest in Syngas, togetherwith most of its liabilities related to Singapore, to Messer Singapore HoldingGmbH, a special purpose company. The company was 39% owned by Hoechst AG, 39%by Messer Griesheim, 11% by a special purpose company owned by Messer Industrieand 11% by a special purpose company owned by Dr. Schmieder, our ChiefExecutive Officer, and Mr. Doerr, our Head of North American Operations.Messer Griesheim retained its liability under a guarantee in favor of the banklenders to Syngas, but Messer Singapore Holding has agreed to indemnify MesserGriesheim for liabilities that may arise under that guarantee.

 

Funding of Messer Singapore Holding was provided through shareholderloans from Hoechst, for 66 2/3% of funding requirements,and Messer Griesheim, for 33 1/3% of fundingrequirements, except that Messer Griesheim’s aggregate funding requirements arecapped at €92 million and Hoechst was responsible for 100% of Messer SingaporeHolding’s funding requirements once this cap has been reached. Although thetransfer to Messer Singapore Holding occurred on April 30, 2001, thisfunding arrangement, including Messer Griesheim’s funding obligations underthis cap, takes account of all of Messer Griesheim’s funding to its Singaporeoperations since September 1, 2000. Accordingly, Messer Griesheim’sremaining funding obligations under this cap, net of 33 1/3%of various shareholder loans and other financial support already provided byMesser Griesheim to its Singapore operations since September 1, 2000, were€63.6 million as of April 30, 2001, €14.5 million as ofDecember 31, 2001 and €10.2 million as of December 31, 2002.

 

In addition, Messer Griesheim received from Hoechst on April 30,2001 a €26.4 million cash payment, accounting for 66 2/3%of the funding requirements of the Singapore operations since September 1,2000 (excluding payments to Celanese and Texaco, of which Hoechst had alreadyfunded €31.1 million through shareholder loans to Messer Griesheim, 

 

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as described below under“Developments with Celanese and Texaco”).

 

In December 2001, Messer Griesheim transferred its 39% interest inMesser Singapore Holding to Messer International GmbH, a wholly ownedsubsidiary of Messer Griesheim. At the same time, Hoechst transferred its 39%interest in Messer Singapore Holding to Aventis Regional Treasury Asia PacificPte. Ltd., a wholly owned subsidiary of Aventis.

 

In October 2002 Messer Singapore Pte. Ltd. sold Air Separation andVacuum Flasher Units to Singapore Syngas Pte. Ltd. and its remaining assets ofthe company to Air Products Singapore Pte. Ltd. and Singapore Oxygen AirLiquide Pte. Ltd. Following these transactions, Messer Singapore Holding GmbHsold all its shares in Singapore Syngas Pte. Ltd. to Chevron Texaco SingaporeEnergy Company. In conjunction with the agreements, certain guarantees totaling€16.0 million were given. The Company has evaluated these guarantees and set upa provision for the remaining risks.

 

***Developmentswith Celanese and Texaco***

 

In March 2001, Texaco and Messer Griesheim entered intoarrangements with Celanese which settled the claims of Celanese under MesserGriesheim’s completion guarantee and amended the existing gas supply agreementbetween Syngas and Celanese. As a result, Celanese irrevocably released anddischarged Messer Griesheim and its shareholders from all claims in any wayrelated to the completion guarantee and acknowledged that such guarantee hadexpired. These amendments and modifications involved, among other things, cashpayments by Messer Griesheim to Celanese which are included in the overallallocation of Syngas funding exposures of 33 1/3% toMesser Griesheim and 66 2/3% to Hoechst and reflected inthe cap on our remaining funding obligations referred to above.

 

The settlement amount allocated to and paid by Messer Griesheim was €28.6 million, of which €19.8 million was lent by Hoechst. Therepayment claim against Messer Griesheim for this loan was waived by Hoechst onApril 30, 2001.

 

In February 2002, Aventis, Messer Griesheim and Messer SingaporeHolding reached an agreement with Celanese and Celanese Singapore(Pte.) Ltd. in which Messer Singapore Holding agreed to pay$12.5 million to Celanese Singapore on settlement of a prior agreementrequiring Messer Griesheim to pay Celanese certain consideration. One third ofthe $12.5 million was applied towards the €92 million funding cap byMesser Griesheim to the Singapore operations.

 

In conjunction with the Celanese settlement, a put option agreementdated December 20, 1999 between Messer Griesheim and Texaco was modified by anagreement dated March 29, 2001. The original put option agreement gaveTexaco an option to sell 25% of the shares in Syngas to Messer Griesheim. Underthe modified put option agreement, Messer Griesheim purchased from Texaco theoutstanding shareholder loans made by Texaco to Syngas in excess of Texaco’s 25%proportionate equity interest in Syngas and related funding obligations. MesserGriesheim paid a purchase price of €17.2 million for the loans. Of that amount,Hoechst lent €11.3 million to Messer Griesheim. The repayment claim for thisloan was waived by Hoechst on April 30, 2001. In exchange, Texaco agreedthat Aventis can require Texaco to exercise the put option with respect of 25%of the shares in Syngas at any time on or after May 1, 2001 and no laterthan June 30, 2001 for a consideration of $1. The put was exercised onJune 20, 2001, at which time the Syngas shares acquired from Texaco weretransferred directly to Messer Singapore Holding GmbH, and not to MesserGriesheim.

 

As a result of the change in ownership that occured when the Texaco putoption was exercised, Syngas was required to repay its outstanding bank creditfacilities which were due June 30, 2001. Shareholder loans were extendedto Syngas for this purpose. Of these shareholder loans, 75% were funded byMesser Singapore Holding GmbH and 25% were funded by Texaco.

 

In connection with the implementation of the arrangement betweenHoechst, and Messer Griesheim relating to Syngas, and the subsequentdevelopments regarding Celanese, Texaco, the bank credit facilities, Hoechstand Messer Griesheim have divested Messer Singapore Holding GmbH or itsinterests in Syngas and Messer Singapore.

 

For a description of our principal capital expenditures see Item 5.“Operating and Financial Review and Prospectus” 

 

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- 5.B “Liquidity and Capital Resources”.

 

**Recent Events**

 

In January 2003, we sold our operations in Indonesia to PT TiraAustenite Tbk.

 

**4.B BUSINESS OVERVIEW**

 

**General**

 

We are a producer and distributor of industrial gases, including oxygen,nitrogen, argon, carbon dioxide, hydrogen, helium, specialty gases andacetylene. The industrial gases we produce are used in a broad range ofindustries, such as the steel, chemicals, pulp and paper, electronics, healthcare, food and beverages, automotive, lighting, and glass industries. Wedeliver our products in one of three ways:

 

•                                          directdelivery in gaseous form, either from on-site production facilities or throughpipelines,

 

•                                          bulkdelivery, principally in liquid form, in large volume tanks, or

 

•                                          returnablecylinders, principally in gaseous form.

 

We operate in 45 countries through more than 407 facilities, includingproduction plants, distribution and filling stations and research centers. Wehave an estimated global market share of approximately 4% of the totalindustrial gases market, making us the seventh largest industrial gas producerworldwide, and leading market shares in Germany and certain other countries incentral and eastern Europe. We also have strong businesses in selected industrialareas of the United States and in selected niche markets in other WesternEuropean countries. In the twelve months ended December 31, 2002, we generatednet sales of €1,526 million and normalized EBITDA of €403 million.

 

Our primary or core markets are Europe and North America. Our twolargest markets, Germany and North America, collectively accounted for 65.0% ofour net sales and 72.0% of our normalized EBITDA for the year 2002. Within eachof our geographic markets, we generally organize our business based upon how wedeliver industrial gases to our customers: delivery of large volumes fromon-site production facilities or by pipeline, delivery in bulk tankstransported by truck or rail and delivery in gas cylinders. In addition to ourcore markets of Europe and North America, we also operate in Asia, Africa andLatin America. We have been in the process of divesting substantially all ofthe assets outside our core markets, along with certain non-strategic assets inour core markets. Other than our joint ventures in Central America and Chinaand our subsidiaries in Indonesia and Peru we have completed these divestituresby year end 2002.

 

We believe that the industrial gas industry benefits from favorablecharacteristics including stable earnings from long-term supply contracts,limited cyclicality due to a highly diversified range of customers, highbarriers to entry due to significant required start-up investments andfavorable growth prospects driven largely by new applications. We believe thatthe worldwide industrial gas industry is relatively concentrated, withcompetition taking place at the regional or local level. In most geographicmarkets, the two or three largest producers have a significant combined marketshare. The seven largest producers are estimated to have accounted forapproximately 75% of the worldwide market in 2002. Except for the impact ofLinde’s acquisition of AGA in 2000, the relative market shares of the leadingindustrial gas producers have remained broadly unchanged over the past decade,which we believe illustrates the industry’s stability. We also believe thatthere is a recent trend among industry participants towards a focus on returnon capital as opposed to growing market share.

 

**Strengths**

 

We believe our principal strengths are:

 

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***Aleading market position in Germany and strong positions in certain other coremarkets***

 

We are one of the leaders in the industrial gas market in Germany wherewe have an estimated market share of approximately 32% second to Linde/AGAwhich has an estimated market share of approximately 38%. We offer ourcustomers a complete product portfolio, highly efficient infrastructure, highlyqualified staff and a full range of technologies. We own a 516 kilometer oxygenand nitrogen pipeline network in the “Rhein/Ruhr area”, the industrialheartland of Germany, which is the only oxygen and nitrogen pipeline network inthe region and the largest industrial gas pipeline in Germany. We also own a 53kilometer oxygen and nitrogen pipeline network in the Saar region. Through bothof these highly automated pipeline networks, we provide products to many wellestablished long-term industrial customers, while benefiting from a significantbarrier to entry by competitors who do not have such a pipeline infrastructure.

 

We have a strong pipeline and merchant business throughout the UnitedStates, as we operate air separation plants to supply customers across themajor industrial areas.  In addition, weoperate a cylinder and specialty gas business primarily in the Northeasternpart of the country including, Virginia, Maryland, Delaware, New Jersey,Pennsylvania and New York.

 

In Western Europe, we have followed a niche strategy, based onperceived opportunities in selected countries. We have developed strongbusinesses in carbon dioxide production and distribution in the United Kingdom,France, Switzerland and Italy and in cylinder delivery of specialty andindustrial gases in Belgium and France. We also operate a 84 kilometer oxygenand nitrogen pipeline network in the industrial area of Tarragona, innortheastern Spain.

 

We were one of the first western industrial gas companies to entercentral and eastern Europe in the late 1980s. We have a leading position in theregion, with estimated market shares ranging from approximately 35% to 75% inHungary, Slovakia, Slovenia, Croatia, Bulgaria, Bosnia and Serbia. We also havea strong position in Austria with an estimated market share of approximately16%**.**We believe our strong presence in central and Eastern Europe positions us wellto capitalize on the attractive growth prospects we believe this region offers.

 

***Stablecash flows from long-term contracts***

 

A significant portion of our sales is derived from long-term contracts.Contracts in our on-site production and pipeline supply businesses in Europeand the United States typically have terms of 10 to 15 years and usuallycontain “take-or-pay” minimum purchase requirements. In each of the last threeyears, the take-or-pay minimum purchase requirements in our on-site andpipeline supply contracts accounted for approximately 60% to 70% of the totalamount of net sales that we generated under these contracts in Germany and 40%to 45% in the United States.

 

Contracts in our bulk businesses generally have terms of two to threeyears in Europe and five to seven years in the United States. Contracts in bothour on-site and pipeline and bulk businesses have historically exhibited highrenewal rates, with over 90% of customers whose contracts expired in the pastfive years renewing their contracts with us. On-site and pipeline contracts inGermany and the United States accounted for approximately 15% of our total netsales in 2002. Bulk contracts in these two countries accounted for approximately25% of our total net sales in 2002. Our on-site, pipeline and bulk businessesin Germany and the United States together accounted for approximately 39% ofour total net sales and 50% of our normalized EBITDA in 2002.

 

***Diversifiedcustomer base***

 

We believe that our diverse customer base helps protect our operatingresults against macroeconomic fluctuations. We have a diverse customer base inthe steel, primary metal, chemicals, waste processing, automotive, oilrefining, food and beverages, healthcare, electronics and glass industries. Ourcustomer portfolio includes a wide range of large international companies suchas ThyssenKrupp, Bayer, Veba, Celanese, Clariant, BASF, Volkswagen, Bosch,DaimlerChrysler, Textron-Kautex, NUCOR, DuPont, General Electric, Caterpillar,Nestlé and Shell. We are not dependent on any customer or set of customers. Forexample, in 2002, our top ten customers accounted for only 12.9% of our totalnet sales. No single customer has accounted for more than 4% of our total net salesin any of the past three years.

 

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***Strongapplications technology capability***

 

In addition to producing and distributing industrial gases, we alsohave an applications technology business. Our applications technology divisiondevelops and markets a wide range of industrial gas applications andtechnologies as a service to our customers and a means of expanding the uses ofand demand for our products. We believe that we have particularly strongapplications technology capabilities in the steel, metals, refining, chemicalsand food industries. A significant portion of our bulk business in particularresults from applications developed internally in cooperation with ourcustomers or invented by us for use by our customers.

 

***Experiencedsenior management backed by strong shareholder expertise***

 

We are led by an experienced senior management team. Our eight mostsenior managers, Dr. Klaus-Jürgen Schmieder, Messrs. Stefan Messer, PeterStocks, Harald Pinger, Winfrid Schmidt, James Doerr, Jens Dornedden and MichaelHoche, represent a combination of professionals with long-term experiencewithin our company and recent hires with significant experience at ourcompetitors and in other industries. Messrs. Schmidt, Messer and Doerr haveeach served with Messer Griesheim for 32 years, 24 years and 15 years,respectively. Dr. Schmieder and Mr. Stocks have significantrestructuring experience from former positions at Hoechst and Air Products,respectively. Mr. Pinger has management and controlling experience fromformer positions at Unilever, Fresenius Medical Care and Fresenius Kabi. Mr.Dornedden has controlling and investor relation experience from his formerposition at Hoechst. Mr. Hoche has significant accounting and controllingexperience from former positions at Reckitt Benckiser and Price Waterhouse.

 

Messer Industrie is the holding company for the Messer family’sinterests in Messer Griesheim, with over one hundred years’ experience in theindustrial gas business. In addition to the Messer family, our shareholdersinclude Allianz Capital Partners, a subsidiary of Allianz Group, a leadingglobal financial services company and one of the largest insurance companiesworldwide, and certain private equity funds managed by affiliates of TheGoldman Sachs Group, Inc.

 

**Strategy**

 

We intend to maximize value by focusing on existing operations in ourcore markets of Germany, the rest of Europe and North America. This contrastswith our former emphasis on volume growth and global expansion. We believe thatthis strategy will increase our return on assets and cash flow and reduce ourleverage going forward. The key elements of this strategy are as follows:

 

***Reduceour debt***

 

We have implemented a comprehensive divestiture program adopted inMay 2001 through which we intend to divest substantially all of our assetsand operations in Asia, Latin America and Africa, as well as certain nonstrategic assets and operations in our core markets. As of December 31, 2002,other than the joint ventures in Central America and China and our subsidiariesin Indonesia and Peru, we have completed those divestitures targeted to becompleted by year end 2002. Upon completion of the entire divestiture program,we expected that the divestitures will permit us to reduce our consolidateddebt reflected on the December 31, 2000 balance sheet by at least€400 million. Under the senior facilities agreement, we are required torepay at least $198.6 million of our senior term disposal facility byApril 2003. As of April 29, 2002, the senior term disposal facilityhas been repaid in full.

 

We have so far completed disposals of our home care business inGermany, our health care business in Canada and our non-cryogenic plantproduction operations in Germany, the United States, Italy and China. We alsohave completed disposals of our operations in Argentina, Brazil, Canada, Egypt,Mexico, South Africa, South Korea, Trinidad & Tobago and Venezuela, ournitric oxide business in Austria, substantially all our carbon dioxide businessin the United States and our nitrogen services business in the United Kingdom.

 

In addition to our divestiture program, we also intend to reduce ourneed for additional debt financing and achieve 

 

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further deleveraging byreducing our capital expenditures going forward and by implementing a costsavings plan, both of which are discussed below.

 

***Exploitrecent investments and reduce capital expenditures***

 

We believe that we can exploit recent investments and reduce capitalexpenditures principally by focusing on our existing higher yielding assets inthe United States and Europe. From 1996 to 2000 we have invested more than €2billion in new assets, of which 20% was invested in Germany and 21% in theUnited States to add production capacity and increase production efficiencies.As a result, we currently have additional production capacity in these markets,which we believe we can exploit with limited additional investment. Reflectingour former rapid global expansion strategy, our capital expenditures in each ofthe years from 1996 to 2000 averaged more than 25% of our total net sales. In2001 and 2002 we reduced our capital expenditures to no more than 10% of ourtotal net sales and intend to maintain this reduced level of capitalexpenditures for the foreseeable future. Our capital expenditures in the futurewill be focused on making modest additions to our existing operations in ourcore markets that will allow us to exploit the full potential of earlierinvestments.

 

***Profitablygrow with the market in our core regions***

 

We believe that we will profitably grow with the markets in our coreregions principally by maximizing utilization of our existing productioncapacity, much of which has been recently constructed and is now operating(including, for example, two new large air separation units and a carbonmonoxide plant in Germany). We also intend to continue drawing on our strongapplications technology capability to service customers and develop new valueadded products and applications, focusing in particular on faster growingindustry segments such as petrochemicals, refining, electronics and food.

 

***Implementour cost-savings plan***

 

We are implementing a program to reduce our operating costs. This costsavings plan focuses on Europe, particularly Germany. Our cost savings programwas developed with the support of Roland Berger, a management consulting firm,which we have also retained to assist us in the implementation of the program.We have identified most of the specific cost-savings measures that we expect toachieve by year end 2003. We expect these will reduce the cost base of ouroperations in our core markets relative to its level for the year 2000 by €100million by year end 2003. To implement these cost saving measures, we expect toincur one-time costs of €64.5 million between April 30, 2001 and year end 2003.For the twelve month period ending December 31, 2002 we have reduced the costbase of our operations in our core markets relative to its level for the year2000 by €71.1 million. As a result of implementation of these measures weincurred total one time costs of approximately €25.3 million (excluding €12.5million of costs that were included as part of the purchase price accountingadjustments) for the eight months ended December 31, 2001 and additional €12.8million for the twelve months ended December 31, 2002. We expect to incur anadditional €26.4 million of one time costs for the year 2003. The principalcomponents of this program are as follows:

 

•***                                          Reducestaff.***Our plan to centralize key business processes as discussed belowwill enable us to eliminate duplicative positions in many departments includingengineering, production, strategic marketing, logistics and applicationstechnology development across our European operations. Starting therestructuring program at the beginning of the year 2001, we planned toeliminate approximately 900 out of more than 5,600 positions in Europe, principallyin Germany by year end 2003.

 

•***                                          Reduceenergy costs.*** Energy is our single largest operating cost withelectricity representing approximately 29.0% of our total cost of sales in2002. In our German operations, we believe we have a history of aggressivelymanaging energy costs. We intend, through our initiative to centralize keybusiness processes discussed below, to extend this aggressive energy managementto all of our operations. Among other things, we are seeking to lower ouroverall energy costs by negotiating more favorable contracts with powersuppliers and by implementing more efficient and proactive operational measuresat our plants.

 

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•***                                          Centralizekey business processes in Europe.*** We intend to simplify our managementstructure in Europe, where it is currently organized along autonomous, regionallines. Our goal is to centralize functions relating to supply chain managementand applications technology development to the extent necessary to achieve costsavings and synergies in Europe, while keeping other functions, such asmarketing and sales, decentralized in order to remain close to our customers inthe local markets we service. We intend to make substantial informationtechnology investments to support this centralization of key businessprocesses. We have begun implementing this program by recently reducingdistinctions between business units in Germany and some other Europeancountries where we have consolidated some of our sales and marketing activitieson a regional basis. To this end, we have installed a European marketing andapplications group as well as a purchasing and logistics group.

 

**The Industrial GasIndustry**

 

***General***

 

The industrial gas industry consists of the production, distributionand sale of industrial gases and related hardware. Industrial gases are sold tothree main customer sectors: industrial customers (such as the steel,chemicals, oil refining, cutting and welding, food, pulp and paper, automotive,lighting and glass manufacturing industries), medical customers (such ashospitals and clinics) and specialty customers (such as electronicsmanufacturers, research facilities and universities and fiber opticsmanufacturers). Total sales of industrial gases worldwide in 2002 wereestimated at U.S.$34.0 billion, of which U.S.$29 billion was attributed to theindustrial sector, U.S.$3 billion to the medical sector and U.S.$2 billion toother specialized sectors.

 

Most industrial gases are produced by separating and purifying gasesfound naturally in the atmosphere through physical and chemical processes or bymixing various kinds of industrial gases. Most industrial gases are commoditygases that can be produced at similar purity levels by a broad range ofmanufacturers. Specialty gases are produced by a smaller number ofmanufacturers. The global industry’s most important products by sales areoxygen, nitrogen, argon, carbon dioxide, acetylene, specialty gases andhydrogen. In 2001, the most recent year for which we have independent figures,oxygen, nitrogen, argon, carbon dioxide, acetylene, specialty gases andhydrogen accounted for approximately 29%, 21%, 12%, 9%, 8%, 5% and 5%,respectively, of estimated global sales. We believe that the industrial gasesthat we produce, and the percentages of our total net sales they represent,generally follow the industry-wide pattern.

 

Industrial gases are delivered in one of three ways: (a) directdelivery in gaseous form, either from on-site production facilities or throughpipelines, (b) bulk delivery, principally in liquid form in large volumetanks or (c) returnable cylinders, principally in gaseous form. We useeach method of distribution.

 

***MarketStructure and Competition***

 

Globally, there are currently seven major industrial gas producers anddistributors: L’Air Liquide, S.A., The BOC Group PLC, Praxair, Inc., AirProducts & Chemicals, Inc., Linde AG, Nippon Sanso Corp. andMesser Griesheim. Collectively, these seven producers accounted forapproximately 75% of total worldwide sales of industrial gases in 2002. We arethe seventh largest industrial gas producer in the world, with an estimatedglobal market share of approximately 4% but with higher market shares inGermany and in certain other markets as described below. There are alsothousands of smaller, local companies that are primarily active in the cylindersegment. Despite the dominance of large companies, competition in our industryis largely local rather than global due to relatively high distribution costsover long distances and the limited scope for cost-sharing across markets.Competition in the local markets is based on price, reliability of supply,product quality, technology and service to customers.

 

The nature of competition varies by distribution mode (on-site and pipeline,bulk or cylinders) and by geographic area. On-site and pipeline distributionoperations generally face the lowest competitive risk because of the relativelyhigh barriers to entry, which include the need for high initial capitalinvestments in facilities or pipelines and the high cost to the 

 

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customer of switchingsuppliers. Bulk distribution operations also generally face low competitiverisk because of similar high barriers to entry. The cylinder supply market forcommodity gases, such as nitrogen, oxygen, carbon dioxide and acetylene, is themost competitive. Because of lower entry costs, smaller, local companies areable to penetrate this market. The specialty gas markets in which we operate arehighly capital intensive, requiring specialized handling and technologicalexpertise, and are therefore largely restricted to the seven majorinternational industrial gas producers.

 

Competition in Germany and the rest of Western Europe tends to be amongentrenched producers, with a few large companies dominating the industrial gasmarket in each country. The structure of competition in the United Statesgenerally mirrors that of Western Europe, except in the cylinder market, whichis divided relatively evenly among independent distributors and largerindustrial gas producers. The industrial gas market in Eastern Europe isgenerally less mature than in Western Europe and the United States, and thecompetitive environment is more dynamic as a result. We believe that thisregion offers attractive growth prospects.

 

***SignificantIndustry Trends***

 

The global market for industrial gases is estimated to have grown fromU.S.$28 billion in 1995 to U.S.$34.5 billion in 2002. The industrialgas industry is to some extent protected from cyclical swings in demand becauseit supplies a broad range of industries. New applications for industrial gaseswithin faster-growing industry segments (for instance, petrochemicals,refining, electronics, environmental and food) also help compensate for slowerdemand growth and cyclicality from other more mature segments.

 

Although industrial gas prices appear to have recently stabilized inmany of the markets in which we operate, prices have consistently decreased forat least the last 10 years, especially in the commodity gas cylindersegments, due to aggressive efforts by most large producers to increase marketshare. The profit margin impact of this price erosion has been partially offsetby efficiency improvements throughout the supply chain and regionalconsolidation among large participants in the industry, permitting economies ofscale. In addition, new applications for industrial gases have increased salesvolumes and profit margins.

 

**Our Products**

 

***Oxygen.***  Iron and steel producers need oxygen toaccelerate melting and to improve metal quality during the refining process. Amodern steel plant can use up to 5,000 tons of oxygen per day. Oxygen is alsoused by the chemical industry for a variety of oxidation processes. Mixed withfuel gases, oxygen provides a heat source for many welding, cutting and metalfabrication processes. Oxygen fed furnaces and burners are also used innon-ferrous metal plants, brick-making kilns, pulp and paper mills, sewageplants and glass manufacturing plants. Oxygen enhanced combustion can oftenimprove fuel efficiency and help reduce harmful byproducts. Oxygen also has avariety of medical applications in the healthcare industry.

 

***Nitrogen.***  Nitrogen possesses several characteristicsthat make it one of the world’s most widely used and versatile industrialgases. Nitrogen is capable of being chilled to intensely cold levels. Thismakes liquid and gaseous nitrogen a highly effective, versatile andnon-polluting agent for freezing and chilling. Under normal conditions,nitrogen is chemically inactive and extremely dry, and an atmosphere ofnitrogen prevents most oxidation, combustion and other reactions from takingplace. This makes nitrogen an important purging and blanketing, or “buffering”,gas in the steel, aluminum, chemical, refining and electronics industry.

 

***Argon.***  Although argon constitutes less than 1% ofthe atmosphere, it is the most abundant truly inert gas and is increasinglyimportant to many industries. Like nitrogen, argon is used in the steelindustry as a buffer. Argon is blown into furnaces to stir the molten metal andto flush other gases from the melt, principally in the production of stainlesssteel. It is also used to provide a buffering atmosphere to prevent oxidationand combustion in welding, metal fabrication, aluminum processing,microelectronics, glass coating, advanced ceramics and other industrialprocesses.

 

***Carbon dioxide.***  Carbon dioxide is generally intercepted fromthe byproduct streams of other companies’ manufacturing 

 

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processes or from naturalsources and “cleaned”, or separated from impurities, in our plants. Solidcarbon dioxide at minus 79°celsius (often referred to as “dry ice”) is, like liquid nitrogen, used forchilling and freezing in the food industry. Carbon dioxide dissolves easily inwater, making the resultant solution slightly acidic, and is often used tobalance the pH of water as a preferred alternative to the addition of acids.Its solubility makes it a chosen method for carbonating drinks of all kinds.

 

***Specialty Gases.***  Specialty gases include common industrialgases which are produced in high-purity form (including high-purity oxygen,nitrogen and hydrogen), rare gases (including helium, xenon or krypton) andspecial mixtures of gases. We supply over 800 different special gas mixtures tomeet the specific needs of industries, particularly the electronics industries,and for calibration uses in laboratories and research establishments.Ultra-pure specialty gases are also used for a variety of process steps in themanufacture of semi-conductors.

 

***Acetylene.***  Acetylene is a fuel gas which is primarilyused in the metal industry to weld, cut, braze and solder metals in variousenvironments, including underwater and in extreme cold.

 

***Hydrogen.***  Hydrogen is primarily used in the oilindustry for upgrading crude oil. The chemical industry uses hydrogen as anactive ingredient in many chemical processes. The automotive industry iscurrently conducting research into the use of hydrogen, which fuelsspacecrafts, as an alternative fuel for automobiles. Hydrogen is also used tohydrogenate vegetable oils in the production of margarine and other foodproducts. High-purity hydrogen is used in the electronics industry for themanufacture of semiconductors.

 

**Production Methods**

 

Industrial gases are principally produced by one of four methods:

 

***Cryogenic AirSeparation.*** Cryogenic (low temperature) air separation is a mature technology,although incremental technical advances are still yielding improvements incapital cost, operating cost, ease of operation and reliability. The cryogenicprocess involves cooling air to a liquid form and then slowly vaporizing it byincreasing its temperature. Because each of the individual gases within airvaporizes at a different temperature, separation of gases can be accomplishedby precisely controlling the temperature. The plants, called air separationunits, or Air Seperation Units, are complexes of compressors, distillationcolumns and various other components. The production process in modern airseparation plants is highly automated, so few on-site employees are needed forthe normal operation and maintenance of the plant.

 

Cryogenic systems are used for the large or medium-scale production ofoxygen, nitrogen and argon, either in liquefied form for storage andtransportation or as a gas for piping directly to large volume users. For thoseindustries (such as the steel, petrochemicals and oil refining industries) thatconsume large quantities of these gases, the usual source of supply is from anAir Separation Unit.

 

The investment required to build an Air Separation Unit variessignificantly depending on a variety of factors, including the size andcomplexity of the plant, total capacity, local construction costs and customerspecifications. A typical large Air Separation Unit generally costs over€40 million to construct.

 

***Non-Cryogenic AirSeparation.*** Non-cryogenic techniques involve the filtering of air without chillingand reheating it. The two principal methods, pressure swing adsorption andmembrane diffusion, were first developed during the 1970s and are becomingincreasingly significant for smaller or less demanding on-site applications.Gas from non-cryogenic separation techniques is of a lower purity than gas fromthe cryogenic process and it is possible to produce only one kind of gas at atime in this manner (as the remaining gas is released into the atmosphere afterthe filtering process is completed). Oxygen, nitrogen and argon can all beproduced through non-cryogenic air separation.

 

***Recovery.***  Carbon dioxide and hydrogen are produced bypurchasing gases that are the byproduct of other industrial processes andpurifying them to the level of purity required by the customer. Carbon dioxidecan also be produced by purifying sources obtained from wells or other naturalsources.

 

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***Synthesis.***  Acetylene and most specialty gas mixturesare produced by synthesizing, or mixing together, different gases or elements.Acetylene, for example, is produced from a process involving calcium carbideand water.

 

**Raw Materials andEnergy**

 

Energy costs consist principally of electrical power costs. Electricityrepresented approximately 29% of our cost of sales in 2002. Energy is thelargest single cost item in the production of industrial gases primarilybecause Air Seperation Units are energy intensive. A large unit that produces5,000 tons of oxygen per day consumes 20 megawatts of electricity per hour torun its compressors. Many of our on-site and pipeline supply contracts pass themajority of energy costs specific to such contracts through to customers.

 

The raw material for producing oxygen, nitrogen and argon is air, whichis free. For carbon dioxide, hydrogen and most specialty gases, raw materialssuch as the byproduct streams from other industrial processes, are largelypurchased from outside sources and typically through long-term contracts withmany different suppliers. Helium is extracted from natural gas deposits. Only afew sources of natural gas in the world contain a sufficient proportion ofhelium to allow for its economical separation. These are principally in theUnited States, Poland, Russia and Algeria. In the United States, we have along-term supply contract with Air Liquide who has a contract with Exxon, oneof the largest helium producers in the world. We also buy helium from suppliersin the other three countries.

 

**Distribution**

 

Like other large industrial gas producers in the industry, we deliverour industrial gas products in three ways: (i) direct delivery in gaseousform through on-site production or pipeline supply, (ii) bulk delivery,principally in liquid form in large volume tanks and (iii) delivery,principally in gaseous form, in smaller volume cylinders. Our method ofdelivery is generally determined by the lowest cost means of meeting ourcustomer’s needs, depending upon factors such as volume requirements, purity,pattern of usage and the form in which the product is used (in gaseous orliquid form).

 

***On-site and PipelineSupply.***  Wetypically supply customers who require the largest volumes of industrial gases(typically oxygen, nitrogen, carbon monoxide and hydrogen) and who have arelatively constant demand from Air Seperation Units or non-cryogenic plantsbuilt adjacent to or on these customers’ facilities. We own and maintain theseplants. Because these plants are usually dedicated solely to supply aparticular customer, our product supply contracts generally contain take-or-payminimum purchase requirements.

 

For customers who use large volumes of industrial gases such as oxygenand nitrogen but who do not have a plant on or adjacent to their facilities, wedeliver gases, where feasible, through a pipeline from nearby plants. Ifseveral potentially important customers are concentrated in a particular region(such as the “Rhein/Ruhr area” in Germany), they can all be connected by asingle pipeline system. Such a pipeline improves supply security for the customerwhile decreasing our delivery costs. Despite the high costs of constructing apipeline (which costs include obtaining the necessary rights-of-way from ownersof property located between the plant and the customer’s facility), maintenancecosts are low. Our pipeline supply arrangements are generally made undercontracts having terms similar to our on-site supply contracts.

 

In each of the last three years, the take-or-pay minimum purchaserequirements in our on-site and pipeline contracts accounted for approximately60% to 70% in Germany and approximately 40% to 45% in the United States of thenet sales we generated under these supply contracts. These contracts typicallyhave terms of 10 to 15 years and are typically renewed because of thecapital intensive nature of this business.

 

***Bulk Supply.***  We distribute gases in bulk form tocustomers who require a high volume of industrial gases but do not wish toinstall an on-site facility and for whom pipeline delivery is not a costefficient option. The industrial gases most commonly supplied in bulk form areliquid oxygen, nitrogen, argon, carbon dioxide, hydrogen and helium. Bulksupplies are stored on the customer’s premises in tanks with capacities rangingbetween 15 and 150 tons. Typically, we own these tanks and lease them to ourcustomers. We deliver gas to our customers by tanker trucks, tube trailers orrail cars and transfer it to 

 

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the leased tanks. Our bulkcustomers typically store the product near the point of use, normally in liquidstate, and vaporize the product into gaseous state for use as needed. Bulksupplies of oxygen and nitrogen generally have a relatively small commerciallyviable distribution radius (up to 200 kilometers) from the plants at which theyare produced. However, argon and helium are higher-margin products and thus canprofitably be shipped much longer distances.

 

Our bulk supply contracts in Europe typically have terms of two tothree years while our bulk supply contracts in the United States typically haveterms of five to seven years. These contracts are frequently renewed, in partbecause a change of supplier would require a change of equipment.

 

***Cylinder Supply.***  Customers requiring small volumes of gases(including most specialty gases) are supplied products in cylinders which wetypically own and rent to these customers. Cylinders typically have a capacityof 50 liters and vary in pressurization capability. The greater the pressure,the greater the amount of gas in the cylinder and therefore the lower thetransport costs per unit of gas. Cylinders may be delivered to the customer’ssite or picked up by the customer at a filling station or retail location. Wegenerally sell our cylinder gases by purchase orders or by contracts with termsranging between one to two years in Europe and three to five years in theUnited States. In the United States, we also sell welding and other equipmentrelated to industrial gas on a retail basis.

 

**Our Operations byRegion**

 

***Germany***

 

Germany is the largest industrial gas market in Western Europe. With anestimated market share of approximately 32%, we are the second largest producerand distributor of industrial gases in Germany following Linde/AGA, which holdsan estimated market share of approximately 38%. As a result of our rapidexpansion in the past five years, we have built up substantial capacity,including most recently two new Air Separation Units and a new carbon monoxideplant. One of the new large air separation units became operational in 2001 andthe carbon monoxide plant became operational in 2002. The two new AirSeparation Units significantly increase our industrial gas production capacity.Our customer base in Germany is broad and diversified, with approximately120,000 customers. Our top 10 customers in Germany represented only 26% of ourtotal net German sales in the tweleve months ended December 31, 2002. As ofDecember 31, 2002, we had 2,208 employees in Germany.

 

***On-site and PipelineBusiness.*** Our on-site and pipeline business unit serves more than 40 customers.Our top ten on-site and pipeline customers accounted for approximately 87% ofon-site and pipeline sales in Germany in the tweleve months ended December 31,2002. These customers include Steel Works Krupp Mannesmann, ThyssenKrupp,Bayer, BP Chemicals, Dillinger Hütte, Saarstahl, Celanese, Veba Oil, andShell/DEA. Our long-term contracts in this business unit typically containtake-or-pay minimum purchase requirements, which accounted for approximately60% to 70% of the net sales generated under these contracts in each of the lastthree years. Approximately 90% of our on-site and pipeline net sales isgenerated under long-term contracts (typically 10 to 15 year terms, with 5 to10 year renewal periods). At year end 2002, our German on-site and pipelinecontracts had an average remaining duration of more than seven years. Over 90%of our on-site and pipeline customers in Germany whose contracts expired overthe past five years renewed their contracts with us.

 

We own a highly automated 516 kilometer oxygen and nitrogen pipelinenetwork in the Rhein/Ruhr region, the industrial heartland of Germany, whichlinks six major Air Separation locations. This pipeline is the only oxygen andnitrogen pipeline in the region and is the largest industrial gas pipeline inGermany. We also own a 53 kilometer oxygen and nitrogen pipeline network in theSaar region which links two major Air Separation Units. Together, thesepipeline networks primarily serve 30 leading steel and chemical companies. Ourpipeline networks provide continuity and security of supply and enable us tomaximize utilization of our Air Separation Units, which permits cost effectivegas production. Since 1990, we have spent approximately €360 million toexpand and maintain our German pipeline networks and to expand capacity at ourexisting Air Separation Units connected to our pipelines. In fiscal year 2002,we spent approximately €15 million to expand such capacity.

 

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***Bulk Business.***  Our bulk business unit in Germany servescustomers in a broad range of industries including the food, utilities,chemical, metallurgy and manufacturing industries. Our most important productsin this unit by revenue are liquid nitrogen, oxygen, argon, hydrogen and carbondioxide. Our bulk business in Germany operates with medium-term contracts thattypically have terms of two to three years, the maximum term permitted for suchcontracts under European Union antitrust laws. However, once a customer accountis established in this business unit, the customer usually remains a long-termcustomer. Over 90% of our bulk customers in Germany whose contracts expiredover the past five years renewed their contracts with us.

 

In order to lower transportation costs and to optimize capacityutilization at our plants, we have entered into product swap arrangements withour competitors for some of our bulk delivery commitments. Under thesearrangements, we are able to save transportation costs for deliveries to someof our more remote customers by utilizing the production facilities of othercompanies. At the same time, we perform a similar function for other companies.We are exploring the possibility of replicating these “swap” arrangements inthe cylinder segment and in other geographic markets.

 

***Cylinder Business.***  Our cylinder business unit serves a verybroad customer base with approximately 110,000 customers in Germany, andprincipally sells commodity gases such as oxygen, nitrogen, argon andacetylene. Approximately 35% of our net sales in this business in 2002consisted of cylinder rental fees. Contracts in this business typically haveone-year terms.

 

***Specialty GasesBusiness.*** Our customer base in our specialty gases business field in Germany ishighly diversified. Sales to our top ten customers, which includeTextron-Kautex, Bosch, Volkswagen, Degussa, Linde, Inergy and Brucker,accounted for only 13% of net sales in this business field in 2002. The mainproducts in our German specialty gases business field are helium in gaseous andliquid form and other specialty gases for electronics applications. We alsomarket and sell equipment used in specialty gas applications, which accountedfor approximately 27% of net sales in this business segment in 2002. A smallportion of our net sales in this business in 2002 were exports, primarily tothe rest of Europe.

 

We operate our specialty gases business in Germany from our specialtygases facility in Krefeld. In total, within this business we sell approximately800 different specialty gases and gas mixtures that we distribute in cylinders.

 

***NorthAmerica***

 

Most of our North American operations are located in the United States.Our North American business has grown considerably over the last decade, inparticular in the on-site, pipeline and bulk businesses. Due to our rapidexpansion, with more than €300 million in capital expenditures in the pastfive years, we have available capacity at many plants. We can also expandcapacity at 11 plants with only minimal additional capital investment. As ofDecember 31, 2002, we had 996 employees in North America.

 

***On-Site and PipelineBusiness.*** Our on-site and pipeline business unit operates in over 16 states in theindustrial areas of the mid-Atlantic region and the Mississippi River valley,as well as in Texas and California. We own and operate a total of 23 majoron-site Air Separation Units in the United States. Unlike our German pipelinebusiness, our U.S. pipelines do not form an inter-connected network. Instead,we have small pipelines at most of our on-site Air Separation Units thattypically connect to one or two customers. Our principal products distributedon-site or by pipeline are oxygen and nitrogen.

 

Most of our current on-site and pipeline customers are large, industrialcompanies in the steel, chemicals, plastics, metal fabrication and paperindustries. These customers typically take delivery under long-term contractswith terms of 15 years or more, and they collectively had, at year end2002, an average of 9.7 years remaining on their contracts. Our on-site andpipeline contracts in North America typically contain take-or-pay minimumpurchase requirements which, in 2002, represented approximately 40% to 45% ofthe total revenue generated under these contracts. Our top five U.S. on-siteand pipeline customers in 2002 were NUCOR, DuPont, AK Steel, General Electricand Condea Vista Chemical. We are not dependent on any particular customer orset of customers in this U.S. business unit. All of this unit’s customers whosecontracts expired in the past five years renewed their contracts with us.

 

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***Bulk Business.***  Our North American bulk business operates inthe same geographic area as our on-site and pipeline unit. Within our bulkbusiness, our two largest volume products are liquid nitrogen and liquidoxygen. We also produce and deliver liquid argon and liquid carbon dioxide inbulk form.

 

There is no significant customer concentration in this division withour top ten U.S. bulk customers (including NUCOR, Holnam, North AmericanStainless, Marathon, NASA,  andGoodyear) accounting for approximately 10% of net sales in this unit in 2002.Our bulk contracts in the United States generally have terms of five to sevenyears. While our bulk contracts do not generally include minimum purchaserequirements, they typically include a fixed facility fee that offsets the costof tank or equipment installation on customers’ premises. An estimated 90% ofU.S. bulk customers whose contracts expired in the past five years renewedtheir contracts with us.

 

***Cylinder Business.***  We conduct our cylinder business inDelaware, Maryland, New Jersey, New York, Pennsylvania and Virginia. UnlikeEurope, in the United States a large number of small distributors are active inthe cylinder business, some of whom buy in bulk from large distributors andresell in cylinders.

 

Unlike in Europe, our cylinder business in North America includes thesale of equipment required for industrial gas applications. Industrial gassales accounted for approximately 66% of our North American cylinder sales inthe tweleve months ended December 31, 2002, with equipment sales (principallycutting and welding supplies) accounting for the remaining 34%. In 2002, ourfour largest customers, E.I. DuPont, Wakeman Industries, Butler Gas and TheUniversity of Virginia, accounted for approximately 3% to 4% of our total NorthAmerican cylinder sales, and the top 500 customers accounted for approximately56% of our total North American cylinder sales. Our North American contractsfor cylinder supply generally have terms of two to five years.

 

***WesternEurope (other than Germany)***

 

As most western European markets are dominated by one or more of ourcompetitors, we have followed a niche strategy in this region, based onperceived opportunities in specific countries. Our most important markets bynet sales in this region are the United Kingdom, France and Belgium. We alsohave smaller operations in Switzerland, the Netherlands, Italy and Spain. Ourprincipal products in this region are nitrogen, oxygen, carbon dioxide,specialty gases and argon. We primarily operate in the bulk and cylindersegments within these markets, servicing customers in a broad range ofindustries including the food, steel, chemical, construction and metalindustries. We also maintain non-cryogenic on-site plants at some customers’premises. In addition, we operate a 84 kilometer oxygen and nitrogen pipelinenetwork in the petrochemical industrial area of Tarragona in northeasternSpain.

 

Our top ten customers in this region accounted for less than 10.0% ofour total net sales for this region in 2002, and no single customer in anycountry in Western Europe accounted for more than 1.6% of total net sales inthe region. Our bulk contracts in Western Europe typically have terms of two tothree years, the maximum term permitted for such contracts under European Unionantitrust laws, and cylinder contracts typically have terms of one to fiveyears. We estimated that over 75% of our customers whose bulk contracts expiredover the past five years in Western Europe renewed their contracts with us.

 

In the United Kingdom, we are active in both the cylinder and bulkbusinesses and derive a substantial part of our net sales from the sale ofcarbon dioxide. A significant portion of our net sales in the United Kingdom isgenerated from cylinder deliveries to retail establishments for tap sales ofsoft drinks and beer. In addition to bulk and cylinder gas sales, we alsoinstall drink dispenser units in pubs to produce carbon dioxide and nitrogenmixtures for pumping beer from the barrel to the tap.

 

In France, we operate in all business segments with a particular focuson carbon dioxide in the bulk business and the cylinder business. Our Frenchcylinder business is supported by a speciality gas facility near Paris. InBelgium, we have a cylinder business with a speciality gas plant close toBrussels. In Switzerland, we are active in the cylinder and bulk segments andoperate one nitrogen on-site facility and one hydrogen plant. We alsodistribute technical equipment, machinery, tools and accessories for thewelding industry.

 

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As of December 31, 2002, we had 997 employees in Western Europe.

 

***EasternEurope***

 

We operate throughout central and Eastern Europe. We have leadingpositions in several countries in this region with estimated market sharesranging from 35% to 75% in Hungary, Slovakia, Slovenia, Croatia, Bulgaria,Bosnia and Serbia. We also have a strong position in Austria with an estimatedmarket share of approximately 16%. Our most important markets by net sales inthis region are Austria, Czech Republic, Hungary, Serbia and Poland. We alsohave smaller operations in Bosnia-Herzegovina, Bulgaria, Estonia, Greece,Latvia, Macedonia, Romania, Russia and Turkey.

 

We are the market leader in both Serbia and Hungary where we are activein all market segments including on-site and pipeline, bulk and cylinder. InAustria, we also compete in all three market segments. In Poland, we competeprimarily in the bulk and cylinder segments. Throughout Eastern Europe, weserve a broad range of industries, including customers in the food, steel,mining, chemicals and metal industries.

 

Our on-site contracts in this region typically have terms rangingbetween 8 to 15 years with take-or-pay minimum purchase requirements. Ourbulk contracts in this region typically have terms ranging between 3 to10 years, and cylinder contracts typically have terms ranging between oneto two years. Over 90% (best estimate) of our on-site and pipeline, bulk andcylinder contracts which expired over the past five years in Eastern Europewere renewed with us.

 

The industrial gas market in Eastern Europe is generally less maturethan in Western Europe and the United States, and the competitive environmentin this region is more dynamic as a result. We believe that this region offersattractive growth prospects.

 

As of December 31, 2002, we had 2,283 employees in Eastern Europe.

 

**Operations Divestedand to be Divested**

 

We intend to divest substantially all of our assets and operationsoutside our core regions of Europe and North America as well as certain nonstrategic assets and operations within our core regions. Upon completion of theentire divestiture program, we expect that the divestitures will permit us toreduce our consolidated debt reflected on the December 31, 2000 balance sheetby at least €400 million.

 

As of December 31, 2002, we have completed disposals of our home carebusiness in Germany, our health care business in Canada and our non-cryogenicplant production operations in Germany, the United States, Italy and China. Wealso have completed disposals of our operations in Argentina, Brazil, Canada,Egypt, Mexico, South Africa, South Korea, Trinidad & Tobago and Venezuela,our nitric oxide business in Austria, substantially all our carbon dioxidebusiness in the United States and our nitrogen services business in the UnitedKingdom. As of December 31, 2002, other than the joint ventures in CentralAmerica and China and our subsidiaries in Indonesia and Peru, we have completedthe divestitures targeted to be completed by year end 2002. In January 2003, wesold our operations in Indonesia to PT Tira Austenite Tbk.

 

The remaining divestitures of certain of our assets and operations mayrequire additional expenditures prior to their disposal.

 

***OtherPotential Divestitures***

 

Separately from our divestiture program, in light of unstable politicalconditions in certain countries or the prevalence of business practices inthose or other countries which are inconsistent with the standards we applygenerally in our core markets and operations, we may decide to sell ordiscontinue operations in those countries, including operations that wouldotherwise be viewed as strategic assets within our core markets.

 

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## **Sales and Marketing**

 

As of December 31, 2002, we had a global sales force of approximately1,678 employees, approximately 74% of whom were located in Europe and 15% inNorth America. We organize our sales and marketing activities differently ineach country.

 

In Germany, we have historically organized our sales and marketingactivities along business unit lines with separate sales forces for the on-siteand pipeline, bulk, cylinder, speciality gases and medical business units.Recently, however, we reorganized some of these activities by combining thebulk, cylinder and specialty gases sales forces. We now have one sales force,operating through three regional sales teams covering these three productsegments in Germany. In addition, we have, through a joint venture with MesserNippon Sanso GmbH & Co.KG (of which we own 51%) a sales team specialized inservicing the electronics industry.

 

In the rest of Europe, we typically organize our sales and marketingalong business unit lines within each country. However, in some countries inthe region, we recently reorganized these activites as in Germany.

 

In North America, we have two principal sales forces, one of whichmarkets for our bulk unit (including on-site, pipeline and liquid products) andthe other for our cylinder unit. In the rest of the world, we generally haveone sales force marketing all our products in each country.

 

We now separately market and sell application technology-relatedservices. To this end, we have created a global applications and technologygroup that supports our local sales and marketing activities. Application salesare organized by regional industry segments, which include the metal, chemicaland environmental, food and process industries.

 

## **Insurance**

 

Our major insurance programs cover all operations outside the UnitedStates and Canada. A separate program covers operations in the United Statesand Canada. We believe that our insurance arrangements (including the uninsuredportion of our risks) regarding property, liability and environmental risks areadequate and in line with market practice in each of our core markets. However,we cannot assure you that changes in the terms and amount of insuranceavailable will not have an adverse effect on our business, results ofoperations or financial position.

 

The largest product liability occurrences we have suffered in the lastfive years related to carbon dioxide that Messer Griesheim purchased from athird party supplier and sold to its clients which were contaminated withbenzene. Total claims for this incident currently amount to appromixately €15.9million, 100% of which is expected to be covered by insurance policies. Ingeneral, our property claims experience has been favorable and infrequent. Thelargest property loss which we sustained on a global basis was attributed to anoxygen pipeline explosion which took place in 1995 at a location near Cologne,Germany. Claims relating to this incident amounted to approximately €6.1million in damages. Approximately 70% of these damages were covered by ourinsurance policies.

 

**4.C ORGANIZATIONAL STRUCTURE**

 

We are a multinational group of companies, with our core markets inEurope and North America, specializing in the production and distribution ofindustrial gases, including oxygen, nitrogen, argon, carbon dioxide, hydrogen,helium, specialty gases and acetylene. Messer Holding, a German holdingcompany, owns, directly or indirectly, 100% of all significant operatingcompanies. Messer Holding was a dormant company until it was activated tobecome a holding company.

 

The following diagram shows our ownershipstructure as of December 31, 2002

 

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(1) The holding company for the Messer family’s interests in MesserGroup.

 

(2) Certain private equityfunds managed by affiliates of The Goldman Sachs Group, Inc.

 

(3) The employees participating in the share purchase and option planhold their shares through Messer Employee. The participant’s voting rights areexercised by the managing partner of Messer Employee, MEB. The members of theshareholders’ committee of MGB hold their shares directly in Messer GriesheimGroup.

 

(4) Principal operating companyin Germany and holding company for the remainder of our operations.

 

Our significant subsidiaries as of December 31, 2002 are set forthbelow.

 
| **Name and Office of Subsidiary**                          |   | **Country of  Incorporation   or Residence** |   | **Ownership  Percentage** |   |
|------------------------------------------------------------|--------|----------------------------------------------|--------|---------------------------|--------|
| Messer  Griesheim GmbH (Frankfurt a.M.)                    |   | Germany                                      |   | 100                       | %      |
| Messer Griesheim Industries, Inc. (Malvern,  Pennsylvania) |   | United States                                |   | 100                       | %      |
| Messer  France S.A. (Asnieres)                             |   | France                                       |   | 100                       | %      |
| Messer Hungarogáz Kft. (Budapest)                     |   | Hungary                                      |   | 100                       | %      |
| Messer  U.K. Ltd. (Reigate)                                |   | United Kingdom                               |   | 100                       | %      |
| Messer Austria GmbH (Gumpoldskirchen)                      |   | Austria                                      |   | 100                       | %      |
| Messer  B.V. (Moerdijk)                                    |   | Netherlands                                  |   | 100                       | %      |
| Messer  Croatia Plin d.d. (Zapresic)                       |   | Croatia                                      |   | 99.96                     | %      |
| Messer  Belgium N.V. (Machelen)                            |   | Belgium                                      |   | 99.41                     | %      |
| Messer  Polska Spólka z.o.o. (Chorzów)           |   | Poland                                       |   | 98.54                     | %      |
| Tehnogas AD (Beograd)                                      |   | Serbia                                       |   | 60                        | %      |

 

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**4.D PROPERTY, PLANTS AND EQUIPMENT**

 

We own our principal operational offices, which are located in Krefeld,Germany, Malvern, Pennsylvania and Gumpoldskirchen, Austria. In line with ourstrategy to centralize key business processes, Messer Griesheim has recentlyrelocated its headquarters from Frankfurt to Krefeld, which is also the currentoperations and research base in Germany.

 

It is our policy to own our facilities. A portion of our facilitieslocated in Germany and United Kingdom are leased under long term leases.

 

As of December 31, 2002, worldwide, we own:

 

•                                          64cryogenic Air Separating Units, 49 of which are located in our core markets;

 

•                                          55cryogenic generators, all of which are located in our core markets;

 

•                                          668kilometers of pipeline in our pipeline networks, all of which are located inour core markets;

 

•                                          17carbon dioxide plants, 15 of which are located in our core markets;

 

•                                          11hydrogen plants, 8 of which are located in our core markets; and

 

•                                          22acetylene plants, 19 of which are located in our core markets.

 

Additionally, we also own numerous non-cryogenic plants, liquefiers andcylinder filling stations.We believe that our production plants and researchfacilities are well maintained and generally adequate to meet our needs for theforeseeable future.

 

Below is a summary that sets out our major production facilities.

 
| **Country**        |   | **Production  site location** |   | **Major  product**          |   |
|--------------------|--------|-------------------------------|--------|-----------------------------|--------|
|               |   |                          |   |                        |   |
| **Austria**        |   | Gumpoldskirchen               |   | Oxygen, Nitrogen, Acethylen |   |
| **Croatia**        |   | Dugi Rat                      |   | Oxygen, Nitrogen,           |   |
|               |   | Kutina                        |   | Carbon-Dioxide              |   |
|               |   | Zapresic                      |   | Oxygen, Nitrogen,           |   |
| **Czech Republic** |   | Vratimov                      |   | Acethylen                   |   |
|               |   | Vratimov                      |   | Oxygen, Nitrogen, Argon,    |   |
| **Finland**        |   | Imatra                        |   | Oxygen, Nitrogen, Argon     |   |
|               |   | Sunila                        |   | Oxygen                      |   |
| **France**         |   | Lavera                        |   | Carbon-Dioxide              |   |
|               |   | Nangis                        |   | Carbon-Dioxide              |   |
|               |   | Beauvais                      |   | Oxygen, Nitrogen            |   |
| **Germany**        |   | Andernach                     |   | Hydrogen, Nitrogen          |   |
|               |   | Bremen                        |   | Hydrogen                    |   |
|               |   | Dormagen                      |   | Oxygen, Nitrogen, Argon     |   |
|               |   | Dortmund                      |   | Oxygen, Nitrogen, Argon     |   |
|               |   | Duisburg                      |   | Oxygen, Nitrogen, Argon     |   |
|               |   | Jena                          |   | Hydrogen                    |   |

 

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|              |   | Köln                     |   | Oxygen, Nitrogen, Argon     |   |
|-------------------|--------|-------------------------------|--------|-----------------------------|--------|
|              |   | Kornwestheim                  |   | Oxygen, Nitrogen, Argon     |   |
|              |   | Mainz                         |   | Oxygen                      |   |
|              |   | Minden                        |   | Hydrogen                    |   |
|              |   | Oberhausen                    |   | Oxygen, Nitrogen, Argon     |   |
|              |   | Unterwellenborn               |   | Oxygen                      |   |
|              |   | Gelsenkirchen                 |   | Oxygen, Nitrogen, Argon     |   |
|              |   | Frankfurt                     |   | Oxygen, Nitrogen, Argon     |   |
|              |   | Dillingen                     |   | Oxygen, Nitrogen, Argon     |   |
|              |   | Wolfsburg                     |   | Nitrogen                    |   |
|              |   | Krefeld                       |   | Nitrogen                    |   |
| **Great Britain** |   | Eggborough                    |   | Oxygen, Nitrogen, Argon,    |   |
|              |   | Kemira                        |   | Carbon-Dioxide              |   |
| **Hungary**       |   | Budapest                      |   | Oxygen, Nitrogen, Acethylen |   |
|              |   | Nyergesujfalu                 |   | Nitrogen                    |   |
|              |   | Tiszaujvaros                  |   | Nitrogen                    |   |
|              |   | Varpalota                     |   | Hydrogen                    |   |
|              |   | Ölbö                |   | Carbon-Dioxide              |   |
| **Italy**         |   | Ambra                         |   | Carbon-Dioxide              |   |
| **Poland**        |   | Chorzow                       |   | Acethylen                   |   |
|              |   | Police                        |   | Acethylen                   |   |
| **Romania**       |   | Deva                          |   | Acethylen                   |   |
| **Serbia**        |   | Nis                           |   | Oxygen, Nitrogen, Argon     |   |
|              |   | Pancevo                       |   | Carbon-Dioxide              |   |
|              |   | Smederevo                     |   | Oxygen, Nitrogen, Argon     |   |
| **Slovakia**      |   | Bratislava                    |   | Oxygen, Nitrogen,           |   |
| **Slovenia**      |   | Ljubiljana                    |   | Acethylen                   |   |
| **Spain**         |   | Vilaseca                      |   | Oxygen, Nitrogen, Argon,    |   |
| **Switzerland**   |   | Lenzburg                      |   | Hydrogen                    |   |
| **United States** |   | Albany, New York              |   | Oxygen, Nitrogen            |   |
|              |   | Ashland, Kentucky             |   | Oxygen, Argon               |   |
|              |   | Berkeley, California          |   | Oxygen, Nitrogen, Argon     |   |
|              |   | Blytheville, Arkansas         |   | Oxygen, Nitrogen, Argon     |   |
|              |   | Chattanooga, Tennessee        |   | Oxygen, Nitrogen, Argon     |   |
|              |   | Delisle, Mississippi          |   | Oxygen, Nitrogen, Argon     |   |
|              |   | Hertford, North Carolina      |   | Oxygen, Nitrogen, Argon     |   |
|              |   | Irwindale, California         |   | Oxygen, Nitrogen, Argon     |   |
|              |   | Middletown, Ohio              |   | Oxygen, Nitrogen, Argon     |   |
|              |   | Mount Vernon, Indiana         |   | Oxygen, Nitrogen, Argon     |   |
|              |   | Reading, Pennsylvania         |   | Oxygen, Nitrogen, Argon     |   |
|              |   | Waxahachie, Texas             |   | Oxygen, Nitrogen, Argon     |   |
|              |   | West Lake, Louisiana          |   | Oxygen, Nitrogen, Argon     |   |
|              |   | West Point, Virginia          |   | Oxygen, Nitrogen, Argon     |   |
|              |   | Wake Forrest, North Carolina  |   | Oxygen, Nitrogen, Argon     |   |
|              |   | Darlington, South Carolina    |   | Oxygen, Nitrogen, Argon     |   |
|              |   | Norfolk, Nebraska             |   | Oxygen, Nitrogen, Argon     |   |
|              |   | San Antonio, Texas            |   | Oxygen, Nitrogen,           |   |
|              |   | Spartanburg, South Carolina   |   | Oxygen, Nitrogen, Argon     |   |
|              |   | St. Mary’s, Pennsylvania |   | Oxygen, Nitrogen, Argon     |   |
|              |   | Mapleton, Illinois            |   | Oxygen, Nitrogen, Argon     |   |
|              |   | Vacaville, California         |   | Oxygen, Nitrogen, Argon     |   |

 

37

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**Regulation andEnvironmental Matters**

 

We are subject to laws and regulations relating to the protection ofthe environment and natural resources including, among other things, themanagement of hazardous substances and waste, air emissions and waterdischarges. Modern industrial gas production methods do not have a significantimpact on the environment when compared to other industries such as chemicalmanufacturing. We are also subject to health and safety regulations including,among other things, noise, workplace health and safety and regulationsgoverning the handling and packaging of hazardous materials. In general, we donot believe that non-compliance with these regulations represents a materialarea of potential liability for us. Our capital expenditures for environmentalprotection totaled approximately €1.8 million in 2002.

 

We own several properties that may have been contaminated by us orprior users. Soil and groundwater contamination mainly associated with pastactivities at some of our sites could represent a potential environmental liability.In addition, capital expenditures may become necessary to reduce theenvironmental impact of certain operations, such as expenditure to installmodern production equipment with lower emission levels.

 

In addition to existing regulatory legislation, several legislativeinitiatives are under consideration that may have an effect on our operations.Energy accounts for a high proportion of our operating costs. There isincreasing interest in Europe in encouraging significantly lower energyconsumption by introducing levies or taxes. Such levies and taxes were recentlyintroduced in Germany and could be introduced elsewhere in the future.

 

Because we supply industrial gases to the medical industry, we aresubject to additional regulation in certain of our markets. In particular, weare subject to regulation by the federal Food and Drug Administration in theUnited States which has recently begun to more stringently enforce itsregulation of industrial gases in the medical industry. The expansion of the scopeand effect of such regulation in the United States and other markets may havean adverse effect on our operations.

 

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

 

**5.A OPERATING RESULTS**

 

You should read the following discussion in conjunction with MesserGriesheim’s and Messer Holding’s financial statements included in this Form20-F starting on page F-1. Messer Griesheim’s and Messer Holding’s financialstatements are prepared in accordance with the International FinancialReporting Standards of the International Accounting Standards Board, or IFRS,which differ in certain significant respects from U.S. GAAP. You can findreconciliations of net income, shareholders’ equity and disclosures regardingdifferences between IFRS and U.S. GAAP in note 40 “Reconciliation to U.S.GAAP”to Messer Holding’s consolidated financial statements.

 

The Company calculates normalized EBITDA as operating profit beforedepreciation and amortization, after adding back charges for impairment ofintangible assets and property, plant and equipment, restructuring andreorganization charges and cash dividends from non-consolidated subsidiaries.

 

Normalized EBITDA is not a measure recognized by IFRS or U.S. GAAP.This and similar measures are used by different companies for differingpurposes and are often calculated in ways that reflect the unique situations ofthose companies. We urge you to be very cautious in comparing our normalizedEBITDA data to the EBITDA data of other companies. Normalized EBITDA is not asubstitute for operating profit as a measure of operating results. Likewise,normalized EBITDA is not a substitute for cash flow as a measure of liquidity.

 

**ForwardLooking Statements May Prove Inaccurate**

 

This report contains certain forward-looking statements and informationrelating to us that is based on the beliefs of our management as well asassumptions made by and information currently available to us. These statementsinclude, but are not limited to, statements about our strategies, plans,objectives, expectations, intentions, expenditures, and assumptions as well asother statements contained in this Form 20-F that are not historical facts.When used in this document, words such as 

 

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“anticipate”, “believe”, “estimate”,“expect”, “intend”, “plan” and “project” and similar expressions, as theyrelate to us or our management, are intended to identify forward-lookingstatements. These statements reflect our current views with respect to futureevents, are not guarantees of future performance and involve risks anduncertainties that are difficult to predict. Further, certain forward-lookingstatements are based upon assumptions as to future events that may not prove tobe accurate.

 

Investors are cautioned that forward-looking statements contained inthis section involve both risk and uncertainty. Several important factors couldcause actual results to differ materially from those anticipated by thesestatements. Many of these statements are macroeconomic in nature and are,therefore, beyond the control of management.

 

**Overview**

 

We are a producer and distributor of industrial gases, includingoxygen, nitrogen, argon, carbon dioxide, hydrogen, helium, specialty gases andacetylene. The industrial gases we produce are used in a broad range ofindustries, including the steel, chemicals, electronics, pulp and paper,health-care, food and beverage, automotive, lighting and glass industries. Weoperate in 45 countries through more than 407 facilities, including productionplants, distribution and filling stations and research centers as of December31, 2002. In 2002, we had an estimated global market share of approximately 4%of the total industrial gases market, making us the seventh largest industrialgas producer worldwide with leading market shares in Germany and certain othercountries in central and Eastern Europe. We also have strong businesses inselected industrial areas of the United States and in selected niche markets inother western European countries. In the twelve months ended December 31, 2002,we generated net sales of €1,526.0 million and normalized EBITDA of €402.9million. Please note that our normalized EBITDA for periods preceding andsubsequent to April 30, 2001 are not comparable, due to the consummation of theacquisition transaction on April 30, 2001.

 

Our primary or core markets are Europe and North America. Our twolargest markets, Germany and North America, collectively accounted for 65% ofour net sales and 72% of our normalized EBITDA for the twelve months endedDecember 31, 2002. Within each of our geographic markets, we generally organizeour business based upon how we deliver industrial gases to our customers:delivery of large volumes from on-site production facilities or by pipeline,delivery in bulk tanks transported by truck or rail and delivery in gascylinders. In addition to our core markets of Europe and North America, we alsooperate in Asia, Africa and Latin America. We are in the process of divestingof substantially all of the assets outside our core markets, along with certainnon-strategic assets in our core markets. As of December 31, 2002, other thanthe joint ventures in Central America and China and our subsidiaries inIndonesia and Peru, we have completed all divestitures that were targeted to becompleted by the end of calendar year 2002.

 

**AcquisitionTransactions, Refinancing and Divestiture Program**

 

As discussed elsewhere in this report, the acquisition transactionshave been accounted for at fair value and, accordingly, our assets andliabilities have been recorded at their estimated fair values as of April 30,2001, the date of the acquisition transactions. As a result, the consolidatedfinancial statements of Messer Griesheim for periods prior to the acquisitiontransactions are not comparable to our consolidated financial statements forperiods subsequent to the acquisition transactions. To highlight this lack ofcomparability, a solid vertical line has been inserted, where applicable,between columns in the tables and schedules of this document, and in ourconsolidated financial statement to distinguish information pertaining to thepre-acquisition and post-acquisition periods.

 

***TheAcquisition of Messer Griesheim***

 

Prior to the completion of the acquisition transactions describedbelow, Messer Griesheim was owned:

 

•                                          331/3% by the Messer family through a holding company, MesserIndustrie GmbH, and

 

•                                          662/3% by Hoechst AG, a subsidiary of Aventis S.A. Aventis wasformed in December 1999 as the result of the merger of Hoechst AG andRhone-Poulenc S.A., two of Europe’s largest chemical companies.

 

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On December 31, 2000, Messer Industrie, Hoechst and our parent companyMesser Griesheim Group, entered into certain acquisition transactions.

 

As a result of the acquisition transactions, Messer Holding owns 100%of Messer Griesheim and Messer Holding is wholly owned by Messer GriesheimGroup. Messer Holding and Messer Griesheim Group are both holding companieswith no material assets other than their direct or indirect interests in MesserGriesheim (and, in the Messer Holding’s case, the payments under theintercompany loan to Messer Griesheim). During the twelve months endedDecember 31, 2002, our employees and members of the shareholders’committee purchased shares through the share purchase and option plan. Theemployees hold their shares through Messer Employee. Consequently MesserGriesheim Group is owned as of December 31, 2002:

 

•                                          32.11%by the Messer family, through Messer Industrie;

 

•                                          33.08%by Allianz Capital Partners;

 

•                                          33.08%by six private equity funds managed by affiliates of The Goldman Sachs Group,Inc. ; and

 

•                                          1.73%by Messer Employee and certain members on the Shareholders’ committee of MGB.

 

In connection with these acquisition transactions, the shareholders ofMesser Griesheim Group entered into a shareholders’ agreement governing theirrespective voting control and other ownership rights with respect to MesserHolding and Messer Griesheim. See Item 7. “Major Shareholders and Related PartyTransactions” – “Major Shareholders” – “Shareholders’ Agreement”.

 

Due to certain antitrust related considerations relating to the equityinterest of Allianz AG in a competitor of Messer Griesheim, the agreementgenerally allocates the rights of the financial sponsors relating to corporategovernance and management to the GS Funds until such time as the antitrustrelated considerations are no longer relevant. Accordingly, until then, membersof the shareholders' committee appointed by the GS Funds will represent allvotes of the financial sponsors constituting 66.16% of all votes in theshareholders committee. Thereafter, the rights will be shared by AllianzCapital Partners and the GS Funds, with Allianz Capital Partners having adeciding vote in the event of a lack of consensus between Allianz CapitalPartners and the GS Funds, subject to certain exceptions.

 

***TransactionStructure***

 

The following diagram shows our ownership structure and the structureof our principal indebtedness as of December 31, 2002 following completionof the acquisition transactions on or about April 30, 2001, reflecting theissuance of the senior notes and the refinancing of our indebtedness to theextent completed, including repayment in full of the €400 million mezzaninebridge facility and repayment of €115 million of our senior term facilities andsubsequent share purchases by our employees and shareholders’ committee membersthrough the share purchase and option plans indicated above.

 

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(1) The holding company for theMesser family’s interests in Messer Griesheim.

 

(2) Certain private equityfunds managed by affiliates of The Goldman Sachs Group, Inc.

 

(3) The employees participating in the share purchase and option planhold their shares through Messer Employee. The participant’s voting rights areexercised by the managing partner of Messer Employee, MEB. The members of theshareholders’ committee of MGB hold their shares directly in Messer GriesheimGroup.

 

(4) Principal operating companyin Germany and holding company for the remainder of our operations.

 

(5) €550.0 million aggregate principal amount upon issuance. As ofDecember 31, 2002, €493.7 million aggregate principle amount remained outstanding.

 

(6) €550.0 million aggregateprincipal amount.

 

(7) €1,340 million was the initial aggregate amount of senior term loanfacilities. Messer Griesheim GmbH repaid €115 million principal amount ofsenior term facilities in May 2001 with a portion of the proceeds from the saleof the senior notes. As of December 31, 2002 €729.7 million aggregate principalamount remained outstanding under the senior term facilities. The senior termfacilities also include committed but undrawn funds totaling €294.0 millionunder revolving facilities. Certain of Messer Griesheim’s subsidiaries are alsodirect borrowers under the senior term facilities.

 

***RefinancingProgram***

 

In connection with the acquisition transactions described above,substantially all of Messer Griesheim’s existing indebtedness was refinancedthrough the senior notes and the senior facilities described below. Upon theinitial closing of the acquisition, Messer Griesheim entered into a seniorfacilities agreement with aggregate available funds of €1,650 million (€1,340million of term loan facilities and €310 million of revolving facilities) and amezzanine bridge facility agreement in 

 

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the aggregate amount of €400million. On May 16, 2001, the Company issued €550 million principal amount of10.375% senior notes maturing on June 1, 2011. Upon the closing of the sale ofthe senior notes, Messer Holding made an intercompany loan to Messer Griesheimwith the gross proceeds from the senior notes, and Messer Griesheim used theintercompany loan to repay the mezzanine bridge facility in full and repay €115million principal amount of outstanding term borrowings under the facilities.

 

**Business Practices**

 

We believe the following selected business practices are important fora proper understanding of our financial reporting risks.

 

***NetSales***

 

We primarily earn revenues from

 

•                                          salesof industrial gases, and to a lesser extent

 

•                                          salesof hardware related to industrial gas usage.

 

Our sales of industrial gases, which amount to greater than 90% of ourtotal revenue, are divided into three business fields corresponding to theirmode of delivery: on-site and pipeline sales, bulk delivery sales and cylinderdelivery sales. Contracts in our on-site production and pipeline supplybusinesses in Europe and the United States typically have terms of 10 to 15years and usually have “take-or-pay” minimum purchase provisions. In each ofthe last three years, the “take-or-pay” minimum purchase requirements in ouron-site and pipeline supply contracts accounted for approximately 60% to 70% inGermany and 40% to 45% in the United States of the total amount of net salesthat we generated under these contracts.

 

Contracts in our bulk business generally have terms of two to threeyears in Europe and five to seven years in the United States. Customers in ouron-site and pipeline and bulk businesses have historically exhibited highrenewal rates, with over 90% of customers whose contracts expired in the pastfive years renewing their contracts with us. Our on-site, pipeline and bulkbusinesses in Germany and the United States accounted for approximately 39% ofour total net sales and approximately 50% of our normalized EBITDA in the year2002. We generally sell our cylinder gases by purchase orders or by contractswith terms ranging between one to two years in Europe and two to five years inthe United States.

 

Our net sales are dependent on the economic conditions in the marketsin which we operate. However, we believe that we have limited exposure to thecyclical nature in demand of any particular industry because of the widediversity of industries represented by our customer base.

 

Although industrial gas prices appear to have stabilized in many of themarkets in which we operate, prices have consistently decreased for at leastthe last 10 years, especially in the bulk and commodity gas cylinder segments,due to aggressive efforts by most producers to increase market share. Theprofit margin impact of this price erosion has been partially offset byefficiency improvements throughout the supply chain and regional consolidationamong large participants in the industry, permitting economies of scale. Inaddition, new applications for industrial gases have provided opportunities forincreased sales volumes and profit margins.

 

***Costof Sales***

 

Our principal raw material is air, which is free and which we separateinto its component gases. Cost of sales principally consists of:

 

•                                          capitalcosts of plants;

 

•                                          costsof energy required for production; and

 

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•                                          laborcosts relating to production.

 

Energy costs consist principally of electrical power costs. Electricityrepresents approximately 29% of cost of sales in the year 2002. We are able topass on a portion of increases in energy costs to many, but not all, of ouron-site and pipeline customers with long-term supply contracts, although theseadjustments in cost often occur only on an annual basis. The amount and otherterms of these energy cost pass-through provisions vary by contract.

 

Labor costs relating to production consist principally of wages andsalaries, social security contributions and other expenses related to employeebenefits. Social security contributions include our portion of social securitypayments as well as our contributions to workers’ insurance associations.

 

We depreciate fixed assets on a straight-line basis. Our depreciationrates assume useful lives ranging from 10 to 50 years for buildings, 10 to 20years for plant and machinery and 3 to 20 years for other plant, factory andoffice equipment.

 

**Divestiture Program**

 

Our core markets are Europe and North America. In May 2001immediately following our change of ownership resulting from the acquisitiontransactions described elsewhere in this Form 20-F, we adopted adivestiture program. Pursuant to the divestiture program, we intend to sellsubstantially all of our assets and operations in our non-core markets in Asia,Africa and Latin America, as well as certain non-strategic assets andoperations in our core markets. The proceeds from the divestiture program willbe used to reduce our consolidated debt.

 

Pursuant to our divestiture program, as of December 31, 2002, we havecompleted disposals of our home care business in Germany, our health carebusiness in Canada and our non-cryogenic plant production operations inGermany, the United States, Italy and China. We also have completed disposalsof our operations in Argentina, Brazil, Canada, Egypt, Mexico, South Africa,South Korea, Trinidad & Tobago and Venezuela, our nitric oxide business inAustria, substantially all our carbon dioxide business in the United States andour nitrogen services business in the United Kingdom. We have substantiallycompleted the disposal of our investments included in subsidiaries availablefor sale. As a result, we completed repayment of our senior term disposalfacility in the second quarter of 2002.

 

The remaining divestiture of certain of our assets and operations mayrequire additional expenditures prior to their disposal.

 

***Cost-SavingsPlan***

 

We are implementing a plan to reduce our operating costs, principallyin Europe. This plan involves eliminating duplication in support positions forcertain process functions, reducing energy costs, centralizing key processfunctions and simplifying our management structure. We have identified most ofthe specific cost savings measures that we anticipate to achieve by year end2003. We expect that these measures will reduce the cost base of our operationsin our core markets relative to its level for the year 2000 by approximately€100 million by year end 2003. To implement these measures, we expect to spendapproximately €64.5 million in total between April 30, 2001 and year end 2003,principally to be applied towards severance payments and efficiencyimprovements.

 

For the twelve months ended December 31, 2002, we have reduced the costbase of our operations in our core markets relative to its level for the year2000 by €71.1 million. As a result of implementation of these measures, weincurred one time costs of approximately €38.1 million (excluding €12.5 millionof costs that were included as part of the purchase price accountingadjustments) for the twenty months from May 1, 2001 to December 31, 2002, ofwhich €12.8 million was recorded in the year 2002. We expect to incur anadditional €26.4 million of one-time costs by the end of 2003 of which  €8.8 million, €17.6 million is expected torelate to divestitures and reduction in work force as well as various otherreductions in operating costs, respectively.

 

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**Critical AccountingPolicies**

 

The results of our operations and financial condition are dependentupon the utilization of accounting methods, assumptions and estimates that areused as a basis for the preparation of the consolidated financial statements.This affects the reported amounts of assets, liabilities, revenues andexpenses, as well as disclosure of contingent assets and liabilities. Some ofthese assumptions and estimates can be subjective in nature and complex, andconsequently actual results could differ. If the accounting estimate requiredassumptions to be made about matters that were highly uncertain at the time theestimate was made and if different estimates could have reasonably been usedwhich would have a material impact on the presentation of the financialcondition or results of operations, the accounting estimate would constitute acritical accounting policy. We have identified the following criticalaccounting policies and related assumptions, estimates and uncertainties, whichmanagement believes are essential to understanding the underlying financialreporting risks and the impact that these accounting methods, assumptions,estimates and uncertainties have on our reported financial results. Thisinformation should be read in conjunction with the audited consolidatedfinancial statements.

 

***Pension plans***

 

We accountedfor pensions on the basis of actuarial valuations, which rely on statistical andother factors in order to anticipate future events. These factors include keyactuarial assumptions about the discount rate and rate of future compensationincreases as well as the expected return on assets. In addition, our actuarialconsultants also make use of subjective assumptions such as fluctuations andmortality rates. These actuarial assumptions may differ materially from actualdevelopments due to changing market and economic conditions, changes influctuation rates or changes in live expectancy of participants, therebyresulting in a significant variation of the projected benefit obligation (PBO).

 

Also, thecalculation of pension expenses is partly based on an expected long-term rateof return on plan assets and the market related value of plan assets. Theexpected return on plan assets assumption is determined on a uniform basis,considering long-term historical returns, asset allocation, and futureestimates of long-term investment returns. The expected return of each assetclass is based on an average over the historical long-term return on risk-freegovernment bonds and moderate specific risk premiums varying for equities andfor lower credit bonds. Accordingly, we calculated an expected return on planassets of approximately 8% at December 31, 2002. The market-related valueof plan assets for the company’s pension plans are based upon the fair value ofplan assets at the measurement date. Actual return on plan assets may differsignificantly from the expected amounts.

 

***PurchaseAccounting***

 

We accounted for the acquisition transactions similar to that of anacquisition of Messer Griesheim by Messer Holding. The accounting for thisacquisition resulted in significant amounts of long-lived intangible assets.Our accounting policy relating to purchase business combinations requires theuse of the purchase method whereby the purchase price is allocated toidentifiable tangible and intangible assets based upon their fair value. Theallocation of purchase price is judgmental and requires the extensive use ofestimates and fair value assumptions, which can have a significant impact onoperating results. Changes in the industry conditions, technological advancesand other economic factors could result in revisions to the judgments,estimates and valuation techniques utilized in the application of purchaseaccounting. Such differing allocations could impact future operating results.

 

***Recoverabilityof Long-Lived Assets***

 

Our business is capital intensive and, historically, requires asignificant investment in property, plant and equipment. As of December 31,2002, the carrying value of our property, plant and equipment was €1,516million and long-lived intangible assets amounted to €791 million. We reviewlong-lived assets, including intangible assets, for impairment whenever eventsor changes in circumstances indicate that the carrying value of an asset maynot be recoverable. Recoverability of assets to be held and used is measured bya comparison of the carrying value of an asset to the higher of net sellingprice and value in use. Net selling price is the amount obtainable from thesale of an asset in an arm’s length transaction between knowledgeable, willingparties, after deducting any direct incremental disposal costs. Value in use isthe 

 

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present value of estimatedfuture cash flows expected to arise from continuing use of an asset and fromits disposal at the end of its useful life.

 

A continuation of the currently competitive economic conditions in theindustrial gas industry could result in an increasingly adverse pricingenvironment due to significant industry over-capacity. This could result indecreased production and reduced capacity utilization. Such events could resultin reductions of future net cash flows expected to be generated to the extentthat both long-lived tangible and intangible assets could be consideredimpaired, negatively impacting future operating results.

 

***Recoverabilityof Investments in Subsidiaries Available for Sale***

 

We have made a series of investments in, and advances to, companiesthat are principally engaged in the manufacture, sale and distribution ofindustrial gases which are located in regional markets which we no longerconsider part of our core markets. As of December 31, 2002, the carryingamounts of investments in subsidiaries available for sale aggregateapproximately €18.1 million. Our accounting policy is to value such investmentsat estimated net realizable value. In determining estimated net realizable value,we consider the forecasted results of the investee, the economic environment inthe regional market and our ability and intent to hold the investment until theestimated sale date.

 

A slump in demand for industrial gases could adversely impact theoperations of these investments and their capability to generate future netcash flows. Furthermore, since these investments are not publicly traded,further judgments and estimates are required to determine their fair value. Asa result, potential impairment charges to write-down such investments to netrealizable value could adversely affect future operating results.

 

***Realizationof Deferred Tax Assets***

 

As of December 31, 2002, we had total deferred tax assets ofapproximately €80.2 million. Included in this total are the benefit of netoperating loss and tax credit carry forwards of approximately €27.9 million.Such tax loss and credit carry forwards generally do not expire under currentlaw, except certain amounts attributable to operations in the United Statesthat expire in 20 years. Realization of these amounts is dependent upon thegeneration of future taxable income at a level sufficient to absorb the lossand credits carry forwards. These deferred tax assets were recognized to theextent that it is probable that future taxable profit will be available. Theamount of total deferred tax assets considered realizable prospectively couldbe reduced if our estimates of projected future taxable income are lowered frompresent levels or changes in current tax regulations are revised which couldimpose restrictions on the time or extent of our ability to utilize tax lossand credit carry forwards in the future.

 

Currently, the German government is contemplating new tax legislationwhich could limit the net operating loss (“NOL”) carry forward to 7 years andwhich could limit the use of the NOL carry forward to only 50% of the taxableincome in any given year. This contemplated new tax legislation could affectour ability to use our NOL. This future new tax legislation might also containother features which could affect us. Given that the new tax legislation hasnot yet become law, and certain elements of which are subject to change, wehave not yet considered the effects of these potential changes on ourconsolidated financial statements.

 

***RestructuringCharges***

 

Subsequent to the acquisition transactions, management approved plansto restructure the Group and reduce costs. These changes were intended to,among other things, improve operational efficiencies and improve profitability.While management approved a detailed restructuring plan, the calculation of theprovision requires the use of estimates and management judgment. Additionally,if industry conditions continue to deteriorate or an economic downturn is experiencedin the future, further restructuring charges may be incurred. Resultingvariances from estimates previously utilized may adversely impact futurefinancial results.

 

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***Reclassifications***

 

Certain reclassifications have been made to the presentation of priorperiods to conform to the current period classifications as explained elsewherein this document. See Note 2 (“Accounting principles”) to the financialstatements.

 

**Resultsof Operations**

 

When comparing the twelve months ended December 31, 2002 and theeight months ended December 31, 2001, with the four months endedApril 30, 2001 and the twelve months ended December 31, 2000,consideration should be given to the impact on comparability arising from theacquisition transactions, the refinancing program, the divestiture program andthe other developments described above. As a result of these events,comparability is impacted by a number of factors, the most significant of whichare (i) the new cost base of the Company’s assets and liabilities as a resultof the acquisition transactions, (ii) the refinancing program and the resultingimpact on financing costs and (iii) the divestiture program. All of thesefactors impacted the comparability of the results presented for the twelvemonths ended December 31, 2002 and the eight months endedDecember 31, 2001, to periods prior to the acquisition transactions.

 

To highlight this lack of comparability, a solid vertical line has beeninserted, where applicable, between columns in the tables below, in ourconsolidated financial statements and elsewhere in this document in order todistinguish information pertaining to the pre-acquisition and post-acquisitionperiods.

 

The following table sets forth a summary of our results for the twelvemonths ended December 31, 2002, eight months ended December 31, 2001, fourmonths ended April 30, 2001 and the twelve months ended December 31, 2000.

 
|                                                |   | **Successor  Messer GriesheimHolding AG**                    |       | **Predecessor  Messer Griesheim GmbH**                      |       |
|-----------------------------------------------------|--------|--------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
|                                                |   | **Twelve  months********ended********December  31, 2002(2)** |       | **Eight  months********ended********December  31, 2001(2)** |       | **Four months********ended********April 30,  2001** |   | **Twelve  months********ended********December  31, 2000** |   |
|                                                |   | **(in €  millions)**                                    |       | **(in €  millions)**                                   |       | **(in €  millions)** |   | **(in €  millions)** |   |
| Net sales                                           |   | 1,526.0                                                      |       | 1,046.6                                                     |       | 574.5 |   | 1,695.9 |   |
| Cost of sales                                       |   | (748.8                                                       | )          | (528.4                                                      | )          | (293.4 | ) | (844.5 | ) |
| **Gross profit**                                    |   | **777.2**                                                    | ** ** | **518.2**                                                   | ** ** | **281.1** | ** ** | **851.4** | ** ** |
| Distribution and selling costs                      |   | (476.5                                                       | )          | (342.2                                                      | )          | (177.2 | ) | (568.9 | ) |
| General and administrative costs                    |   | (127.6                                                       | )          | (90.8                                                       | )          | (45.0 | ) | (127.7 | ) |
| Other, net(1)                                       |   | (41.9                                                        | )          | (47.7                                                       | )          | (12.4 | ) | (157.6 | ) |
| **Operating profit (loss)**                         |   | **131.2**                                                    | ** ** | **37.5**                                                    | ** ** | **46.5** | ** ** | **(2.8** | **)** |
| Interest expense, net                               |   | (140.0                                                       | )          | (103.4                                                      | )          | (36.4 | ) | (88.5 | ) |
| **Loss before income taxes and minority Interests** |   | **(44.0**                                                    | **)**      | **(90.8**                                                   | **)**      | **(6.6** | **)** | **(336.2** | **)** |
| Income tax benefit/(expense)                        |   | (34.8                                                        | )          | 26.2                                                        |       | (4.8 | ) | 138.2 |   |
| **Net loss**                                        |   | **(89.9**                                                    | **)**      | **(69.5**                                                   | **)**      | **(13.5** | **)** | **(205.6** | **)** |
| **Normalized EBITDA**                               |   | **402.9**                                                    | ** ** | **245.0**                                                   | ** ** | **126.0** | ** ** | **359.0** | ** ** |

 

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(1)          Amounts include total net of research anddevelopment costs, other operating income, other operating expense, impairmentof intangible assets and property, plant and equipment and restructuring andreorganization charges.

(2)          Certain reclassifications have been made tothe presentation of prior periods to conform to the current periodclassification as explained elsewhere in this document.

 

**Major Events for Year2002**

 

•                                          Pursuantto the divestiture program we have completed disposals of our operations inEgypt, Trinidad & Tobago and Venezuela, and our nitrogen services businessin the United Kingdom. We substantially completed the disposal of ourinvestments included in subsidiaries available for sale. As a result, wecompleted repayment of our senior term disposal facility in the second quarterof 2002. Transaction costsassociated with the above 

 

46

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divestitures amounting to €8.2million for 2002 are shown in restructuring and reorganisation costs. 

 

•                                          For the twelve months ended December31, 2002, we have maintained our capital expenditures at no more than 10% ofour total net sales, and we intend to maintain such reduced level of capitalexpenditures for the foreseeable future. Our capital expenditures in the futurewill be focused on making modest additions to our existing operations in ourcore markets that will allow us to exploit the full potential of earlierinvestments.

 

•                                          In June 2002, the company madevoluntary debt repayments of €66.5 million and mandatory excess cash flowrepayments of €33.0 million. Further, in December 2002, the company made anadditional €10.3 million mandatory repayment from the proceeds of permitteddisposals.

 

•                                          DuringAugust 2002, the company sold all operating assets of Messer GriesheimIndustries of Canada Inc., Canada to Air Liquide.

 

•                                          FromSeptember 1, 2002 until October 8, 2002, Messer Griesheim repurchased seniornotes amounting to €56.3 million for an average price of 102.9%. In connectionwith the repurchase, unamortized finance costs of €4.0 million, and fees and atender premium of €2.2 million were incurred.

 

•                                          InOctober 2002, Messer Singapore Pte. Ltd. sold its Air Separation and VacuumFlasher Units to Singapore Syngas Pte. Ltd. and its remaining assets to AirProducts Singapore Pte. Ltd. and Singapore Oxygen Air Liquide Pte. Ltd.Following these transactions, Messer Singapore Holding GmbH sold all its sharesin Singapore Syngas Pte. Ltd. to Chevron Texaco Singapore Energy Company. In conjunctionwith the agreements, certain guarantees totaling €16.0 million were given. Wehave evaluated these guarantees and set up a provision for the remaining risks.

 

•                                          Forthe twelve months ended December 31, 2002, we have reduced the cost base of ouroperations in our core markets relative to its level for the year 2000 by €71.1million. As a result of implementation of these measures we incurred total onetime costs of approximately €25.3 million (excluding €12.5 million of coststhat were included as part of the purchase price accounting adjustments) forthe eight months ended December 31, 2001 and an additional €12.8 million forthe twelve month ended December 31, 2002. We expect to incur an additional  €26.4 million of one time costs for the year2003.

 

***TwelveMonths Ended December 31, 2002***

 

Management believes that the following material trends have affectedour continuing operations for 2002. Net sales in Germany decreased as a resultof the continuing economic climate in Germany resulting in lower sales of ourbulk and packaged gases businesses. This decrease was offset by sales from newproduction facilities such as the Carbon Monoxide plant in Dormagen, Germany.The additional increase in our operating profit in Germany results from thesuccessful implementation of our cost saving program. The development inWestern Europe, excluding Germany, was mixed. A decline in our U.K. financialresults, due to lower sales primarily in the beverage business, was offset bystronger sales in France, Spain and Italy. Sales in Eastern Europe were flat,resulting from improving financial performance in Serbia, Finland, Poland andSlovenia offset by poor performance in Bulgaria due to a temporary productsourcing shortfall. The business climate in North America improved continuouslywith the exception of the cylinder business but slowed down during the secondhalf of the year. Sales in North America increased particularly due to a strongperformance of the pipeline business and successful bulk sales resulting fromeffective pricing increases. Operating profit improvement in North Americaresults from the improved sales performance, lower energy costs and successfulcost reduction activities.

 

***Twelve Months EndedDecember 31, 2002 Compared with Eight Months Ended December 31, 2001***

 

As a result of the fact that the periods ended December 31, 2002 andDecember 31, 2001 are for periods of twelve 

 

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months and eight months, respectively, management does not believe thata comparison of such periods is meaningful.

 

***EightMonths Ended December 31, 2001 Compared with Four Months Ended April 30, 2001***

 

As a result of the acquisition transactions(including the change in cost basis resulting there from), the refinancingprogram and the divestiture program, and the fact that the periods endedDecember 31, 2001 and April 30, 2001 are for periods of eight months and fourmonths, respectively, management does not believe that the comparison of suchperiods is meaningful.

 

***FourMonths Ended April 30, 2001 Compared with Twelve Months Ended December 31, 2000***

 

As a result of the fact that the periodsended April 30, 2001 and December 31, 2000 are for periods of four months andtwelve months, respectively, management does not believe that a comparison ofsuch periods is meaningful.

 

***ThreeMonths Ended December 31, 2002 Compared with Three Months Ended September 30,2002***

 

Management believes that comparing the threemonths ended December 31, 2002 with the three months ended September 30, 2002,as presented below, is a meaningful comparison because these periods can becompared of the same cost-basis and are otherwise no longer disproportionallyimpacted by the acquisition transactions..

 

The following table sets forth a summary ofMesser Griesheim’s results of operations for the three months endedDecember 31, 2002 and September 30, 2002, in terms of amounts as well as apercentage of net sales.

 
|                                                |   | **Messer  Griesheim Holding AG**                   |       |
|-----------------------------------------------------|--------|----------------------------------------------------|------------|
|                                                |   | **Three  months  ended********December  31, 2002** |       | **Three  months********ended********September  30, 2002** |   |
|                                                |   | **(in € millions)**                           |       | **%** |   | **(in €  millions)** |   | **%** |   |
| Net sales                                           |   | 382.1                                              |       | 100.0 |   | 380.4 |   | 100.0 |   |
| Cost of sales                                       |   | (181.6                                             | )          | (47.5 | ) | (186.7 | ) | (49.1 | ) |
| **Gross profit**                                    |   | **200.5**                                          | ** ** | **52.5** | ** ** | **193.7** | ** ** | **50.9** | ** ** |
| Distribution and selling costs                      |   | (121.1                                             | )          | (31.7 | ) | (116.9 | ) | (30.7 | ) |
| General and administrative costs                    |   | (31.7                                              | )          | (8.3 | ) | (28.1 | ) | (7.4 | ) |
| Other, net(1)                                       |   | (9.6                                               | )          | (2.5 | ) | (15.7 | ) | (4.1 | ) |
| **Operating profit**                                |   | **38.1**                                           | ** ** | **10.0** | ** ** | **33.0** | ** ** | **8.7** | ** ** |
| Interest expense, net                               |   | (31.2                                              | )          | (8.2 | ) | (32.5 | ) | (8.6 | ) |
| **Loss before income taxes and minority interests** |   | **(15.4**                                          | **)**      | **(4.0** | **)** | **(12.6** | **)** | **(3.3** | **)** |
| Income tax (expenses)                               |   | (13.1                                              | )          | (3.4 | ) | (10.5 | ) | (2.8 | ) |
| **Net loss**                                        |   | **(31.8**                                          | **)**      | **(8.3** | **)** | **(25.8** | **)** | **(6.8** | **)** |
| **Normalized EBITDA**                               |   | **106.0**                                          | ** ** | **27.7** | ** ** | **99.3** | ** ** | **26.1** | ** ** |

 

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(1)Amounts include total net of research and development costs, otheroperating income, other operating expense, impairment of intangible assets andproperty, plant and equipment and restructuring and reorganization charges.

 

***Net sales***  Net sales increased slightly to €382.1million in the fourth quarter 2002 from €380.4 million in the third quarter2002 and are shown by business areas below:

 

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|                              |   | **Messer  Griesheim Holding AG**                          |   |
|-----------------------------------|--------|-----------------------------------------------------------|--------|
|                              |   | **Three  months********ended********December  31,  2002** |   | **Three  months  ended********September  30,  2002** |   |
|                              |   | **(in €  millions)**                                 |   | **(in €  millions)** |   |
| **Net sales (Business Areas)**    |   |                                                      |   |   |   |
| Germany                           |   | 167.3                                                     |   | 168.8 |   |
| Western Europe, excluding Germany |   | 66.5                                                      |   | 63.6 |   |
| Eastern Europe                    |   | 56.5                                                      |   | 54.3 |   |
| North America                     |   | 76.1                                                      |   | 80.0 |   |
| Others                            |   | 14.4                                                      |   | 13.8 |   |
| Reconciliation/Corporate          |   | 1.3                                                       |   | (0.1 | ) |
| Total                             |   | 382.1                                                     |   | 380.4 |   |

 

•                                            Net salesin Germany decreased 0.9% to €167.3 million in the fourth quarter 2002 from€168.8 million in the third quarter 2002. This slight decrease was caused bylower demand of speciality gases from the weak performing semiconductorindustry. Net sales in Germanyin the fourth quarter 2002 were otherwise flat compared to the third quarter2002 as a result of the continuing weak business climate.

 

•                                            Net salesin Western Europe (excluding Germany) increased 4.6% to €66.5 million in thefourth quarter 2002 from €63.6 million in the third quarter 2002. This overallincrease resulted from the favourable development in sales throughout WesternEurope, especially in Italy and the U.K., due to a seasonally related strongercarbon dioxide beverage business. Additional explanations for this overallincrease in sales are new application technologies in the food industry inFrance as well as stronger demand from the chemical industry in Spain.

 

•                                            Net salesin Eastern Europe increased 4.1% to €56.5 million in the fourth quarter 2002from €54.3 million in the third quarter 2002. All countries of the regionexcluding Bulgaria and the Czech Republic contributed to the sales increases.Due to a temporary product sourcing shortfall resulting from productionproblems of our joint venture partner in Bulgaria and a biannual plannedmaintenance of one of our production facilities in the Czech Republic, netsales and operating profit in these countries decreased in the fourth quarter.The strongest sales growth was achieved in Greece due to higher demand ofmedical specialty gases and in the Slovak Republic and Serbia where demand forsteel favorably impacted net sales of the region.

 

•                                            Net salesin North America decreased 4.9% to €76.1 million in the fourth quarter 2002from €80.0 million in the third quarter 2002. Excluding the effects of thedisposal of our Canadian gas business, which accounted for approximately €1.1million of sales in North America during the third quarter 2002, and theweakening of the U.S. dollar against the Euro in the fourth quarter 2002, whichaccounted for approximately €1.6 million of sales in the fourth quarter 2002,our operations in North America decreased €1.2 million or 1.6% from the thirdto the fourth quarter 2002. This decrease was primarily due to poorer resultsfrom our North American cylinder business resulting from the weakness in themanufacturing sector of the U.S. economy particularly in the fourth quarter.

 

•                                            Net salesin Other Business Areas increased 4.3% to €14.4 million in the fourth quarter2002 from €13.8 million in the third quarter 2002. This increase principallyresulted from our business activities in China due to the overall strong demandof our onsite customers especially in the steel production area.

 

***Cost of sales.***  Cost of sales decreased 2.7% to €181.6million in the fourth quarter 2002 from €186.7 million in the third quarter2002. Cost of sales consists primarily of raw material costs (e.g. energy), purchasedparts and direct labor, as well as manufacturing overheads and depreciation.

 

The decrease in cost of sales primarily resulted from the expiration ofdepreciation of fully depreciated property, plant and equipment.

 

***Distribution andselling costs.*** Distribution and selling costs increased 3.6% to €121.1 million in thefourth quarter 2002 from €116.9 million in third quarter 2002. Distribution andselling costs consist primarily of sales organization costs, 

 

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transport of gases and cylinders from the production site or fillingstation to the customer, depreciation of the cylinders and tanks at thecustomer site, advertising and sales promotions, commissions and freight.

 

The increase in distribution and selling costs was caused by slightlyhigher sales as compared to the third quarter 2002 and increased transportcosts in Bulgaria caused by additional third-party product purchases due totemporary internal product sourcing problems.

 

***General and administrativecosts.*** General and administrative costs increased by 12.8% to €31.7 million inthe fourth quarter 2002 from €28.1 million in the third quarter 2002. Generaland administrative costs consist primarily of personnel costs attributable togeneral management, finance and human resources functions, as well as othercorporate overheads.

 

***Operating profit.***  Operating profit increased by 15.5% to €38.1million in the fourth quarter 2002 from €33.0 million in the third quarter2002.

 
|                                         |   | **Messer  Griesheim Holding AG**                              |       |
|----------------------------------------------|--------|---------------------------------------------------------------|------------|
|                                         |   | **Three  months********ended********December 31,  2002** |       | **Three  months********ended********September 30,  2002** |   |
|                                         |   | **(in €  millions)**                                     |       | **(in €  millions)** |   |
| **Operating profit (loss) (Business Areas)** |   |                                                          |       |   |   |
| Germany                                      |   | 29.1                                                          |       | 30.8 |   |
| Western Europe, excluding Germany            |   | 3.6                                                           |       | (0.2 | ) |
| Eastern Europe                               |   | 9.5                                                           |       | 9.7 |   |
| North America                                |   | 9.9                                                           |       | 2.0 |   |
| Others                                       |   | 0.9                                                           |       | 2.1 |   |
| Reconciliation/Corporate                     |   | (14.9                                                         | )          | (11.4 | ) |
| **Total**                                    |   | **38.1**                                                      | ** ** | **33.0** | ** ** |

 

•                                            In Germany,we achieved an operating profit of €29.1 million in the fourth quarter 2002compared to an operating profit of €30.8 million in the third quarter 2002. Inaddition to slightly lower sales in the fourth quarter the reduction inoperating profit was impacted by an additional maintenance expense for the ASUproduction facility in Duisburg lowering operating profit by €1.9 million.

 

•                                            In WesternEurope (excluding Germany) we achieved an operating profit of €3.6 million inthe fourth quarter 2002 compared to an operating loss of €0.2 million in thethird quarter 2002. The increase in operating profit was a result of strongeroperational performance in all countries as well as a decrease in low marginengineering business sales in the U.K compared to the third quarter 2002.

 

•                                            In EasternEurope we achieved an operating profit of €9.5 million in the fourth quarter2002 compared to an operating profit of €9.7 million in the third quarter 2002.Despite the sales growth of 4.1% in the fourth quarter 2002, the operatingprofit is flat compared to the third quarter due to a temporary productsourcing shortfall resulting from production problems of our joint venturepartner in Bulgaria and a biannual planned maintenance of one of our productionfacilities in the Czech Republic.

 

•                                            In NorthAmerica we achieved an operating profit of €9.9 million in the fourth quarter2002 compared to an operating profit of €2.0 million in the third quarter 2002.The operating profit in the third quarter included a one time loss from thesales of the Canadian gas business in August 2002 (€2.4 million). Excludingthis item the operating profit in the third quarter 2002 was €4.4 million. Theremaining €5.5 million increase in operating profit in the fourth quarter 2002is primarily caused by the expiration of depreciation of fully 

 

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depreciated assets, a release of a provision as a result of asuccessful insurance settlement and lower energy costs resulting from lessmarket volatility.

 

•                                            Operatingprofit in Other Business Areas decreased to €0.9 million in the fourth quarter2002 from €2.1 million in the third quarter 2002. This reduction is primarilycaused by write downs on accounts receivables, in our Chinese operations.

 

***Interest expense,net.***  Netinterest expenses decreased 4.0% to €31.2 million in the fourth quarter 2002from €32.5 million in the third quarter 2002. This was due to mandatory andvoluntary repayments as well as the partial Senior Notes repurchase.

 

***Income taxes.***  In the fourth quarter 2002, the Companyrecorded income tax expense of €13.1 million, compared to an income tax expenseof €10.5 million in the third quarter 2002. Despite our loss before incometaxes and minority interest, income tax expenses are incurred mainly due tonon-deductible interest expense and goodwill amortization.

 

***Net loss.***  In addition to the factors discussed above,net loss in the forth quarter 2002 has also been negatively impacted by animpairment charge on an equity method investment in North America amounting to€18.7 million described elsewhere in this document. In the third quarter 2002net loss was also impacted by the realization of cumulative translationadjustment resulting from dividend payment.

 

**Recent IAS AccountingStandards**

 

The Group has adopted each of the followingstandards effective January 1, 2001. Unless otherwise stated, adoption ofthese standards did not have a material impact on the Group’s financialposition or results of operations.

 

In 1998 the IASB issued IAS 39 *“FinancialInstruments: Recognition and Measurement”*. The standardsignificantly increases the use of fair values in accounting for financialinstruments and establishes specific criteria relating to hedge accounting. IAS39 has been adopted on January 1, 2001.

 

In 2000 the IASB issued IAS 40 “*InvestmentProperty*”. IAS 40 was effective for financial statements coveringperiods beginning on or after January 1, 2001. IAS 40 prescribes theaccounting treatment for investment property and related disclosurerequirements and replaces previous requirements in IAS 25 “*Accounting for Investments*”.Under IAS 40, investment property is defined as property held to earn rentalsor for capital appreciation or both rather than for use in the production orsupply of goods or services or for administrative purposes or for sale in theordinary course of business. The Group has opted for the cost model under whichinvestment property is measured at depreciated cost less any impairment losses.

 

In 2000 the IASB revised IAS 19 *“EmployeeBenefits”*. IAS 19 (revised 2000) was effective for fiscal periodsbeginning on or after January 1, 2001. The standard changes the definitionof plan assets and introduces recognition, measurement and disclosurerequirements for reimbursements. The standard prescribes the accounting anddisclosure by employers for employee benefits, post employment benefits, otherlong term employee benefits, termination benefits and equity compensationbenefits.

 

**Recent U.S. GAAPAccounting Pronouncements**

 

***New U.S. accounting pronouncements***

 

In June 1998, the FASB issued SFAS 133 *“Accountingfor Derivative Instruments and Hedging Activities”.* SFAS 133 wassubsequently amended by SFAS 137 *“Deferral of the Effective Date of FASB 133”*,which allowed entities which had not adopted SFAS 133 to defer its effectivedate to all fiscal quarters of all fiscal years beginning after June 15, 2000, 

 

51

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and SFAS 138 *“Accounting for Certain Derivative Instruments andCertain Hedging Activities—an amendment of FASB Statement No. 133”*which addresses a limited number of issues causing implementation difficultiesfor entities that apply SFAS 133.

 

SFAS 133, as amended, establishes accountingand reporting standards for derivative instruments, including derivativeinstruments embedded in other contracts, and hedging activities. Similar to IAS39, SFAS 133, as amended, requires the Group to recognize all derivatives inthe consolidated balance sheet at fair value. The financial statementrecognition of the change in fair value of a derivative depends on a number offactors, including the intended use of the derivative and the extent to whichit is effective as part of a hedge transaction. SFAS 133, as amended, wasadopted by the Group effective January 1, 2001.

 

Although IAS 39 and SFAS 133, as amended, aresimilar in many respects, the transition adjustments resulting from theadoption of IAS 39 must be reported in shareholders’ equity, whereas thetransition adjustments resulting from adoption of SFAS 133, as amended, must bereported in earnings or other comprehensive income, as appropriate. Adoption ofSFAS 133 did not have a material impact on the Group’s consolidated financialstatements.

 

In September 2000, the FASB issued SFAS 140 *“Accountingfor Transfers and Servicing of Financial Assets and Extinguishments ofLiabilities—a replacement of FASB No. 125”.* This statement revisesthe standards for accounting for securitizations and other transfers offinancial assets and collateral and requires certain financial statementdisclosures. SFAS 140 is effective for transactions occurring after March 31,2001, except for certain disclosure requirements which were effective December31, 2000. Adoption of this replacement standard did not have a material effecton the Group’s consolidated financial statements.

 

Effective July1, 2001, the Group adopted Statement 141 *“Business Combinations”*and certainprovisions of SFAS 142 *“Goodwill and Other Intangible Assets”.** *TheGroup adopted SFAS 142 in its entirety on January 1, 2002. SFAS 141requires that the purchase method of accounting be used for all businesscombinations initiatedafter June 30, 2001, as well as all purchase method business combinationscompleted after June 30, 2001. SFAS 141 also specifies criteria intangibleassets acquired in a purchase method business combination must meet to berecognized and reported separately from goodwill, and also indicates that anypurchase price allocable to an assembled workforce may not be accounted forseparately. Additionally, SFAS 141 required, upon adoption of SFAS 142 in itsentirety, that the Group evaluate its existing intangible assets and goodwillthat were acquired in a prior purchase business combination, and to make anynecessary reclassifications in order to conform with the new criteria in SFAS141 for recognition apart from goodwill. SFAS 142 requires that goodwill andintangible assets with indefinite useful lives no longer be amortized, butinstead be tested for impairment annually (or more frequently if impairmentindicators arise) in accordance with the provisions of SFAS 142. Intangible assets with definite usefullives are amortized over their respective estimated useful lives to theirestimated residual values, and reviewed for impairment in accordance with SFAS144 *“Accountingfor the Impairment or Disposal of Long-Lived Assets”*.

 

Goodwill andintangible assets acquired in business combinations completed before July 1,2001 continued to be amortized through December 31, 2001. As of December 31,2001, the amount of unamortized goodwill under U.S. GAAP was €598,756.Unamortized assembled workforce totaled €13,917 as of December 31, 2001, wasrequired to be reallocated to goodwill upon adoption of SFAS 141 and SFAS 142.Related deferred tax liabilities of €5,567 were also required to be eliminatedthrough a corresponding reduction under U.S. GAAP. The amount of unamortizedgoodwill under U.S. GAAP as of December 31, 2002 was €566,744.

 

As discussedabove, upon adoption of SFAS 142, the Group was required to evaluate itsexisting intangible assets and goodwill that were acquired in a prior purchasecombination, and to make any reclassifications in order to conform with the newcriteria in SFAS 141 for recognition apart from goodwill. As a consequence, theGroup was required to reallocate as additional goodwill the unamortizedassembled workforce balance upon adoption of SFAS 142. This evaluation did notresult in any other significant reclassifications. Upon adoption of SFAS 142,the Group was also required to reassess the useful lives and residual values ofall intangible assets acquired, and make any necessary amortization periodadjustments by the end of the first interim period after adoption. Thisreassessment did not result in 

 

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any significant amortization period adjustments. In addition, to theextent an intangible asset is identified as having an indefinite useful life,the Group is required to test the intangible asset for impairment in accordancewith the provisions of SFAS 142 within the first interim period. Any impairmentloss should be measured as of the date of adoption and recognized as thecumulative effect of a change in accounting principle in the first interimperiod. No impairment loss was recognized as a result of these impairmenttests, as the Group did not identify any intangible asset as having an indefiniteuseful life.

 

SFAS 142 requires the Group to perform an assessment of whether thereis an indication that goodwill and/or equity method goodwill is impaired as ofthe date of adoption. To accomplish this, the Group identifiedits reporting units and determined the carrying value of each reporting unit byassigning the assets and liabilities, including the existing goodwill andintangible assets, to those reporting units as of January 1, 2002. By June 30,2002, the Group determined the fair value of each reporting unit and comparedit to the carrying amount of the reporting unit. To the extent the carryingamount of a reporting unit exceeded the fair value of the reporting unit, anindication existed that the reporting unit goodwill may be impaired and theGroup then had to perform the second step of the transitional impairment test.In the second step, the Group then had to compare the implied fair value of the reportingunit goodwill with the carrying amount of the reporting unit goodwill, both ofwhich were be measured as of the date of adoption. The implied fair value ofgoodwill is determined by allocating the fair value of the reporting unit toall of the assets (recognized and unrecognized) and liabilities of the reportingunit in a manner similar to a purchase price allocation, in accordance withSFAS 141. The residual fair value after this allocation is the implied fairvalue of the reporting unit goodwill. The Group has performed this second stepof the impairment test in the fourth quarter 2002 and recognized a transitionalimpairment loss of €7,713 for the additional goodwill under U.S. GAAP as thecumulative effect of a change in accounting principle in the reconciliation ofnet loss to U.S. GAAP for the twelve months ended December 31, 2002.

 

In August2001, the FASB issued SFAS 143 *“Accounting for Asset Retirement Obligations”*.This Statement addresses financial accounting and reporting for obligationsassociated with the retirement of tangible long-lived assets and the associatedasset retirement costs. SFAS 143 requires an enterprise to record the fairvalue of an asset retirement obligation as a liability in the period in whichit incurs a legal obligation associated with the retirement of a tangiblelong-lived asset. SFAS 143 also requires the enterprise to increase thecarrying amount of the related long-lived asset by the associated assetretirement costs and to depreciate that cost over the remaining useful life ofthe asset. The liability is changed at the end of each period to reflect thepassage of time (i.e., accretion expense) and changes in the estimated futurecash flows underlying the initial fair value measurement. Enterprises arerequired to adopt SFAS 143 for fiscal years beginning after June 15, 2002. TheGroup has started its analysis of the new pronouncement, but has not yetdetermined if the adoption of the new pronouncement will have a material effecton its financial statements.

 

In August2001, the FASB approved for issuance SFAS 144*.* This Statement addressesfinancial accounting and reporting for the impairment or disposal of long-livedassets. This Statement supersedes SFAS 121 and the accounting and reportingprovisions of APB Opinion No. 30 *“Reporting the Results of Operations—Reporting theEffects of Disposal of a Segment of a Business, and Extraordinary, Unusual andInfrequently Occurring Events and Transactions”*, for the disposal ofa segment of a business (as previously defined in that Opinion). This Statementalso amends ARB No. 51 *“Consolidated Financial Statements”* toeliminate the exception to consolidation for a subsidiary for which control islikely to be temporary. The Group adopted the provisions of this Statement onJanuary 1, 2002. The adoption of the new pronouncement did not have a materialeffect on the Group’s consolidated financial statements. However, the Group hasnoted that certain provisions of SFAS 144 will potentially impact itsaccounting and reporting for the remaining subsidiaries to be sold under itsdivestiture program. The Group has also noted that the provisions of SFAS 144supersede certain provisions of EITF 87-11 as they relate to allocation ofpurchase price in a business combination where the acquirer intends to sell aportion of the operations of the acquired enterprise (see Note 40b) and, as aresult, had SFAS 144 been applied in accounting for the acquisitiontransactions, certain of the differences between U.S. GAAP and IFRS relating tooperations and entities included in the divestiture program would not haveoccurred.

 

The FASBissued SFAS 145 “*Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASBStatement No. 13, and Technical Corrections”*, on April 30, 2002.SFAS 145 rescinds SFAS 4, which required all gains and losses fromextinguishment of debt to be aggregated and, if material, classified as anextraordinary item, net of related income 

 

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tax effect. Upon adoption of SFAS 145, the Group is required to applythe criteria in APB Opinion No. 30, in determining the classification of gainsand losses resulting from the extinguishment of debt. Additionally, SFAS 145amends SFAS 13 to require that certain lease modifications that have economiceffects similar to sale-leaseback transactions be accounted for in the samemanner as sale-leaseback transactions. The rescission of SFAS 4 iseffective to fiscal years beginning after May 15, 2002. The provisions ofSFAS 145 related to SFAS 13 are effective for transactions occurring afterMay 15, 2002. The adoption of these provisions had no impact on theGroup’s consolidated financial statements.

 

In July 2002,the FASB issued Statement 146, *Accounting for Costs Associated with Exit or DisposalActivities*. SFAS 146 replaces previous accounting guidance providedby EITF 94-3, *Liability Recognition for Certain Employee Termination Benefits andOther Costs to Exit an Activity (including Certain Costs incurred in aRestructuring)*, and requires companies to recognize costs associatedwith exit or disposal activities when they are incurred (subsequent to acommitment to a plan) rather than at the date of a commitment to an exit ordisposal plan. Examples of costs covered by the standard include leasetermination costs and certain employee severance costs that are associated witha restructuring, discontinued operation, plant closing, or exit or disposalactivity. The provisions of SFAS 146 are to be applied prospectively to exit ordisposal activities initiated after December 31, 2002. The adoption of SFAS 146is not expected to have a material impact on the Group’s consolidated financialstatements.

 

In November2002, the FASB issued Interpretation No. 45, *Guarantor’s Accounting and DisclosureRequirements for Guarantees, Including Indirect Guarantees of Indebtedness ofOthers*(“FIN No. 45”), which addresses the disclosure to be made bya guarantor in its interim and annual financial statements about its obligationunder guarantees. FIN No. 45 also requires the recognition of a liability by aguarantor at the inception of certain guaranties entered into or modifiedsubsequent to adoption. FIN No. 45 requires the guarantor to recognize aliability for the non-contingent component of the guarantee, this is theobligation to stand ready to perform in the event that specified triggeringevents or conditions occur. The initial measurement of this liability is thefair value of the guarantee at inception. The recognition of the liability isrequired even if it is not probable that payment will be required under theguarantee or if the guarantee was issued with a premium payment or as part of atransaction with multiple elements. The Group has adopted the disclosurerequirements (see Note 33 “Commitments and contingencies”) and will apply therecognition and measurement provisions for all guarantees entered into ormodified after December 31, 2002.

 

In November2002, the Emerging Issue Task Force (“EITF”) reached a final consensus on EITF00-21, „Revenue arrangements with Multiple Deliverables”. EITF 00-21 addressescertain aspects of the accounting of revenue arrangements with multipledeliverables by a vendor. The Issue outlines an approach to determine when arevenue arrangement for multiple deliverables should be divided into separateunits of accounting and, if separation is appropriate, how the arrangementconsideration should be allocated to the identified accounting units. Theconsensus reached in the Issue will be effective for the Group in its financialstatements beginning July 1, 2003. The Group will apply the consensusprospectively in 2003. The Group is currently determining the impact of theadoption of EITF 00-21 on the Group’s consolidated financial statements butdoes not believe that the adoption of the consensus will have a materialimpact.

 

In December2002, the FASB issued Statement No. 148, Accounting for Stock-BasedCompensation – Transition and Disclosure, which amends FASB StatementNo. 123, Accounting for Stock-Based Compensation. Statement 148 providesalternative methods of transition for a voluntary change to the fair valuebased method of accounting for stock-based employee compensation. In addition,Statement 148 amends the disclosure requirements of Statement 123 to improvethe clarity and prominence of disclosures about the pro forma effects of usingthe fair value based method of accounting for stock-based compensation for allcompanies – regardless of the accounting method used – by requiring that thedata be presented more prominently and in a more user-friendly format in thefootnotes to the financial statements.

 

The transitionguidance and annual disclosure provisions of Statement 148 are effective forfiscal years ending after December 15, 2002, with earlier application permittedin certain circumstances. The interim disclosure provisions are effective forfinancial reports containing financial statements for interim periods beginningafter December 15, 2002.

 

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The Group hasadopted the disclosure requirements of SFAS 148 as presented in Note 37, “Stockpurchase and option plan”.

 

In January2003, the FASB issued FIN 46, “Consolidation of Variable Interest Entities– an interpretation of ARB No. 51”, which clarifies the application of theconsolidation rules to certain variable entities. FIN 46 established a newmulti-step model for the consolidation of variable interest entities when acompany has a controlling financial interest based either on voting interestsor variable interests. Consolidation based on variable interests is required bythe primary beneficiary if the equity investors lack essential characteristicsof a controlling financial interest or if the equity investment at risk is notsufficient for the entity to finance its activities without additionalsubordinated financial support from other parties. The primary beneficiary of avariable interest entity is the party that absorbs a majority of the entity’sexpected losses, receives a majority of its expected residual returns, or both,as a result of holding variable interests. FIN 46 also provides disclosurerequirements related to investments in variable interest entities, whether ornot those entities are consolidated. For the Group, FIN 46 appliesimmediately to variable interest entities created after January 31, 2003,and to variable interest entities in which the Group obtains an interest afterthat date. For variable interest entities created prior to February 1,2003, the consolidation requirements of FIN 46 will be effective as ofJuly 1, 2003.

 

The adoptionof the disclosure requirements under Interpretation No. 46 did not haveconsequences on the Group’s consolidated financial statements. Similarly, thefull adoption of Interpretation No. 46 is not expected to have a materialimpact on the Group’s consolidated financial statements.

 

**Reconciliation toU.S. GAAP**

 

Our results as reported under IFRS differfrom our results as reconciled to U.S. GAAP, principally as a result of thedifferent treatment under U.S. GAAP of:

 

•                                            allocationof purchase price to assets to be sold,

 

•                                            amortizationof goodwill for periods after December 31, 2001,

 

•                                            restructuringcosts,

 

•                                            transactioncosts incurred by our parent on our behalf,

 

•                                            impairmentof long lived assets and goodwill,

 

•                                            assembledworkforce (intangible asset),

 

•                                            foreigncurrency gains and losses on borrowing costs directly attributable toconstruction,

 

•                                            provisionsfor pensions and similar obligations, and

 

•                                            gains andlosses related to financial instruments.

 

The significant differences between IFRS andU.S. GAAP applicable to the consolidated financial statements are summarizedbelow. Further discussion of significant differences between IFRS and U.S. GAAPapplicable to the consolidated financial statements is presented elsewhere inthis document.

 

***TwelveMonths Ended December 31, 2002***

 

In the twelve months ended December 31, 2002,the net loss reported under IFRS was €89.9 million and €67.8 

 

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million as reconciled to U.S. GAAP. During this period, there werereconciling adjustments of €28.7 million between IFRS and U.S. GAAP relating tothe reversal of the IFRS goodwill amortization. The remaining differencebetween the net loss under IFRS and the net loss reported under U.S. GAAP isprimarily the impairment charge of €7.7 million on U.S. GAAP goodwill as aresult of the change in accounting principles.

 

***EightMonths Ended December 31, 2001***

 

In the eight months ended December 31, 2001,the net loss reported under IFRS was €69.5 million and €66.6 million asreconciled to U.S. GAAP. During this period, there were reconciling adjustmentsof €5.5 million between IFRS and U.S. GAAP relating to assets to be sold withinone year of the date of the business combination. The remaining differencebetween net loss under IFRS and net loss reported under U.S. GAAP is primarilydue to the amortization impact and the tax effect under U.S. GAAPassociated with these adjustments.

 

***FourMonths Ended April 30, 2001***

 

In the four months ended April 30, 2001(prior to the acquisition transactions), the net loss reported under IFRS andU.S. GAAP was €13.5 million with no significant differences.

 

***Twelve Months EndedDecember 31, 2000***

 

Net loss as reported under IFRS was €205.6million in the twelve months ended December 2000 and €179.8 million asreconciled to U.S. GAAP. There were reconciling adjustments of €27.4 millionrelating to impairment of property, plant and equipment. In addition, in thetwelve months ended December 31, 2000 we recognized losses, but not gains, inthe fair value of derivative financial instruments as required by IFRS ineffect prior to January 1, 2001. Under U.S. GAAP in effect prior to January 1,2001, both the losses and gains on those instruments were recognized. Thisadjustment reflects the recognition of losses of €2.5 million in the twelvemonths ended December 31, 2000. The remaining difference between net lossreported under IFRS and net loss reported under U.S. GAAP is primarily due to thetax effect associated with these adjustments.

 

**5.BLIQUIDITY AND CAPITAL RESOURCES**

 

The following table summarizes the cash flowactivity during the twelve months ended December 31, 2002, the eight monthsended December 31, 2001, the four months ended April 30, 2001 and thetwelve months ended December 31, 2000. Consideration should be given tothe effects of the acquisition transactions, the refinancing program, and thedivestiture program when comparing historical financial information, includingthe selected financial data, for periods prior to April 30, 2001 to periodsthereafter. The solid vertical line separates the information for periods priorto and subsequent to the acquisition transactions:

 
|                                                |   | **Successor  Messer Griesheim Holding AG**        |   | **Predeccessor  Messer Griesheim GmbH**          |   |
|-----------------------------------------------------|--------|---------------------------------------------------|--------|--------------------------------------------------|--------|
|                                                |   | **Twelve  months  ended  December 31, 2002** |   | **Eight  months  ended  December 31, 2001** |   | **Four  months  ended  April 30, 2001** |   | **Twelve  months  ended  December 31, 2000** |   |
|                                                |   | **(in €  millions)**                         |   | **(in €  millions)**                        |   | **(in €  millions)** |   | **(in €  millions)** |   |
| Cash flow from (used in) operating  activities      |   | 370.4                                             |   | 137.9                                            |   | (8.9 | ) | 261.0 |   |
| Cash flow from (used in) investing  activities      |   | (76.1                                             | )      | (86.8                                            | )      | (66.0 | ) | (335.1 | ) |
| Cash flow from (used in) financing  activities      |   | (340.2                                            | )      | (75.0                                            | )      | 247.6 |   | 86.0 |   |
| Cash and cash equivalents, end of reporting  period |   | 135.2                                             |   | 188.0                                            |   | 226.6 |   | 50.4 |   |

 

***Cash flow from (usedin) operating activities.***  The cash flow from operating activities was€370.4 million in the twelve 

 

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months ended December 31, 2002. The cash flow from operating activitiesin the twelve months ended December 31, 2002 principally reflects a loss beforeincome taxes and minority interests of €44.0 million which was offset mainly bydepreciation and amortization of property, plant and equipment and intangibleassets and by interest expenses. The depreciation and amortization of property,plant and equipment and intangible assets was €253.5 million.

 

The cash flow from operating activities was€137.9 million in the eight months ended December 31, 2001. The cash flow fromoperating activities in the eight months ended December 31, 2001 principallyreflects a loss before income taxes and minority interests of €90.8 millionwhich was offset mainly by depreciation and amortization of property, plant andequipment and intangible assets and by interest expenses.

 

For the four months ended April 30, 2001,cash flow from operating activities principally reflects a decrease due to theSingapore operations and changes in working capital in the four months endedApril 30, 2001.

 

Messer Griesheim’s cash flow from operationswas €261.0 million in 2000. This principally reflects a loss before incometaxes and minority interests of €336.2 million in 2000. Depreciation andamortization of property, plant and equipment and intangible assets amounted to€341.6 million in 2000 and included the impairment charges of the Singaporeoperations.

 

***Cash flow from (usedin) investing activities.***  The cash flow used in investing activitiesfor the twelve months ended December 31, 2002 was €76.1 million in 2002 andprincipally reflects purchases of property, plant and equipment and ofintangible assets of €135.9 million proceeds from sales of investments of €40.5million and proceeds from sales of property, plant and equipmentof €18.4million.

 

The cash flow used in investing activitiesfor the eight months ended December 31, 2001 was €86.8 million. It principallyreflects that in addition to the credit agreements provided to severalsubsidiaries for working capital, Messer Griesheim made cash investments insubsidiaries available for sale for the purpose of extinguishing the subsidiarydebt as part of the divestiture program.

 

For the four months ended April 30, 2001 thecash used in investing activities principally reflects capital expenditure onproperty, plant and equipment as well as investments and loans to relatedparties.

 

In 2000, the predecessor’s net cash used ininvesting activities was €335.1 million. This negative figure principallyreflects €321.5 million in purchases of property, plant and equipment and ofintangible assets.

 

***Cash flow from (usedin) financing activities.***  During the twelve months ended December 31,2002, our net cash used in financing activities was €340.2 million. It reflectsinterest paid of €132.0 million, and debt repayments of €184.5 million during2002.

 

In the eight months ended December 31, 2001,our net cash used in financing activities was €75.0 million. This negativefigure principally reflects the repayment of corporate debt and the increasedinterest payments. These effects were partially offset by the proceeds from therefinancing program.

 

The cash flow from financing activities forthe four months ended April 30, 2001 principally reflects additional borrowingsthat resulted in an increase of cash, which was used to refinance debt inaddition to establishing restricted cash collateral on debt.

 

Messer Griesheim’s cash flow from financingactivities was €86.0 million in 2000. Cash flows from financing activitiesprincipally reflect in net proceeds from additions to non-current corporatedebt to €205.7 million in 2000. In relation to the financing of the business,interest paid was €94.4 million in 2000.

 

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***ContractualObligations and Commitments***

 

The following table summarizes ourcontractual obligations as of December 31, 2002:

 
|                                              |   | **Payments  Due by Period**    |   |
|---------------------------------------------------|--------|--------------------------------|--------|
|                                              |   | **Less than  1 Year**          |   | **1-3 years** |   | **4-5 years** |   | **After 5  years** |   | **Total** |   |
|                                              |   | **(in  € millions)** |   | **(in €  millions)** |   | **(in €  millions)** |   | **(in €  millions)** |   | **(in €  millions)** |   |
| *Contractual Obligations*                         |   |                           |   |   |   |   |   |   |   |   |   |
| Long-Term Debt                                    |   | 42.1                           |   | 102.8 |   | 147.3 |   | 1,008.4 |   | 1,300.6 |   |
| Capital Lease Obligations(1)                      |   | 23.5                           |   | 61.0 |   | 63.4 |   | 18.0 |   | 165.9 |   |
| Operating Lease Obligations                       |   | 6.0                            |   | 10.1 |   | 5.7 |   | 23.1 |   | 44.9 |   |
| *Commitments*                                     |   |                           |   |   |   |   |   |   |   |   |   |
| Guarantees related to the sale of  investments(2) |   |                           |   |   |   |   |   |   |   | 107.8 |   |
| Other Long-Term Obligations(3)                    |   |                           |   |   |   |   |   |   |   | 11.8 |   |
| ACIC Joint Ventures                               |   |                           |   |   |   |   |   |   |   | 32.0 |   |
| Financial Guarantees(4)                           |   |                           |   |   |   |   |   |   |   | 62.6 |   |
| Long-Term Purchase Agreements                     |   |                           |   |   |   |   |   |   |   | 55.6 |   |
| Other(5)                                          |   |                           |   |   |   |   |   |   |   | 4.7 |   |

 

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(1)          The capital leaseobligations include an interest portion of €27.6 million.

(2)          Guarantees related tothe sale of investments, net of reserved amounts, mainly reflect customaryguarantees for representation and warranties provided for in sale agreements.

(3)          Other financialobligations not included in the consolidated balance sheet relate to long-termcommitments for capital expenditures of €11.8 million at December 31,2002.

(4)          Financial guarantees,net of provisions,  mainly includeguarantees for at equity consolidated subsidiaries of €20.6 million and risksrelated to the divestiture of Singapore operations of €10.2 million.

(5)          Commitments for capitalto be funded to equity and cost method investees totaled €4.7 million atDecember 31, 2002.

 

***AnticipatedExpenditures and Sources of Funds***

 

Operational capital expenditures as apercentage of net sales were 8.9% in the twelve months ended December 31, 2002.The related figure was 7.5%, 8.6% and 19.0% in the eight months ended December31, 2001, the four months ended April 30 and the twelve months ended December31, 2000, respectively.

 

A core component of our strategy is to reduceMesser Griesheim’s historically high levels of capital expenditures. However,we will require funds to meet scheduled debt repayments and to fund theacquisition, if and when it happens, of the China assets described in Item 4“Information on the Company” - 4.A “History and Development of Messer Griesheimand Messer Holding”, with a purchase price of €32.0 million plus interest andthe assumption of existing debt of the ACIC joint ventures (approximately €12.1million at December 31, 2002). Capital expenditure was €135.9 million in thetwelve months ended December 31, 2002, €79.0 million in the eight months endedDecember 31, 2001, €49.5 million in the four months ended April 30, 2001, and€321.5 million for the twelve months ended December 31, 2000.

 

We had total indebtedness (including financeleases) of €1,438.9 million at December 31, 2002, of which €1,381.4 million waslong-term indebtedness. The indebtedness was primarily due to banks and ourbondholders and had a weighted average interest rate on existing corporate debtincluding interest rate swap agreement but not including amortization of debtissuance costs of approximately 8.05% per annum at December 31, 2002.

 

Messer Griesheim’s principal sources of fundshave been cash flow from operations and borrowings from banks. We expect that,going forward, we will finance ongoing operations and implement ourcost-savings measures and information-technology improvements with a combinationof bank borrowings and operating cash flows. We expect that our other cashrequirements will be met through operating cash flows.

 

As of December 31, 2002, we had in placeunused credit lines totaling €294.0 million. In addition, certain of our 

 

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subsidiaries have unused available credit lines under local facilities.

 

We have scheduled finance and operating leasepayments over the next three years equal to €29.5 million in 2003, €35.3million in 2004 and €35.8 million in 2005.

 

***InterestRate Risk Management***

 

We are exposed to interest rate risk mainlythrough our debt instruments. We manage interest rate risk on a group-widebasis with a combination of fixed and floating rate instruments. We have enteredinto interest rate swap agreements that effectively convert a major portion ofour floating rate indebtedness to a fixed rate basis for the next two years,thus reducing the impact of interest rate changes on future interest expense.

 

As of December 31, 2002, approximately 77% ofour debt facilities were hedged satisfying the terms of the senior facilitiesagreement. The remaining 23% of our multicurrency debt facilities have floatingrates. With respect to such portion of the debt facilities for each fluctuationin market interest rates of 1%, the interest expense related to such portion ofthe debt facilities would fluctuate by €3.3 million.

 

***ForeignExchange Risk Management***

 

We also are exposed to foreign currencyexchange risk related to foreign currency denominated assets and liabilitiesincluding debt service payments denominated in foreign currencies. We manageforeign currency exchange risk on a group-wide basis using exchange forwardcontracts. Our current policy with respect to limiting foreign currencyexposure is to economically hedge foreign currency exposures when appropriate.

 

For the majority of our operations, we havelocal production facilities which generate cash flows in local currencies.These cash flows generally match local expenditures and debt service of theseoperations, resulting in a 95% or greater “natural hedge” as of December 31,2002.

 

The most significant foreign exchange raterisks exist in North and Central America, Eastern Europe and China where weproduce locally. A portion of our debts serviced by these facilities are in €and U.S. dollars. Accordingly, we are dependent on the stability of currenciesin these countries in order to service these debts. The total “hard currency”debt in these countries is €30.1 million. The single largest debt isapproximately €14.0 million in Poland. An increase or decrease of 10% of thePLN against the € would result in an impact of approximately €1.4 million onour results of operations. If all the currencies in these countries depreciateagainst the € and the U.S. dollar, a 10% depreciation would decrease ourconsolidated net income by approximately €3.0 million.

 

Our functional currency is the €. The netassets outside the “€ zone” are subject to currency fluctuations. The mostvolatile currencies are those of Eastern Europe, China and Central America.Normally, we do not hedge the net assets of foreign subsidiaries. In the eventthe € significantly increases in value relative to other currencies, theaccounting treatment would result in a charge against our equity without any effecton net income.

 

***DerivativeFinancial Instruments***

 

The table below provides information aboutour significant derivative financial instruments that are sensitive to changesin interest and foreign currency exchange rates as of December 31, 2002. Thetable presents the notional amounts and the weighted average contractualforeign exchange rates. The terms of our cross-currency exchange forwardcontracts generally do not exceed one year. At December 31, 2002, our interestrate swaps had remaining terms of two years.

 

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**DerivativeFinancial Instruments**

 
|                                      |   | **Contract  notional  amount**                                       |   | **Contractual  rates** |   | **Fair value  December 31,  2002** |   |
|-------------------------------------------|--------|----------------------------------------------------------------------|--------|------------------------|--------|------------------------------------|--------|
|                                      |   | **(€  equivalent in thousands,  except for contractual rates)** |   |
| **Interest rate cap contracts**           |   |                                                                 |   |                   |   |                               |   |
| EUR                                       |   | 25,565                                                               |   | 5.50000                | %      | 3                                  | (1)    |
| **Interest rate swap contracts**          |   |                                                                 |   |                   |   |                               |   |
| Euro                                      |   | 84,788                                                               |   | 4.45500                | %      | (2,234                             | )      |
| Euro                                      |   | 220,000                                                              |   | 4.69500                | %      | (6,645                             | )      |
| Euro                                      |   | 52,250                                                               |   | 4.73000                | %      | (1,610                             | )      |
| U.S. dollar                               |   | 248,843                                                              |   | 5.00000                | %      | (12,608                            | )      |
| Euro                                      |   | 42,750                                                               |   | 4.65250                | %      | (1,260                             | )      |
| **Interest Rates Forward Swap Contracts** |   |                                                                 |   |                   |   |                               |   |
| Euro                                      |   | 170,000                                                              |   | 4.84500                | %      | (1,276                             | )      |
| Euro                                      |   | 32,625                                                               |   | 4.21000                | %      | (121                               | )      |
| USD                                       |   | 225,000                                                              |   | 5.18500                | %      | (2,507                             | )      |

 
|                                    |   |   | ** ** | **Forward****exchange  rate** | ** ** |   | ** ** |
|-----------------------------------------|--------|--------|------------|-------------------------------|------------|--------|------------|
| **Foreign currency forward contracts:** |   |   |       |                          |       |   |       |
| British pounds sterling/U.S. dollar     |   | 855    |       | 1.59447                       |       | 8(1    | )          |

 

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(1) Freestanding Derivatives.

 

***CommodityPrice Risk***

 

We are exposed to commodity price risksthrough our dependence on various raw materials, such as chemical and energyprices. We seek to minimize these risks through our sourcing policies,operating procedures and pass-through clauses in our product pricingagreements. We currently do not utilize derivative financial instruments tomanage any exposure to fluctuations in commodity prices.

 

***RiskIdentification and Analysis***

 

The identification and analysis of risksrelating to our operations is conducted through the application of anenterprise-wide risk management system, encompassing all of our activitiesworldwide. The goal of this risk management system is to foster a group-wideculture of risk management using a common set of objectives and standards inthe measurement and treatment of risk. As with any risk management system, theresults are based on individual assessments that may be subject to error. Thereis no guarantee that this system will consistently identify all of theimportant risks or provide an adequate assessment of their potential impact.

 

We are exposed to market risk through ourcommercial and financial operations as described above. We are implementing apolicy of economic hedging against some of these exposures at present, but wemay still incur losses as a result of changes in currency exchange rates,interest rates and commodity risk. We do not purchase or sell derivative financialinstruments for trading purposes.

 

**Outlook**

 

A challenging economic environment,highlighted by a downturn of the business climate in Germany and thedeterioration of the recovery of the U.S. market in the second half of theyear, marked the year 2002. At the same time energy prices which had historicalhighs in the prior period, decreased throughout the year primarily in the U.S.

 

Following the ongoing economic downturn,especially in Germany, in 2002, we do not expect any significant improvements forthe business year 2003.

 

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**5.CRESEARCH AND DEVELOPMENT, PATENTS ANDLICENSES**

 

We have a research and development groupwhich operates primarily in Krefeld, Germany, and in Malvern, Pennsylvania.Research and development activities are also conducted to a minor extent on thelocal level. The objective of this group is to develop new applicationstechnology that provides solutions to specific customer problems. Additionally,through AGS, our in-house engineering division, we design and manufacturecryogenic industrial gas production facilities at our facilities in Krefeld andMalvern.

 

We spent €12.9 million, €9.5 million,€6.6 million and €24.9 million, on research and development in thetwelve months ended December 31, 2002, eight months ended December 31,2001, the four months ended April 30, 2001 and the twelve months endedDecember 31, 2000, respectively.

 

A significant portion of our bulk businessresults from applications developed in cooperation with customers or inventedby us for use by our customers. We have proprietary knowledge in the form ofapproximately 300 application processes and 485 patents in the areas ofmetallurgy, chemistry, environmental processes, foods, rubber, plastic, paints,cutting and welding, medicine, electronics and cryogenics. As most of our netsales are derived from sales of industrial gases produced through processesthat use widely available technology, we do not believe that our business ismaterially dependent on intellectual property rights.

 

**5.DTRENDS**

 

Our future results of operations involve anumber of risks and uncertainties. Factors that could affect our futureoperating results and cause actual results to vary materially from historicalresults include but are not limited to the following items:

 

•                                            Theindustrial gas business is highly competitive, which has resulted in a steadytrend of decreasing prices. This highly competitive environment could reducethe profitability and cash flows of our operations in the future.

 

•                                            We supply across section of industries including steel, primary metal, chemicals, oilrefining, food and beverages, healthcare, electronics and glass and enter intolong-term contracts over periods of up to 15 years. A significant decline in marketdemand in any one of these industries could adversely affect future operatingresults. No single customer represents a significant portion of total revenues.The majority of our revenues are derived in Germany, the rest of Europe and theUnited States of America, which makes us sensitive to market or economicconditions in these geographic areas.

 

•                                            Energy isthe single most significant production cost for us. Although we often can passthrough a portion of these energy costs to our customers, increases in energycosts can reduce our profitability significantly.

 

•                                            We operateglobally, making us subject to risks related to the differing political, socialand economic conditions of the various countries in which we conduct ouroperations.

 

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

 

**6.ADIRECTORS AND SENIOR MANAGEMENT**

 

**Senior Management**

** **

The following provides certain informationregarding our key executives:

 

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| **Name**                         |   | **Title**                                                                   |   | **Years of  Service** |   | **Age** |   |
|----------------------------------|--------|-----------------------------------------------------------------------------|--------|-----------------------|--------|---------|--------|
| Dr. Klaus-Jürgen Schmieder* |   | Chief Executive Officer                                                     |   | 3                     |   | 54      |   |
| Harald Pinger*                   |   | Chief Financial Officer                                                     |   | 1                     |   | 43      |   |
| Winfrid Schmidt                  |   | Corporate Treasurer                                                         |   | 32                    |   | 58      |   |
| Stefan Messer*                   |   | Head of Europe and Strategic Marketing and Applications                     |   | 24                    |   | 48      |   |
| Peter Stocks*                    |   | Head of Germany and UK Operations                                           |   | 2.5                   |   | 45      |   |
| James Doerr                      |   | Head of North American Operations                                           |   | 15                    |   | 44      |   |
| Jens Dornedden                   |   | Executive Vice President, Head of Divestitures and Mergers and  Acquisition |   | 3                     |   | 40      |   |
| Michael Hoche                    |   | Corporate Controller                                                        |   | 1                     |   | 42      |   |

 

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*Directors who are also members of MesserGriesheim’s management board.

 

*Dr. Klaus-Jürgen Schmieder* has served as ChiefExecutive Officer of Messer Griesheim since January 2000 and as actingChief Financial Officer of Messer Griesheim between November 12, 2001 andFebruary 15, 2002. From 1996 to 1999, Dr. Schmieder served as ChiefFinancial Officer of Hoechst AG in Germany. From 1992 to 1996,Dr. Schmieder served as Vice President of Treasury at Hoechst CelaneseCorporation in the United States. From 1987 to 1996, Dr. Schmieder heldvarious senior management positions at Hoechst AG in Germany and served asCoordination Manager of the Hoechst Group for the Asia-Pacific region. Prior tothat time, Dr. Schmieder served as Counsel in the Corporate Legal Departmentof Hoechst AG in Germany which he joined in 1977. Dr. Schmieder holds aPh.D. in law and a degree in macroeconomics from the University of Munster.

 

*Mr. Harald Pinger* has served as ChiefFinancial Officer of Messer Griesheim since February 15, 2002. In 2001Mr. Pinger served as Chief Financial Officer of Fresenius Kabi AG inGermany. From 1996 to 2000 Mr. Pinger held various senior managementpositions at Fresenius Medical Care AG in Germany. Prior to that time,Mr. Pinger served in various contolling and accounting positions atUnilever which he joined in 1987. Mr. Pinger holds a Diplom Kaufmann fromthe University of Cologne.

 

*Mr. Winfrid Schmidt* has served asCorporate Treasurer since November 5, 2001 and previously served as Headof Corporate Finance and Accounting of Messer Griesheim from 1993 to 2001.Mr. Schmidt has previously served in various positions in finance, tax andaccounting since he joined Messer Griesheim in 1970. Mr. Schmidt studiedfinance and accounting at the Bankakademie in Mainz.

 

*Mr. Stefan Messer* has served as anexecutive member of the board of Messer Griesheim since 1998 and is responsiblefor overseeing our operations in western Europe (outside of Germany and theUnited Kingdom) and central and eastern Europe. Mr. Messer is also responsiblefor Strategic Marketing and Application Technologies in Europe. From 1989 to1998, Mr. Messer served as Managing Director of our companies in theNetherlands and in France. Prior to that time, Mr. Messer served invarious sales and marketing positions of our companies in Germany and inAustria since he joined in 1978. Mr. Messer studied economics at theUniversity of Mannheim and holds an Industriekaufmann degree from IBM and IHKFrankfurt. Mr. Messer is a shareholder in Messer Industrie, which owns anindirect 32.11% interest in Messer Holding and Messer Griesheim.

 

*Mr. Peter Stocks* has served as anexecutive member of the board of Messer Griesheim since September 2000 andis responsible for overseeing our operations in Germany and the United Kingdom.Mr. Stocks is also responsible for our European Supply Chain Management.Mr. Stocks was previously employed as the Chief Operating Officer at AirProducts in Germany from 1997 to 2000. Mr. Stocks served as the ChiefOperating Officer at Stinnes Agrar from 1996 to 1997 and at various othercompanies prior to that time. Mr. Stocks has four years experience in theindustrial gases business. Mr. Stocks studied at Pennsylvania StateUniversity and holds a Diplom Kaufmann from the University of Cologne.

 

*Mr. James Doerr* has served as President ofMesser Griesheim Industries, or MGI, since 1996 where he has been responsiblefor overseeing our operations in North America. From 1992 to 1996,Mr. Doerr served as Vice President of Marketing and as General Manager ofthe Bulk Division of MGI. From 1988 to 1992, Mr. Doerr served in varioussenior positions in regional management at MGI. Prior to that time,Mr. Doerr served as a senior sales representative at Air Products and as aManager at Ford Motor Co. Mr. Doerr holds an Executive MBA fromNortheastern University, a B.A. in management from Maryville College and anAssociate Degree in Applied Sciences from St. Louis Community College.

 

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*Mr. Jens Dornedden* has served as an ExecutiveVice President of Messer Griesheim since February, 2001 and is responsible forimplementing our divestiture program. Mr. Dornedden previously served asHead of Corporate Development for Messer Griesheim from February 2000 untilFebruary 2001. From 1996 to 2000, Mr. Dornedden served at Hoechst intheir Corporate Controlling and Development division and later as Head of theirInvestor Relations. Prior to that time, Mr. Dornedden served as Head ofEquity Research at Deutsche Bank Trust AG from 1989 to 1996. Mr. Dorneddenholds a Diplom Kaufmann from the University of Cologne.

 

*Mr. Michael Hoche* became Corporate Controller,with responsibility for accounting and controlling, on November 2, 2001.From 1994 until 2000, Mr. Hoche served as acting director of theaccounting and reporting department of Reckitt Benckiser plc in the UnitedKingdom and in various other positions in the accounting and finance divisionsof Reckitt Benckiser and its predecessor companies in the Netherlands andGermany. Mr. Hoche was employed with various other companies before thattime, including six years with Price Waterhouse. Mr. Hoche is a CharteredAccountant who holds a bachelors degree in finance from Texas A&MUniversity.

 

**Directors**

 

**General**

 

Pursuant to the acquisition transactions,Messer Griesheim Group implemented a management structure for each of MGB,Messer Griesheim Group, Messer Holding and Messer Griesheim. The managementstructure is, for each of these entities, generally, a two-tier structure witha management board reporting to either a supervisory board or a shareholders’committee. The strategic decisions for Messer Griesheim Group as a whole aremade by Messer Griesheim Beteiligungsverwaltungs GmbH (MGB), as the generalpartner of Messer Griesheim Group and by Messer Griesheim.

 

Pursuant to the shareholders’ agreement, therespective management and supervisory boards of MGB, Messer Griesheim Group,Messer Holding and Messer Griesheim consist of the same members, other than thedifferences resulting from the right of additional employee members to berepresented on the supervisory board of Messer Griesheim as required by law.The shareholders’ committees of MGB and Messer Griesheim also consist of thesame members. See Item 7. “Major Shareholders and Related Party Transactions” -7.A “Major Shareholders”.

 

The following diagram shows the governingbodies for each entity within the Group and is followed by descriptions of eachof these governing bodies.

 

 

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**Management Board**

 

The management board of Messer GriesheimBeteiligungsverwaltungs GmbH (MGB), the corporate general partner of MesserGriesheim Group, is responsible for managing the business affairs andrepresenting each of the companies in dealings with third parties. Managementboards further appoint the senior management and the authorized signatories ofeach of the companies. For the time being only Messer Griesheim has anymanagement or employees besides its management board.

 

The members of the management board areobliged to conduct business in compliance with the law, the articles ofassociation and the resolutions of the supervisory board (or the shareholders’committee in the case of MGB). Pursuant to the articles of association, themanaging directors have to report regularly to the supervisory board or theshareholders’ committee, as the case may be. The management board is entrustedwith preparing shareholders’ committee meetings and carrying out shareholders’committee resolutions. The management board may, pursuant to its regulations,delegate the day-to-day business operations to the senior management. Forcertain transactions and business measures, the managing board requires priorconsent in the form of a supervisory board resolution (or shareholders’committee resolution in the case of MGB).

 

The present members of the Management Boardof Messer Holding, their ages, current positions and terms of appointment areas follows:

 
| **Name**                           |   | **Member  Since**      |   | **Term  Expires**      |   | **Age** |   | **Current  Position**                             |
|------------------------------------|--------|------------------------|--------|------------------------|--------|---------|--------|---------------------------------------------------|
|                               |   |                   |   |                   |   |    |   |                                              |
| Dr. Klaus-Jürgen Schmieder(1) |   | April 30, 2001    |   | December 31, 2004 |   | 54      |   | Management Board Chairman (Vorstandsvorsitzender) |
| Harald Pinger(1)                   |   | February 15, 2002 |   | February 14, 2006 |   | 43      |   | Management Board Member (Vorstandsmitglied)       |
| Stefan Messer(1)                   |   | April 30, 2001    |   | February 28, 2006      |   | 48      |   | Management Board Member (Vorstandsmitglied)       |
| Peter Stocks(1)                    |   | April 30, 2001    |   | December 31, 2004 |   | 45      |   | Management Board Member (Vorstandsmitglied)       |

 

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(1) Also a member of themanagement board of Messer Griesheim Group and Messer Griesheim.

 

**Shareholders’Committee**

 

The shareholders’ committee of MGB appointsthe members of the management board of MGB, and through the control over themanagement board of MGB the shareholders’ committee controls the managementdecisions concerning the whole group. The shareholders’ committee for each ofMGB and Messer Griesheim has veto rights over all important managementdecisions. The shareholders’ committee of Messer Griesheim has authority overMesser Griesheim’s annual budget, strategy and business policy, as well asother important management matters.

 

All important management decisions generallyrequire the approval of the MGB shareholders’ committee or, in the case ofimportant investments or divestitures outside Europe, approval by a meeting ofMGB’s shareholders. The shareholders’ committee of MGB has eight members, fourof whom are appointed by Messer Industrie and four by the financial sponsors.Voting by members of the shareholders’ committee is weighted according to eachshareholder’s percentage ownership in MGB; the voting rights of Allianz CapitalPartners are deemed to be voting rights of GS Funds for that purpose.

 

The Messer Griesheim shareholders’ committeehas authority over Messer Griesheim’s annual budget, strategy and businesspolicy, as well as other important management matters that are not subject toapproval at shareholders’ meetings.

 

The shareholders’ committee for each of MGBand Messer Griesheim is comprised of the same eight members. The terms ofappointment are also identical. See Item 7. “Majors Shareholders and RelatedParty Transactions” - 7.A “Major 

 

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Shareholders” – “Shareholders’ Agreement” for additional informationrelating to the shareholders’ committee.

 

The present members of the shareholders’committee of MGB and Messer Griesheim, their ages, current positions and termsof appointment are as follows:

 
| **Name**                                           |   | **Member  Since** |   | **Term  Expires** |   | **Age** |   | **Function**                                      |
|----------------------------------------------------|--------|-------------------|--------|-------------------|--------|---------|--------|---------------------------------------------------|
| Udo Stark                                          |   | May 2001          |   | Spring 2004       |   | 55      |   | Chairman of the Shareholders’ Committee      |
| Dr. Jürgen Heraeus                            |   | August 2001       |   | Spring 2004       |   | 66      |   | Vice Chairman of the Shareholders’ Committee |
| General Wesley K. Clark                            |   | August 2001       |   | Spring 2004       |   | 58      |   | Member                                            |
| Dr. Alexander Dibelius                             |   | May 2001          |   | Spring 2004       |   | 43      |   | Member                                            |
| Dr. Stefan Eilers                                  |   | May 2001          |   | Spring 2004       |   | 43      |   | Member                                            |
| Dr. Gerhard Rüschen                           |   | August 2001       |   | Spring 2004       |   | 70      |   | Member                                            |
| Wilhelm Peter Jonkheer Storm van’s Gravesande |   | May 2001          |   | Spring 2004       |   | 62      |   | Member                                            |
| Stephen Trevor                                     |   | May 2001          |   | Spring 2004       |   | 39      |   | Member                                            |

 

**Supervisory Board**

 

Under German law the Supervisory Board mayrequest that the Management Board obtain supervisory board approval for anycorporate transaction and in particular, for any transactions of majorstrategic importance to, or likely to have a material financial effect on,Messer Griesheim Group, Messer Holding or Messer Griesheim and on theirrespective subsidiaries as a group in accordance with statuatory law. Thesupervisory boards for Messer Holding and Messer Griesheim are responsible forappointing the members of their respective management boards and forsupervising the management of each company’s business by its management board.

 

In exercising these responsibilities, thesupervisory board of Messer Holding presents its comments on the financialaccounts of Messer Holding and on the reports of the management board to theshareholders at the annual meeting. The compensation of the members of themanagement boards of Messer Holding and Messer Griesheim is determined by thesupervisory board.

 

The members of the supervisory board areappointed by the shareholders for a term of five years which expire followingthe last the annual meeting of shareholders held for the year during which theterm ends. The supervisory board of Messer Holding and Messer Griesheim Group consistsof six members. The supervisory board of Messer Griesheim consists of twelvemembers, including six employee members. See Item 7. “Majors Shareholders andRelated Party Transactions” 7.A “Major Shareholders” — “Shareholders’Agreement” for additional information relating to the supervisory boards ofMesser Griesheim Group, Messer Holding and Messer Griesheim. Meetings of thesupervisory board are held at least once every half year. Decisions must betaken by a simple majority of all members entitled to vote whether or notpresent or represented. The supervisory board appoints its own Chairman.

 

The supervisory board held two meetings in2002.

 

The present members of Messer Holding’sSupervisory Board, their ages, current positions and terms of appointment areas follows:

 
| **Name**                                                  |   | **Member Since** |   | **Term Expires** |   | **Age** |   | **Function**                                                    |
|-----------------------------------------------------------|--------|------------------|--------|------------------|--------|---------|--------|-----------------------------------------------------------------|
| Dr. Alexander Dibelius(1)(2)(3)                           |   | April 2001       |   | Spring 2006      |   | 43      |   | Managing Director, Goldman Sachs & Co. oHG                  |
| Stephen Trevor(2)(3)                                      |   | April 2001       |   | Spring 2006      |   | 39      |   | Managing Director, Goldman Sachs International                  |
| Dr. Jürgen Heraeus(2)(3)                             |   | April 2001       |   | Spring 2006      |   | 66      |   | Entrepreneur, Head of Supervisory Board of Heraeus Holding GmbH |
| Dr. Stefan Eilers(2)                                      |   | April 2001       |   | Spring 2006      |   | 43      |   | Partner, Freshfields Bruckhaus Deringer                         |
| Udo Stark(2)(3)                                           |   | May 2001         |   | Spring 2006      |   | 55      |   | Managing Director, B+B Frankfurt  GmbH                          |
| Wilhelm Peter Jonkheer Storm van’s  Gravesande(2)(3) |   | April 2001       |   | Spring 2006      |   | 62      |   | Consultant, Messer Griesheim                                    |

 

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(1) Function: Head of SupervisoryBoard

(2) Also a member of thesupervisory board of Messer Griesheim Group

(3) Also a member of thesupervisory board of Messer Griesheim

 

**6.BCOMPENSATION**

 

The aggregate compensation paid to ourmanagement board and supervisory board for services in such capacities forfiscal year 2002 was €2.2 million, including bonuses and benefits in kind.

 

The aggregate amount paid in 2002 by MesserGriesheim to provide pension retirement or similiar benefits to the formerboard members and their surviving dependents was €1.4 million.

 

**IncentiveArrangements**

 

Messer Griesheim rewards employees withperformance-based pay. Normally, remuneration is composed of a fixed salary anda bonus. The fixed element of the remuneration relates to the employee’s jobfunction and qualification. The variable portion varies between 12% of basesalary for hourly-paid and non-exempt employees up to 100% for senioremployees. In certain countries in which we operate, performance exceedingtargets are rewarded with an additional bonus. A special bonus scheme existsfor our senior management. Employees who are paid under collective bargainingagreements normally receive an additional bonus resulting from the achievementof company goals. Professionals and managers receive a flexible bonus whichdepends on reaching agreed targets which have quantitative and qualitativeaspects. For 2002, the recommended financial company targets were normalizedEBITDA and a combination of capital expenditures, working capital and salesproceeds from unused assets.

 

**Share purchase andoption plan**

 

During November 2001, the shareholders ofMesser Griesheim Group approved a stock compensation plan for the benefit ofkey managers of the Group. The plan allows these employees to purchase sharesof Messer Griesheim (original option). The shareholders of Messer Griesheimhave agreed among each other that the maximum number of shares to be acquiredby the managers under the stock purchase and option plan shall be limited to6.5% of the then-outstanding stock of Messer Griesheim Group. The options toacquire shares have been priced at €74.25, the fair market value at the date ofthe change in control under the acquisition transactions (April 30, 2001). Uponexercise of the original options and for each share purchased, the participantsreceive conditionally exercisable, non transferable options to acquire threenew shares in Messer Griesheim Group at the same price of €74.25. Theconditionally exercisable options become exercisable no earlier than two yearsafter the date of grant, and only upon the attainment of certain operating performanceand investment yield targets, but in any case not before an exit event.

 

All shares offered under this plan aresubject to certain put and call provisions upon the occurrence of certainevents. In November 2001, 176,563 original options were granted. During 2002,156 participants had purchased a total of 148,861 shares and were granted446,583 conditionally exercisable options. None of these options wereexercised, forfeited or expired as of and for the twelve months  ended December 31, 2002 and the eight monthsended December 31, 2001, respectively.

 

During the second quarter 2002, asubstantially similar stock purchase and option plan was approved for certainmembers of the shareholders’ committee of the general partner of MesserGriesheim Group GmbH & Co. KGaA (the Messer Griesheim Group), MesserGriesheim Beteiligungsverwaltungs GmbH. The participating members were offeredto acquire the shares in Messer Griesheim Group for a purchase price of €74.25,which was the fair market value at the date of the change in control under theacquisition transactions (April 30, 2001). In addition to the shares acquiredby them from the shareholders of Messer Griesheim Group, Messer Griesheim Grouphas issued to the participants conditionally exercisable, non transferableconvertible bonds for a purchase price of €1 each, convertible into one or moreshares of Messer Griesheim Group for an additional payment of €73.25 for eachshare. The conversion rights become exercisable only upon the attainment ofcertain operating performance and investment yield targets and the number ofyears the participants have 

 

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served as members of the shareholders’ committee, but in any case notbefore an exit event. All shares offered under this plan are subject to certainput and call provisions upon the occurrence of certain events. BetweenApril 1 and December 31, 2002, six participants had purchased a totalof 24,612 shares and 38,112 conditionally exercisable, non transferableconvertible bonds were issued for a purchase price of €1 each. None of theseconvertible bonds were exercised, forfeited or expired as of and for the twelvemonths ended December 31, 2002.

** **

**6.CBOARD PRACTICES**

 

The supervisory board of Messer Griesheimreceives monthly reports from senior management as to financial condition, anda sub-group of the supervisory board meets with senior management approximatelyevery month to discuss financial results. In addition, our auditors presenttheir findings and discuss any material audit issues with the supervisory boardonce a year.

 

Messer Griesheim has a remunerationcommittee. Each member of the supervisory board is entitled to reimbursementfor necessary and legitimate expenses. Each member of the supervisory board isalso entitled to annual remuneration determined by the shareholders.

 

Each member of the management board hasentered into an employment agreement which cannot be terminated by thesupervisory board without cause. The management board may terminate with causein circumstances involving dishonesty, fraud or illegality by a member, orwhere the member has competed with Messer Griesheim, aided one of MesserGriesheim’s competitors, or substantially breached the employment agreement orMesser Griesheim’s policies.

 

**6.DEMPLOYEES**

 

As of year end 2002, we had 7,225 employeesglobally. Since the start of our restructuring program we were able to reduceour workforce within Europe by 744 employees. In addition, we plan to reduceour workforce in Europe, principally Germany, by 156 employees prior to yearend 2003.

 
|                    |   | **Germany** |   | **Western  Europe** |   | **Eastern  Europe** |   | **North  America** |   | **Latin  America,  Asia, Africa** |   | **Total** |   |
|-------------------------|--------|-------------|--------|---------------------|--------|---------------------|--------|--------------------|--------|-----------------------------------|--------|-----------|--------|
| As of December 31, 2002 |   | 2,208       |   | 997                 |   | 2,283               |   | 996                |   | 741                               |   | 7,225     |   |
| As of December 31, 2001 |   | 2,244       |   | 1,017               |   | 2,369               |   | 1,163              |   | 1,555                             |   | 8,348     |   |
| As of April 30, 2001    |   | 2,395       |   | 1,077               |   | 2,484               |   | 1,408              |   | 2,434                             |   | 9,798     |   |
| As of December 31, 2000 |   | 2,589       |   | 1,074               |   | 2,569               |   | 1,397              |   | 2,414                             |   | 10,043    |   |

 

Our labor relations are affected by thediffering laws, regulations and customs in the various countries in which weoperate. In Germany, all of our employees are represented by *Betriebsräte*,or workers’ councils, on both a local plant and overall company level. We haveestablished these workers’ councils in accordance with German law. Workers’councils have multiple legal participation rights with respect to social,economic or personal affairs. For example, the workers’ councils have to beheard and given the opportunity to comment on the dismissal or transfer of anyemployee. Participation rights of the workers’ councils generally concernissues such as working time or working regulations. Six members of MesserGriesheim’s supervisory board are elected by employees. Two of these arerepresentatives of trade unions which have nominated them for election. We havesimilar arrangements in other countries where such arrangements are customary.Worldwide, less than 50% of our full-time employees are members of trade unions.Historically, we have enjoyed good working relationships with workers’ councilsand trade unions. There have been no significant labor disputes, workstoppages, slow downs or other collective employee actions that have resultedin material disruptions of our business in our core markets in the past10 years.

 

Most of our pension plans outside Germany areadequately funded. However, while our defined-benefit plan in Germany isunfunded, we have established liabilities for our pension funding obligationsin our financial statements. We also 

 

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have accrued liabilities related to post-retirement benefits inBelgium, as mandated by law, amounting to approximately €1.8 million.

 

**6.ESHARE OWNERSHIP**

 

The following table sets forth certaininformation as of December 31, 2002 concerning our beneficial ownership of(i) each shareholder who is known by us to beneficially own more than 5%of the outstanding ordinary equity interests of Messer Griesheim Group, theparent of Messer Holding and (ii) all of the members of the Management andSupervisory Boards of Messer Holding and its subsidiaries as a group:

 
| **Named Beneficial Owner**                     |   | **Ordinary  Equity Shares** |   |
|------------------------------------------------|--------|-----------------------------|--------|
| Messer Industrie GmbH(1)                       |   | 32.11                       | %      |
| Allianz Capital Partners                       |   | 33.08                       | %      |
| GS Funds(2)                                    |   | 33.08                       | %      |
| Messer Employee GmbH & Co KG(3)            |   | 1.48                        | %      |
| Members of MGB Shareholders’ Committee(4) |   | 0.25                        | %      |

 

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(1)          The Messer family owns Messer Industrie GmbH.Stefan Messer, a shareholder and a director of Messer Industrie GmbH, is amember of our Management Board.

(2)          GS Funds owns its equity interests throughsix private equity funds managed by affiliates of The Goldman SachsGroup, Inc.

(3)          Theemployees participating in the share purchase and option plan hold their sharesthrough Messer Employee. The participants voting rights are exercised by themanaging partner of Messer Employee, MEB.

(4)          Themembers of the shareholders’ committee of MGB hold their shares directly inMesser Griesheim Group.

 

**ITEM 7.****  MAJOR SHAREHOLDERS AND RELATED PARTYTRANSACTIONS**

 

**7.AMAJOR SHAREHOLDERS**

 

Messer Holding owns 100% of Messer Griesheim,and is wholly owned by Messer Griesheim Group. The Messer Holding and MesserGriesheim Group are both holding companies with no material assets other thantheir direct or indirect interests in Messer Griesheim.

 

The following table sets forth certaininformation as of December 31, 2002 concerning our beneficial ownership of eachshareholder who is known by us to beneficially own more than 5% of theoutstanding ordinary equity interests of Messer Griesheim Group, the parent ofMesser Holding:

 
| **Named Beneficial Owner** |   | **Ordinary  Equity  Shares** |   |
|----------------------------|--------|------------------------------|--------|
| Messer Industrie GmbH(1)   |   | 32.11                        | %      |
| Allianz Capital Partners   |   | 33.08                        | %      |
| GS Funds (2)               |   | 33.08                        | %      |

 

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(1)          The Messer family owns Messer Industrie GmbH.Stefan Messer, a shareholder and a director of Messer Industrie GmbH, is amember of our Management Board.

(2)          GS Funds owns its equity interests throughsix private equity funds managed by affiliates of The Goldman SachsGroup, Inc.

 

*Messer Industrie* is the holding company forthe Messer family’s interests in Messer Griesheim Group. Members of the Messerfamily have been active in the industrial gases industry for over100 years. This stake in Messer Griesheim is the family’s largestindustrial holding.

 

*Allianz Capital Partners* (ACP) is a globalprivate equity investor. It was founded in 1998 and now consists of a team ofsixteen investment professionals. ACP is a subsidiary of Allianz Group, aleading global financial services company 

 

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and one of the largest insurance companies worldwide. Allianz Group isa long-term investor with major shareholdings in many multinational businesses.Allianz Group manages over €1,000 billion of assets, roughly half of whichare its own. ACP is one of the largest private equity investors in Germany.Since 1998, it has committed over €1.2 billion to 19 companies, includingMesser Griesheim.

 

*Goldman Sachs* operates aprincipal investment business to invest in private equity and mezzanineopportunities worldwide. Private equity funds managed by Goldman Sachs investedor committed to invest $13 billion in over 500 companies since 1986 in a widerange of business sectors, geographic regions and transaction types. GoldmanSachs is currently investing its $5.25 billion GSCP 2000 private equity fundand $1.0 billion GS Mezzanine II fund.

 

**Shareholders’Agreement**

 

Messer Industrie, Allianz Capital Partnersand the GS Funds have entered into a shareholders’ agreement. The shareholders’agreement provides, among other things, for the corporate governance structuresof Messer Griesheim Group, Messer Holding and Messer Griesheim, including therights to appoint board members and other voting rights. The shareholders’agreement generally allocates rights and obligations concerning matters betweenMesser Industrie, on the one hand, and Allianz Capital Partners and the GSFunds, on the other hand, considered collectively, as the financial sponsors.

 

Messer Griesheim Group is a Germanpartnership limited by shares (a *Kommanditgesellschaft auf Aktien* or *KGaA*).Messer Griesheim Group has a supervisory board and is managed by a generalpartner, Messer Griesheim Beteiligungsverwaltungs GmbH (MGB), a German limitedliability company. MGB is governed by a management board and a shareholder’scommittee. Shares of MGB are held by the shareholders of Messer GriesheimGroup.

 

The shareholders’ agreement provides that allimportant decisions regarding Messer Griesheim’s management, in particulardecisions on divestitures and capital expenditures are to be made by MesserGriesheim Group.

 

To ensure uniform implementation of suchdecisions, the corporate bodies of Messer Griesheim Group, Messer Holding andMesser Griesheim will, if possible, and subject to the right of employees to berepresented on the supervisory board of Messer Griesheim, all have the samemembers. For Messer Holding, Messer Griesheim and MGB, these corporate bodiesare a management board and, in the case of Messer Griesheim and Messer Holding,a supervisory board and, in the case of Messer Griesheim and MGB, ashareholders’ committee.

 

The management board is responsible for theday-to-day management of each company. It reports to the supervisory board, inthe case of Messer Holding and Messer Griesheim, and to the shareholders’committee in the case of Messer Griesheim Group and Messer Griesheim. Themembers of the management board are, in the case of Messer Holding and MesserGriesheim, appointed by the supervisory board and, in the case of MGB, by theshareholders’ committee of MGB. The supervisory boards for Messer Holding andMesser Griesheim mainly have a control function.

 

The supervisory board of Messer Holding andMesser Griesheim and the shareholders’ committee of MGB and Messer Griesheimhave six and eight members, respectively, appointed by the shareholders. Thesupervisory board of Messer Griesheim has an equal number of members who areemployees’ representatives. Voting is determined by the number of board seatsheld with the chairman having the casting vote.

 

The management board of MGB (on behalf ofMesser Griesheim Group) and Messer Griesheim also reports to the shareholders’committee, which may give direct instructions to the management. Theshareholders’ committee has veto rights over all important management decisionsof MGB. In the case of Messer Griesheim Group, it also appoints the members ofthe management board of MGB.

 

The shareholders’ committee of MGB is thecorporate body through which the shareholders control the management decisionsconcerning the whole Group.

 

The management board of MGB is responsiblefor the general management of the whole Group. It must have three 

 

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to five members drawn from senior management who are appointed by MGB’sshareholders’ committee. One member of MGB’s management board is appointed byMesser Industrie, the other members by the GS Funds.

 

All important management decisions generallyrequire the approval of the MGB shareholders’ committee, or in the case ofimportant investments or divestitures outside Europe, by a meeting of the MGBshareholders. The shareholders’ committee of MGB has six members, three of whomare appointed by Messer Industrie and three by the financial sponsors. Votingby members of the shareholders’ committee is weighted according to eachshareholder’s percentage ownership in MGB.

 

The Messer Griesheim shareholders’ committeehas authority over Messer Griesheim’s annual budget, strategy and businesspolicy, as well as other important management matters that are not subject toapproval at a shareholders’ meeting. Most matters requiring shareholdercommittee or shareholder meeting approval will require only approval by a majorityof the votes, such that the financial sponsors or their appointees will havethe ability to prevail independently of Messer Industrie. Certain limitedmatters of greater significance to Messer Industrie require 75% approval, andtherefore any approval would require the consent of Messer Industrie. Thisincludes divestitures in Europe, with the exception of the United Kingdom. Withrespect to a sale of Messer Griesheim, 75% approval will be required untilSeptember 30, 2004, and thereafter only majority approval will berequired.

 

The shareholders’ agreement also containsshare transfer restrictions, including rights of first offer, rights toparticipate in sales by other shareholders and provisions regarding changes ofcontrol. Until October 2004, no shareholder may transfer its shares inMesser Griesheim Group without the approval of the other shareholders.Additionally, the shareholders’ agreement grants Messer Industrie a call optionbetween April and September 2004 for all of the shares held by the financialsponsors, subject to certain significant conditions and requirements. AfterSeptember 2004, a shareholder may freely transfer its shares if they havefirst been offered to the other shareholders.

 

Allianz Capital Partners and the GS Funds, asthe financial sponsors, have entered into a separate agreement which allocatesbetween them the collective rights of the financial sponsors with respect tothe Messer Griesheim Group and related matters. Due to certain antitrustrelated considerations relating to the equity interest of Allianz AG in acompetitor of Messer Griesheim, the agreement generally allocates the rights ofthe financial sponsors relating to corporate governance and management to theGS Funds until such time as the antitrust related considerations are no longerrelevant. Accordingly, until then, members of the shareholders’ committeeappointed by the GS Funds will represent all votes of the financial sponsorsconstituting 66.16% of all votes in the shareholders’ committee. Thereafter, therights will be shared by Allianz Capital Partners and the GS Funds, withAllianz Capital Partners having a deciding vote in the event of a lack ofconsensus between Allianz Capital Partners and the GS Funds, subject to certainexceptions. The agreement between the financial sponsors also limits theirability to exit from their investment in Messer Griesheim Group independentlyof each other, or to independently cause a sale of Messer Griesheim or anysimilar realization transaction.

 

**7.BRELATED PARTY TRANSACTIONS**

 

Set forth below is a description of certaintransactions entered into by Messer Griesheim, Messer Holding and certain oftheir shareholders or affiliates. Some of these relationships continue to be ineffect and may result in conflicts of interest between Messer Griesheim, MesserHolding and those shareholders or affiliates.

 

***Hoechst***

 

Prior to the acquisition transactions onApril 30, 2001, Hoechst was the majority stockholder of Messer Griesheim.Messer Griesheim entered into certain transactions relating to sale and servicecontracts with companies within the Hoechst group which are not material. Thetransactions settled at terms substantially equivalent to similar transactionsnegotiated on an arm’s length basis.

 

Related party transactions with respect tothe Group’s Singapore operations have been described in “Singapore 

 

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Transaction”. Hoechst has indemnified the Group resulting in a paymentof €9.4 million for bank guarantees provided to Bombay Oxygen Corporation Ltd.,which has been reflected as an advance towards capital contribution atApril 30, 2001 and as equity at December 31, 2002 and December 31,2001, respectively.

 

***Allianz***

 

As a result of the acquisition transactionsAllianz Capital Partners directly or indirectly owns or controls 33.08% ofMesser Griesheim Group GmbH & Co. KGaA at December 31, 2002.

 

Allianz Capital Partners is a 20% shareholderin Mahler Italfilo Holding GmbH, which is in liquidation. During April 2001,Mahler Italfilo Holding GmbH acquired the shares of Mahler AGS GmbH andItalfilo Engineering S.r.l. from Messer Griesheim prior the consummation of theacquisition transactions.

 

Allianz Capital Partners provided certainfinancial advisory services to the Company and Messer Griesheim, for which ithas been paid in aggregate approximately €3.0 million in advisory fees byMesser Griesheim during the eight months ended December 31, 2001. Notransactions between the Group and Allianz Capital Partners took place during thetwelve months ended December 31, 2002.

 

***Goldman Sachs***

 

As a result of the acquisition transactionssix private equity funds managed by affiliates of The Goldman Sachs Group, Inc.hold 33.08% of Messer Griesheim Group GmbH & Co. KGaA. Goldman SachsInternational also is an affiliate of The Goldman Sachs Group, Inc. GoldmanSachs and its affiliates, in the ordinary course of business, engage incommercial banking, investment banking and financial advisory transactions withMesser Griesheim Group GmbH & Co. KGaA and the Group.

 

Goldman Sachs Group, Inc., Goldman SachsInternational and their affiliates have provided merger and acquisitionadvisory services in connection with the acquisition transactions of the Group,and have received no related advisory fees for these services.

 

Goldman SachsInternational was a lender under the mezzanine facility of MesserGriesheim.  That facility was repaidusing the proceeds from the sale of the senior notes. Goldman SachsInternational is also a lender under the senior facilities of Messer Griesheim.

 

Goldman SachsInternational and its affiliates were the underwriters of the senior notes andthe lead arrangers of the senior and mezzanine facilities of MesserGriesheim.  They have received netinvestment banking, syndication, financial advisory and other fees in theaggregate of approximately €34.8 million from Messer Holding and MesserGriesheim in connection with these activities and the acquisition transactions.In the future, Goldman Sachs International and its affiliates may, in theordinary course of business, engage in commercial banking or investment bankingor financial advisory transactions with Messer Griesheim Group, Messer Holding,Messer Griesheim and its affiliates.

 

Goldman Sachswas our agent in repurchasing the senior notes during the twelve months endedDecember 31, 2002 and received fees for this service of €0.6 million.

 

The Groupenters into derivative contracts to hedge their exposure to changes in interestrates and foreign currency. Affiliates of the Goldman Sachs Group act as acounterparty to certain interest rate swap contracts and forward exchangecontracts, which have a notional amount of €511.2 million and €0.9 million,respectively, at December 31, 2002 and €622.6 million and €4.2 million,respectively, at December 31, 2001. In addition on June 24, 2002 the Groupentered into €386.0 million notional forward interest rate swaps with the samecounterparty, which will partly replace the existing swaps when they expire in2004. The company made termination payments of €0.9 million, €0 million and €0million to Goldman Sachs for the twelve months ended December 31, 2002, theeight months ended December 31, 2001 and the four months ended April 30, 2001,respectively.

 

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Goldman SachsInternational and its affiliates are involved with providing investment bankingservices in connection with the Group’s divestiture program, and are entitledto receive fees based upon a percentage of debt relief to the Group achieved bycompleted divestitures on which it has advised the Company. Fees paid orpayable to Goldman Sachs International in connection with this arrangement,based on completed divestitures under the program, aggregated €7.5 million,€5.4 million and €0 million for the twelve months ended December 31, 2002, theeight months ended December 31, 2001 and the four months ended April 30, 2001,respectively.

 

An affiliateof Goldman Sachs Group, Inc. is a 20% shareholder in Mahler Italfilo HoldingGmbH, which is in liquidation. On April 1, 2001, Mahler Italfilo Holding GmbHacquired the shares of Mahler AGS GmbH and Italfilo Engineering S.r.l. from theMesser Griesheim prior to the consummation of the acquisition transactions.

 

***Messer Industrie GmbH (“MIG”)***

 

Prior to the acquisition transactions inApril 30, 2001 MIG was the minority shareholder of Messer Griesheim GmbH. As aresult of the acquisition transactions MIG holds 32.11% of Messer GriesheimGroup GmbH & Co. KGaA. MIG owns through its 100% affiliate Bandinelli GmbH22% of Mahler Italfilo Holding GmbH (in liquidation), which acquired twosubsidiaries of the Group (Mahler AGS GmbH and Italfilo Engineering S.r.l) inApril 2001. Bandinelli GmbH is also an 11% shareholder in Messer SingaporeHolding GmbH, the transactions of which are explained elsewhere in thisdocument.

 

***Loans to and from related parties***

 

As of December 31, 2002 and 2001, loans torelated parties primarily relate to a non-interest bearing note due from anequity method investment in Malaysia of approximately €5.1 million and €5.1million, respectively.

 

In October 2002 Messer Griesheim has receiveda loan from its shareholder Messer Griesheim Group amounting to €33.0 million.During October 18, 2002 to December 31, 2002 the interest expense amounted to€335. The loan bears a fixed interest rate of 5.0% per annum and has a maturityof five years. Interest is payable on the loan at such time as the principalamount is due and payable. The principal amount is due on the earlier of thematurity of the loan or the date following three months after either MesserGriesheim or Messer Griesheim Group declares the termination of the loan.

 

***Shareholders’ Agreement***

 

MIG, ACP and the GS Funds have entered into ashareholders’ agreement. The shareholders’ agreement provides, among otherthings, for the corporate governance of the Group and Messer Griesheim GroupGmbH & Co. KGaA, including the right to appoint board members and othervoting rights. See Item 7.A “Major Shareholder – Shareholders Agreement”.

 

***Divestmentof our Cuban Subsidiaries***

 

As a precondition to the consummation of theacquisition transaction, on April 24, 2001, we sold our interest in a holdingcompany that controls three operating companies in Cuba to an entity which iscontrolled by Mr. Stefan Messer, a member of the management board of MesserHolding. Mr. Stefan Messer is also a director and minority shareholder in MIG.The total purchase price for the Cuban holding company was US$7.0 million, ofwhich US$1.2 million was paid in cash and the remainder by an unsecured note inthe principal amount of US$5.8 (€5.6) million, which matures in 2006 andaccrues interest at the rate of 5.5% per year. The sale resulted in a pre taxloss of €5.6 million, which has been reflected in the statement of operationsfor the period ended April 30, 2001.

 

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**7.CINTERESTS OF EXPERTS AND COUNSEL**

 

Not applicable.

 

**ITEM 8.****  FINANCIAL INFORMATION**

 

**8.ACONSOLIDATED STATEMENTS AND OTHER FINANCIALINFORMATION**

 

**8.A.1 See Item 18.**

 

**8.A.2 See Item 18.**

 

**8.A.3 See Report ofIndependent Accountants, page F-1.**

 

**8.A.4 We havecomplied with this requirement.**

 

**8.A.5 Not applicable.**

 

**8.A.6 Not applicable.**

 

**8.A.7 LEGALPROCEEDINGS**

 

We are involved from time to time in variousclaims and lawsuits incidental to the ordinary course of the business.

 

We are of the opinion that our accrualsadequately provide for the risks related to the pending or threatening claimsdescribed below.

 

Messer Griesheim acquired itsinterest in Bombay Oxygen Corporation Limited (“Bombay Oxygen”), a publiclytraded company in India, in 1997 for a total of €12.2 million. It acquired thisinterest through the purchase of shares from Bombay Oxygen’s major shareholder,and purchased additional shares by way of a public offer. The shares in BombayOxygen held by Messer Griesheim were transferred in 2000 to a company jointlyowned by Messer Griesheim and indirectly Goyal MG Gases Pvt. Ltd (“Goyal MG”).The Securities and Exchange Board of India is investigating whether some of thepurchases of Bombay Oxygen shares by Messer Griesheim or the subsequenttransfer of such shares to the jointly owned company involved a violation withrespect to a change of control under Indian takeover regulations. In addition,Messer Griesheim was involved in litigation with respect to this investmentwith the major shareholder of Bombay Oxygen. During December 2002, all suchlitigation with the major shareholder of Bombay Oxygen was settled and MesserGriesheim no longer holds any investment in Bombay Oxygen.

 

Various law suits are pending orthreatened by Goyal MG. Messer Griesheim has received a notice from Goyal MGalleging that Messer Griesheim has breached a confidentiality clause containedin a shareholders’ agreement among Messer Griesheim, Goyal MG and certain othershareholders. The notice requests payment of Rupees 5.0 billion (approximately€100.1 million) for damages allegedly suffered on account of lost business dueto certain press announcements by Messer which allegedly prejudicially affectedthe business of Goyal MG.

 

During 2001, Goyal MG defaulted on a bankloan. As a result, Messer****Griesheim, as guarantor, was required torepay the US$4.7 million (approximately €4.5 million) loan in full. Messer****Griesheimis currently seeking reimbursement 

 

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from Goyal MG for this amount.

 

In 1999, our Brazilian subsidiary, MesserGriesheim do Brazil Ltda., entered into a letter of agreement to pursueresearch into a new technique for the production of ethanol with an individual,who in April 2001, following a termination of the agreement, filed a suitagainst Messer Griesheim do Brazil Ltda. and certain other affiliates. Theclaim, mainly for damages for lost opportunities and potential earnings as aresult of the subsidiary’s alleged breach of the agreement, is for an amount ofReals 593 million (approximately €159.8 million). In addition, in August 2001 aformer employee filed a lawsuit against our Brazilian subsidiary for an amountof €4.3 million. In connection with the disposal of this Brazilian subsidiary,we agreed to indemnify the buyer for any loss relating to these claims.

 

Messer Griesheim has received a notice fromNLP, a South American agent/service provider for corporate acquisitionstransactions, alleging that Messer Griesheim has yet not paid a fee for theprocurement of potential investors for two subsidiaries of Messer Griesheim.

 

In 2001, the Group’s subsidiaryPT Aneka in Indonesia entered into an agreement for the purchase of machineryand equipment. In November 2001, the agreement partner filed suit against thesubsidiary due to the alleged unlawful termination of the contract by PT Aneka.The claim, mainly for damages for lost opportunities and potential earnings, isfor an amount of US$1.5 million.

 

In January 2003, Messer Griesheim hasreceived a claim for an amount of €4.1 million related to an alleged breach ofcontract concerning the sale of Messer Medical GmbH. Management is in theprocess of investigating the matter.

 

While there can be no assurance as to theultimate outcome of these matters due to the uncertainties involved in mattersof litigation, management believes that the outcome of all pending legalproceedings, either individually or in the aggregate, will not have a materialeffect on the Company’s consolidated financial position, results of operations,or cash flows.

 

**CertainActivities**

 

In August 1999, Messer Griesheim GmbHdiscovered that one of its executives, who then had senior managementresponsibility in Central and South America, had misappropriated corporatefunds, which he represented to others within Messer Griesheim had been paid tothird parties in connection with our business. This executive is no longer anemployee. In June 2000, Messer Griesheim was informed that the U.S. Attorney’sOffice for the Eastern District of Pennsylvania was conducting an investigationrelating to the conduct of this former executive. In April 2001, this formerexecutive was arrested on a criminal complaint charging him with three countsof fraud against Messer Griesheim Industries, our principal subsidiary in theUnited States. Thereafter, the employee pled guilty to wire fraud in connectionwith a scheme to defraud Messer Griesheim Industries of US$550,000 and wassentenced to a prison term of 15 months. In April 2002, the Assistant U.S. Attorneyhandling the matter notified our attorneys that the investigation was beingdropped by their office and referred to the U.S. Customs Agency for possiblecivil enforcement action. We are not aware of any action being pursued by theCustoms Agency. We can give no assurance as to the ultimate scope or outcome ofthe overall investigation. Under the business combination agreement enteredinto in connection with the acquisitions described above, Hoechst has agreed toindemnify us with respect to any losses arising out of such investigation ofany related proceedings, although this indemnity is generally limited totwo-thirds of the loss incurred.

 

In connection with the consummation of theacquisition transactions, we have been implementing new comprehensive internalcompliance procedures and controls designed to promote future compliance by uswith the United States Foreign Corrupt Practices Act, similar anti-corruptionlaws applicable to German companies, and other similar laws and regulatoryregimes of other countries. In the past, payments on our behalf were made tothird parties in connection with our business, including those made by theformer executive described above, as to which no assurance can be given thatviolations of applicable anti-corruption or other laws did not occur and all ofwhich would now be governed by the new compliance program. In general,applicable anti-corruption laws impose civil and criminal penalties andsanctions on the 

 

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payment of bribes or other improper payments to governmental officialsas a means of obtaining or retaining business. To whatever extent businessactivities or conduct by us or our employees in the past violated or may haveviolated applicable anti-corruption laws, there is a risk that we or ouremployees could be subject to a variety of sanctions, including civil orcriminal fines or penalties, tax assessments relating to improper businessexpenses, the loss of existing business relationships or the loss of futurebusiness opportunities. Under the business combination agreement, Hoechst hasagreed to indemnify us with respect to losses arising out of violations ofapplicable anti-corruption laws, although this indemnity is generally limitedto two-thirds of the loss incurred. We do not believe that our adherence toapplicable anti-corruption laws in the future should have an adverse impact onour ability to obtain or retain business in certain locations, or that theunindemnified portion of our losses from possible violations of applicableanti-corruption laws in the past, if any, is likely to be material to ourconsolidated financial position, results of operations or cash flows, but noassurances can be given in this regard.

 

**8.A.8 DIVIDEND POLICY**

 

Messer Griesheim currently intends to retainfuture earnings to finance operations and general corporate needs. MesserHolding and Messer Griesheim’s ability to declare or pay cash dividends, ifany, will be dependent upon the ability of its’ subsidiaries to declare and paydividends or otherwise transfer funds to Messer Griesheim Group. The SeniorFacilities Agreement and the indenture governing the senior notes of MesserHolding limit the ability of Messer Holding and Messer Griesheim to paydividends.

 

**8.B SIGNIFICANT CHANGES**

 

Except as set forth elsewhere in this Form20-F, no significant change has occurred since the date of our consolidatedfinancial statements as included in this Form 20-F.

 

**ITEM 9.**** THE OFFER AND LISTING**

 

**9.ALISTING DETAILS**

 

Not applicable.

 

**9.BPLAN OF DISTRIBUTION**

 

Not applicable.

 

**9.C MARKET**

 

The senior notes are listed on the LuxembourgStock Exchange. On December 15, 2001, the exchange offer was consummatedresulting in the exchange of all of the Rule 144A notes and all of theRegulation S notes (other than approximately €2.0 million inaggregate principal amount) for equivalent registered notes. The remainingRegulation S notes and registered notes trade on the Luxembourg StockExchange under the ISIN number XSO129586763 and Common Code 012958676 and theISIN number XSO136262275 and the Common Code 013626227, respectively.Additionally, the registered and Regulation S notes have been accepted forclearance through Euroclear and Clearstream.

 

**9.DSELLING SHAREHOLDERS**

 

Not applicable.

 

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**9.EDILUTION**

 

Not applicable.

 

**9.FEXPENSES OF THE ISSUE**

 

Not applicable.

 

**ITEM 10.****  ADDITIONAL INFORMATION**

 

**10.ASHARE CAPITAL**

 

Not applicable.

 

**10.BMEMORANDUM AND ARTICLES OFASSOCIATION**

 

Messer Holding is a joint stock company(Aktiengesellschaft) under German Law and is registered in the commercialregister of the local court (Amtsgericht Husum). The registered office is inNorderfriedrichskoog.

 

The objectives of the company, as set out inArticle 2 of the Articles of Association, are to own, manage and invest inenterprises dealing with the production and distribution of industrial gases inGermany and abroad. Messer Holding may engage in any transaction that directlyor indirectly relates to these objectives.

 

Messer Holding’s Articles of Association aresilent on the powers of directors in many areas of company governance includingan interested director’s voting power and power to vote compensation tothemselves, a director’s borrowing power, any age limitation or requirement orany share ownership qualifications for directors. In such instances, theirpowers are governed by German law.

 

Messer Holding has a two-tier managementstructure consisting of a management board (Vorstand) and a supervisory board(Aufsichtsrat). The management board is responsible for managing the businessaffairs of and representing Messer Holding. The management board is alsoresponsible for preparing the financial statements for review by thesupervisory board and the auditors. The management board consists of at leastthree members appointed and reviewed by the supervisory board. Currently, thereare four board members. Decisions require a majority vote.

 

The supervisory board consists of six memberswho are entitled to annual remuneration determined at the shareholders’meeting. Decisions of the supervisory board are taken by majority vote, unlessa super-majority vote is necessary according to German law. The chairman of thesupervisory board, who is elected by the members of the board, has a castingvote.

 

Messer Holding’s share capital amounts to€90,000 and has one class of shares. Voting rights of shareholders are governedby our shareholders’ agreement. See Item 7. “Major Shareholders and RelatedParty Transactions” 7.A “Major Shareholders” - “Shareholders’ Agreement”.

 

Any amendment to the Articles of Associationand any change in share capital must be approved by 75% of the shareholders.

 

Shareholders’ meetings are called by themanagement board by providing six weeks’ advance written notice. The annualshareholders’ meeting occurs within the first eight months of the fiscal year.The chairperson of the supervisory board or another supervisory board membernormally leads the meeting.

 

A quorum at the general shareholders’ meetingis established if at least 75% of total share capital is represented.Resolutions are adopted by the majority of votes cast unless a super-majorityis required by German law. Our articles of association contain no limits on theright to own securities. According to the requirements of German law, ashareholder has 

 

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to inform the company if such shareholder owns more than 25% of itsshares.

 

Please see Item 7 “Major Shareholders andRelated Party Transactions-7A Major Shareholders-Shareholder’s Agreement” for adescription of our shareholders’ agreement for other information relating toour corporate governance.

 

**10.CMATERIAL CONTRACTS**

 

We summarize below our material contracts.Our summary is necessarily incomplete and you may not find in it specificinformation that you might want to consider. Please refer to full copies ofthese agreements for all of their terms.

 

See also Item 7. “Major Shareholders andRelated Party Transactions” 7.B “Related Party Transactions” and Item 19.“Exhibits”.

 

**Contracts related tothe Senior Facilites Agreement**

 

*General*

 

On April 28, 2001, Messer Griesheim andcertain of its consolidated subsidiaries entered into a senior facilitiesagreement with Goldman Sachs International, Bayerische Hypo- und VereinsbankAG, J.P. Morgan Plc and The Royal Bank of Scotland Plc, as arrangers, GoldmanSachs International as global coordinator, J.P. Morgan Plc as agent andsecurity trustee, and others. The agreement permits borrowings by MesserGriesheim, by its principal U.S. subsidiary and by a finance subsidiary. Italso provides for the possibility of additional subsidiaries becoming directborrowers in the future. The amounts owed under the senior facilities areguaranteed by Messer Griesheim and by a number of its significant subsidiariesin Europe and the United States. The loans under the senior facilitiesagreement originally totalled €1.050 million and $540 million. Theterms of the different loans are summarized as of December 31, 2002 in thefollowing chart.

 

We are required under Messer Griesheim’ssenior facilities agreement to use the proceeds from our divestiture program torepay borrowings under the senior facilities, and the senior facilitiesagreement requires us to repay at least $198.6 million of borrowings (theentire senior term disposal facility) by April 2003. As of April 29, 2002, thesenior term disposal facility has been fully repaid. Separately, MesserGriesheim is required to ensure that the combination of the repayment of thesenior term disposal facility and the assumption of indebtedness by thirdparties in connection with divestments of assets will result in the reductionof the aggregate indebtedness, as of April 30, 2001, of Messer Griesheimand its consolidated subsidiaries by at least €255 million by April 30, 2003.As of December 31, 2002, the company has satisfied this obligation. Uponcompletion of the entire divestiture program, we expect that our divestitureswill permit us to reduce our consolidated debt reflected on the December 31,2000 balance sheet by approximately €400 million.

 
| **Description**                                   |   | **Interest  rate** |   | **Available  amount**     |   | **Amounts  outstanding**  |   | **Amortization**                                            |   | **Maturity  date(7)** |   |
|---------------------------------------------------|--------|--------------------|--------|---------------------------|--------|---------------------------|--------|-------------------------------------------------------------|--------|-----------------------|--------|
|                                              |   |               |   | **(in €  millions)** |   | **(in €  millions)** |   |                                                        |   |                  |   |
|                                              |   |               |   |                      |   |                      |   |                                                        |   |                  |   |
| €300 Million Senior Term A facility(4)(5)(6) |   | 5.35%              | (2)    | 237.1                     | (1)    | 237.1                     |   | 14  semi-annual installments beginning on December 20, 2001 |   | April 20, 2008        |   |
| €170 Million Senior Term B facility(4)       |   | 6.15%              | (2)    | 167.6                     |   | 167.6                     |   | 2  installments; October 30, 2008, and April 30, 2009       |   | April 30, 2009        |   |
| $124 Million Senior Term B facility(4)            |   | 4.58%(2            | (2)    | 117.9                     | (1)    | 117.9                     |   | 2  installments; October 30, 2008 and April 30, 2009        |   | April 30, 2009        |   |
| €115 Million Senior Term C facility(4)       |   | 6.65%              | (2)    | 52.4                      |   | 52.4                      |   | 2  installments; October 30, 2009 and April 30, 2009        |   | April 30, 2010        |   |
| $162 Million Senior Term C facility(4)(6)         |   | 4.99%              | (2)    | 154.7                     | (1)    | 154.7                     |   | 2  installments; October 30, 2009 and April 30, 2010        |   | April 30, 2010        |   |
| €260 Million Senior Revolving facility I     |   | —             |   | 260.0                     |   | —                    |   | None                                                        |   | March 31, 2008        |   |
| €50 Million Senior Revolving facility II     |   | —             |   | 34.0                      | (3)    | —                    |   | None                                                        |   | March 31, 2008        |   |

 

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(1)          U.S. Dollar (US-$) amounts under the facilityhave been converted into EURO at the rate of €1 = US-$ 1.0415, British Pound (GBP)amounts at the rate of €1 = GBP 0.6502, the exchange rates at December 31,2002.

(2)          Variable interest rates as of December 31,2002.

(3)          €16.0 million drawn as trade and commercialguarantees.

(4)          The senior term facilities (Tranches A, B andC) are non-revolving credit facilities, i.e. the available facilities arereduced by the amount of repayments.

(5)          Tranche A is a multicurrency facility.Interest rate is a weighted rate.

(6)          Interest rate is a weighted rate.

(7)          The Company is required to use 50% of theexcess cash flow, as defined under the senior facilities agreement; in anygiven year to repay the outstanding loans (see further information regardinglong-term debt, including a schedule of maturities, in Note 27 “Corporatedebt”).

 

*Prepayment*

 

*Voluntaryprepayment.* Messer Griesheim may prepay the term B or term C loans without penaltyif the prepayment occurs later than 24 months after April 30, 2001.If the prepayment occurs between 12 and 24 months after April 30,2001, Messer Griesheim must pay a premium of 1% of the prepaid amount. If theprepayment happens during the first 12 months following April 30,2001, Messer Griesheim must pay a premium of 2% of the prepaid amount. Thisprepayment premium does not apply to the term disposal loans, the term A loansor the revolving loans, which can be prepaid at any time without penalty.

 

*Mandatoryprepayment.* Messer Griesheim may be required to prepay the full amount of the loansunder certain circumstances. Those circumstances include:

 

•                                            the illegalityof the obligation of the lender caused, for example, by a change in law;

 

•                                            a change ofcontrol, which occurs if (a) the sponsors together cease to own at least50% of the shares of Messer Griesheim Group issued to the sponsors, and held bythem or other financial investors, (b) the sponsors individually cease to ownat least 15% of the total shares of Messer Griesheim Group, (c) a personowns more shares of Messer Griesheim Group than the sponsors do or (d) MesserGriesheim Group ceases to own 100% of the Messer Holding’s shares;

 

•                                            a sale ofsubstantially all of Messer Griesheim’s assets, the assets of Messer Holding,or those of Messer Griesheim Group; or

 

•                                            a listingon any securities exchange in any country of all or part of Messer Griesheim’sshares, the shares of the Messer Holding, or those of Messer Griesheim Group.

 

The same prepayment premiums that apply tovoluntary prepayments apply to the mandatory prepayments listed above, exceptfor mandatory prepayments due to illegality of the lenders’ obligation.

 

*Excess Cash Flow.*  Messer Griesheim must use 75% of its excesscash flow in any given year or 50% if the leverage ratio is less than 4 to1, to repay the outstanding loans. Excess cash flow includes MesserGriesheim’s consolidated profit from operations, but excludes capitalexpenditures and taxes.

 

*Asset divestitures.*  Messer Griesheim must use an amount equal to100% of certain net derivative proceeds in the senior facilities agreement torepay the outstanding loans. Under certain conditions, the above percentagewill be reduced to 75%. However, Messer Griesheim may instead reinvest certaindivestiture proceeds in comparable assets during the first year after thedivestiture. The net divestiture proceeds include the gross proceeds from the divestitureof an asset, less fees and taxes related to the divestiture, repayments of thedebt relating to the divested asset, and additional investments made afterApril 30, 2001, in the divested asset.

 

*Insurance Proceeds.*  If we, or any of our consolidatedsubsidiaries, receive more than €5 million in insurance proceeds, we mustuse an amount equal to those insurance proceeds to repay the outstanding loans.However, we may instead use the insurance proceeds to replace or repair thedamaged assets if we do so during the first six months after receiving theinsurance proceeds, or if we enter into binding commitments within that period,to do so within the first year.

 

*Acquisitionrecoveries.*  Ifwe, Messer Griesheim Group, its shareholders or any of our consolidatedsubsidiaries receive 

 

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payments exceeding €5 million from Hoechst AG in connection withthe acquisition transactions described above, we must use an amount equal tothese payments to remedy the problem in connection with which the payment wasmade during the first year after receiving such payments or to repay the loans.Payments of this kind do not include payments related to the call and putoptions described in the section Item 4. “Information on the Company” 4.A“History and Development of Messer Griesheim and Messer Holding” – “TheAcquisition of the Shares of Messer Griesheim” – “Call and Put Options”.

 

*Covenants*

 

The senior facilities agreement containscertain customary negative covenants that restrict Messer Griesheim, certain ofits subsidiaries and, in some cases, Messer Holding and Messer Griesheim Group(subject to certain agreed exceptions) from, among other things:

 

•                                            incurringadditional debt and having any financial debt, for example, borrowed money,issuances of securities or finance leases, in an amount greater than€2,250,000,000;

 

•                                            givingguarantees and indemnities;

 

•                                            makingloans to others;

 

•                                            creatingsecurity interests on their assets;

 

•                                            makingacquisitions and investments;

 

•                                            enteringinto and investing in joint ventures;

 

•                                            disposingof assets other than in the ordinary course of trading;

 

•                                            issuingshares;

 

•                                            makingpayments under or amending subordinated debt or equity documents; or

 

•                                            payingdividends or making payments to shareholders.

 

The senior facilities agreement also requiresus to maintain specified consolidated financial ratios, namely:

 

•                                            EBITDA (asdefined in the senior facilities agreement) to net cash interest;

 

•                                            totalsenior debt to EBITDA;

 

•                                            operatingcash flow to total debt service; and

 

•                                            total debtto EBITDA.

 

In addition, we are required to observeperiodic limits on capital expenditures.

 

Messer Griesheim is required to ensure thatthe combination of the repayment of the senior term disposal facility and theassumption of indebtedness by third parties in connection with divestments ofassets will result in the reduction of the aggregate indebtedness of MesserGriesheim and its consolidated subsidiaries by at least €255 million byApril 30, 2003.

 

Messer Griesheim has undertaken to ensurethat certain percentages of its subsidiaries and itself (calculated withreference to assets and EBITDA) provide guarantees and security, and have theirshares pledged, to support the senior 

 

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facilities and related hedging.

 

The senior facilities agreement also requiresMesser Griesheim and its Subsidiaries to, and Messer Griesheim has agreed thatMesser Holding in some cases will, observe certain customary covenants,including covenants relating to the following:

 

•                                            legalstatus;

 

•                                            insurance;

 

•                                            environmentalcompliance;

 

•                                            intellectualproperty;

 

•                                            pensions;

 

•                                            payment oftaxes;

 

•                                            notificationof defaults;

 

•                                            making ofclaims;

 

•                                            bankingarrangements;

 

•                                            guaranteesand security;

 

•                                            budgets;

 

•                                            financialreports; and

 

•                                            hedgingarrangements.

 

*Representations*

 

The senior facilities agreement also requiresMesser Griesheim to make a number of representations from time to time,including certain customary representations. If at any time theserepresentations are untrue, a default will occur unless the circumstancesgiving rise to the misrepresentation are remedied within 21 business days ofMesser Griesheim becoming aware of the misrepresentation.

 

*Events of Default*

 

The senior facilities agreement also containsdefault clauses. These clauses provide that, if Messer Griesheim or one of theother borrowers or guarantors default on the loans or if another specifieddefault occurs and the default is not cured in the appropriate period of time,the lenders could, for example, require that the loans be repaid in fullimmediately and/or enforce their security interests. Examples of defaultsinclude the following:

 

•                                            any failureto pay amounts when due;

 

•                                            any failureto meet the financial ratios we have undertaken to meet;

 

•                                            any failureto comply with our obligations under the covenants described above, except thatsome failures and all misrepresentations may be remedied within a grace periodof 21 business days;

 

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•                                            either weor certain of our subsidiaries become unable to pay debt as it falls due;

 

•                                            anyattachment of our assets or those of certain of our subsidiaries that exceeds atotal amount of €10 million and is not corrected within 60 days;

 

•                                            any failureto comply with the obligations assumed under the security documents, or thesecurity documents ceasing to be effective, including the pledge on MesserGriesheim’s capital stock in favor of the senior lenders;

 

•                                            anymisrepresentation made by Messer Griesheim or Messer Holding in any of thedocuments related to the senior facilities agreement, except thatmisrepresentations may be remedied within a grace period of 21 days;

 

•                                            any failureto comply with the obligations acquired under certain subordinated loanagreements that would materially affect the lenders under the senior facilitiesagreement;

 

•                                            theunlawfulness of the performance of any obligation under the documents relatedto the senior facilities agreement;

 

•                                            anyrepudiation of a document related to the senior facilities agreement or of thesecurity interests arising from it;

 

•                                            any changein circumstances, or any event, that would have a material adverse effect onMesser Griesheim Group’s or its subsidiaries’ business, on Messer Griesheim’sor any other borrower’s or guarantor’s ability to perform their obligationsunder the senior facilities agreement, or on the validity or enforceability ofthat agreement or any of the documents related to it;

 

•                                            any eventof default under the senior notes; and

 

•                                            either weor certain of our subsidiaries become subject to insolvency proceedings or filefor bankruptcy protection.

 

*Cross Default.*  If certain of our subsidiaries default undertheir financial arrangements, Messer Griesheim would also be in default underthe senior facilities agreement. In particular, Messer Griesheim would be indefault under the senior facilities agreement if

 

•                                            any one ofthose subsidiaries failed to pay its financial indebtedness when due;

 

•                                            thefinancial indebtedness of any one of those subsidiaries is accelerated orcancelled as a result of a default; or

 

•                                            anycreditor of any one of those subsidiaries becomes entitled to accelerate thesubsidiary’s financial indebtedness as a result of a default.

 

However, Messer Griesheim would not be indefault under the senior facilities agreement if the total financialindebtedness in default amounts to less than €10 million, or if theindebtedness in default is repaid in full within 10 days.

 

*SecurityArrangements*

 

*Security Interests.*  Messer Holding has granted a first prioritypledge over its shares in Messer Griesheim to the lenders under the seniorfacilities agreement as security for Messer Griesheim’s obligations to them.Under the pledge, if Messer 

 

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Griesheim defaults on those obligations, the lenders will be entitledto sell Messer Holding’s shares in Messer Griesheim and to apply the proceedsto payment of any amounts Messer Griesheim owes under the senior facilitiesagreement. However, Messer Holding has the right to receive any remainingproceeds from the share sale.

 

*Guarantees.*  Under the senior facilities agreements, theguarantors agree to guarantee the punctual performance by each borrower of allof each borrower’s obligations, to pay any amounts that the borrowers fail topay, and to indemnify each lender for any costs resulting from the invalidityor unenforceability of the borrowers’ obligations. The guarantee survives forso long as the loans under the senior facilities agreement are outstanding. Ifa payment is avoided or reduced because of insolvency proceedings, theguarantors agree to pay the difference resulting from avoidance or reduction.The guarantors waive any defenses they may have against the lenders, and anyright to require the lenders to first proceed against the borrowers. Inaddition, the guarantors waive any rights they may have to proceed against theborrowers for indemnification, contribution or subrogation. Some of theguarantees are subject to limitations on the amount recoverable under them.

 

*Amendments.*  In December 2002 and February 2003, weamended the senior facilities agreement. These amendments provide us with morefavourable terms with respect to our required level of interest hedging, accessto an ancillary facility of €50 million for overdrafts, an increase in ourability to incur debt in the form of local facilities and a decrease in ourability to incur debt in the form of capital lease. As a result of theseamendments to the senior facilities agreement, the group is no longer permittedto repurchase senior notes in the future. Please refer to a copy of theamendments to our senior credit facilities which are filed as exhibits to thisreport for the complete terms and full description thereof.

 

**Contracts Related toour Senior Notes**

 

**Indenture**

 

The following summary of the indenture datedMay 16, 2001 between Messer Holding and The Bank of New York, as trustee(the “Indenture”) in respect of Messer Holding’s €550 million 10.375%senior notes due 2011 does not purport to be complete and is qualified in itsentirety by reference to the indenture dated as of May 16, 2001 and theother documents entered into in connection with them. The Indenture and otherdocuments are exhibits hereto. See Item 19. “Exhibits”. The senior notes matureon June 1, 2011, with interest payments due June 1 andDecember 1 as required by the Indenture. The senior notes are senior debtof Messer Holding. Messer Holding loaned the proceeds of the offering of thesenior notes pursuant to a subordinated intercompany loan to Messer Griesheim.The intercompany loan also is effectively subordinated to all other existingand future debt of Messer Griesheim and its subsidiaries. The intercompany loanis further described below.

 

The Indenture provides that prior toJune 1, 2006, Messer Holding may redeem all but not part of the seniornotes by paying a make-whole premium based on the German Bund rate. On andafter June 1, 2006, Messer Holding may redeem some or all of the seniornotes at any time at the following redemption prices (expressed as percentagesof the principal amount) if redeemed during the twelve month period commencingon June 1 of the year set forth below.

 
| **Year**                    |   | **Percentage** |   |
|-----------------------------|--------|----------------|--------|
|                        |   |           |   |
| June 1, 2006                |   | 105.188        | %      |
| June 1, 2007                |   | 103.458        | %      |
| June 1, 2008                |   | 101.729        | %      |
| June 1, 2009 and thereafter |   | 100.000        | %      |

 

In addition, prior to June 1, 2004,Messer Holding may redeem up to 35% of the senior notes with the proceeds ofone or more public equity offerings of Messer Griesheim Group at a redemptionprice equal to 110.375% of the principal amount of the senior notes redeemed.

 

Holders of the senior notes may require us topurchase all or part of their senior notes at a purchase price in cash 

 

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equal to 101% of the principal amount of the senior notes purchased,plus accrued interest and any other amounts then due and which will become dueas a result of the repurchase or otherwise, upon a change of control of ourcompany, as defined in the Indenture. If an Asset Sale occurs, as defined inthe Indenture, we may be required to make an offer to purchase all or some ofthe outstanding senior notes at a price of 100% of the principal amount thereofplus accrued interest and any other amounts then due and which will become dueas a result of the repurchase or otherwise.

 

The Indenture contains restrictions withrespect to, among other things, the payment of dividends, the repurchase ofshares and the making of certain payments, the incurrence of certain additionalindebtedness, the creation of certain liens, certain asset sales, transactionswith affiliates and mergers and consolidations.

 

As required under the Indenture, we enteredinto registration rights agreement together with the issuance of the seniornotes. Pursuant to the registration rights agreement, on August 15, 2001we confidentially submitted a registration statement with the SEC, which wassubsequently filed publicly on November 18, 2001 to enable seniornoteholders to exchange the privately placed senior notes for publicly registeredsenior notes with identical terms. Although we agreed under the registrationrights agreement to use our best efforts to have the registration statementdeclared effective by November 12, 2001 and to consummate the exchangeoffer by December 12, 2001, such registration statement was not declaredeffective until November 14, 2001. Our failure to meet certain timelyregistration and exchange offer milestones obligated us to pay liquidateddamages to the holders of the senior notes.

 

From September until October 2002, MesserGriesheim made open market purchases in aggregate principal amount of €56.3million senior notes at an average price of 102.9%. The purchased senior noteshave been deducted from the outstanding amount of €550 million. In connectionwith the purchase, unamortized financing costs of €4.0 million, fees and tenderpremium of €2.2 million were expensed and are classified as other financialexpense for the twelve months ended December 31, 2002. Pursuant to amendmentsto the senior facilities agreement executed in February 2003, a copy of whichis filed as an exhibit to this report, we are prohibited from making any moresuch purchases of senior notes in the future.

 

**The Intercompany Loan**

 

On May 16, 2001 Messer Holding loaned toMesser Griesheim the gross proceeds from the original offering of senior notes.The intercompany loan, which is the same as the principal amount of the seniornotes, is due at the same time as the principal of the senior notes is due.Interest on the loan is due within five days before interest on the seniornotes is due. The interest rate is fixed so that interest is due in the sameamounts as interest on the senior notes. However, the interest rate will beadapted in case additional amounts or special interest become necessary underthe senior notes.

 

Messer Griesheim has also agreed to indemnifyMesser Holding with respect to any reasonable payments Messer Holding needs tomake with respect to the orginal offering of senior notes. Specifically, MesserGriesheim will indemnify Messer Holding for audit and legal fees, andadministrative and management fees. Messer Griesheim will also indemnify MesserHolding for its costs under the registration rights agreement, the purchaseagreement, the indenture and the paying agency agreement.

 

The intercompany loan is subordinated to thesenior facilities as described below.

 

***Loans from related parties***

 

In October 2002 Messer Griesheim received aloan from its shareholder Messer Griesheim Group amounting to €33.0 million.During October 18, 2002 to December 31, 2002 the interest expense amounted to€335,000. The loan bears a fixed interest rate of 5.0% per annum and has amaturity of five years. Interest is payable on the loan at such time as theprincipal amount is due and payable. The principal amount is due on the earlierof (i) the maturity of the loan or (ii) the date following three months aftereither Messer Griesheim or Messer Griesheim Group declares the termination ofthe loan.

 

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**The SubordinationAgreement**

 

Messer Griesheim’s obligation to makepayments to Messer Holding under the intercompany loan is subordinated,pursuant to a subordination agreement dated May 16, 2001, to itsobligations to the lenders under the senior facilities agreement. Thesubordination applies even in case of insolvency proceedings relating to MesserGriesheim.

 

Under this subordination agreement, MesserGriesheim is permitted to make interest payments to Messer Holding under theintercompany loan corresponding to Messer Holding’s obligations to makescheduled interest payments on the senior notes. Payment of the principalamount of the intercompany loan on the maturity date of the senior notes isalso permitted. However, if Messer Griesheim is in default with respect to anypayments of principal or interest under the senior facilities or with respectto other payments in excess of €1 million under the senior facilities,then Messer Griesheim will not be permitted to make payments under theintercompany loan to Messer Holding for as long as such payment default underthe senior facilities continues.

 

For any other type of default under thesenior facilities, the lenders under the senior facilities agreement couldprohibit Messer Griesheim from making payments under the intercompany loan fora blockage period. This blockage period begins when a notice from an agent forthe senior lenders is given to Messer Griesheim specifying that no payments maybe made under the intercompany loan as a result of such a default under thesenior facilities. This blockage period will only last while such default iscontinuing and will last for no longer than 179 days from the date suchnotice is served. Not more than one such blockage notice can be given in anyperiod of 365 days, and no default that existed when a blockage notice wasgiven can be the basis of a subsequent blockage notice.

 

Pursuant to the subordination agreement,Messer Holding has agreed generally not to enforce its rights to receivepayment under the intercompany loan. More specifically, Messer Holding hasagreed not to terminate or accelerate the intercompany loan, not to demandpayments on the intercompany loan, and not to commence proceedings in respectof the intercompany loan, including attachment, execution or insolvencyproceedings.

 

However, Messer Holding may enforce itsrights to receive payment under the intercompany loan if there is a paymentdefault under the notes and the standstill period in respect of that defaulthas expired. A standstill period in respect of a note payment default begins onthe date such payment default under the notes occurs and ends on the earlier ofthe expiry of 120 days from the date the senior lenders have been notifiedthat such payment default on the notes has occurred, and the date on which an“insolvency event” occurs. An insolvency event means:

 

(a)                                  the appointment of aninsolvency administrator in respect of Messer Griesheim or any of its assets;

 

(b)                                 the shareholders ofMesser Griesheim pass a resolution for its dissolution, liquidation or windingup; or

 

(c)                                  Messer Griesheimcommences negotiations with its third-party creditors with a view torescheduling or restructuring its indebtedness *vis-à-vis*such third partycreditors (in whole or in part) by reason of its inability to meet payments ofall such indebtedness on its due date for payment.

 

Notwithstanding Messer Holding’s rights toenforce payment after the standstill period, if a default with respect topayments under the senior facilities or a non-payment blockage period withrespect to other types of defaults under the senior facilities, as describedabove, is continuing, the prohibition on payments to the issuer under theintercompany loan will continue to apply.

 

Finally, Messer Holding has irrevocablywaived all of its rights and claims against Messer Griesheim, including rightsto payment of principal and interest, under the intercompany loan if thefollowing suspensive conditions occur:

 

•                                            the receiptof a notice by Messer Holding from the security trustee for the senior lendersconfirming that the 

 

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shares in Messer Griesheim which are subject to the pledge over suchshares in favor of the senior lenders have been sold pursuant to an enforcementof such share pledge,

 

•                                            receipt bythe security trustee on behalf of the senior lenders of payment of the purchaseprice owing from the purchaser of such shares in Messer Griesheim and, to theextent the purchase price exceeds amounts owed under the senior facilities,receipt of such excess amount by Messer Holding or, following the enforcementby the trustee for the noteholders of its rights under the AssignmentAgreement, by the trustee for the noteholders, and

 

•                                            the writtenexplicit and irrevocable release by the senior lenders of any and all amountsowed under the senior facilities that remain outstanding following the applicationof proceeds from such sale of such shares in Messer Griesheim towardsatisfaction of amounts owed under the senior facilities.

 

Except under the assignment agreementdescribed below, Messer Holding has agreed that Messer Holding will not pledgeor otherwise transfer its rights under the intercompany loan. Messer Holdinghas also agreed that Messer Holding will not set off any amounts that it mayowe Messer Griesheim against amounts Messer Griesheim fails to pay MesserHolding under the intercompany loan.

 

**The AssignmentAgreement**

 

Pursuant to an assignment agreement enteredinto on May 16, 2001, Messer Holding has assigned to the trustee for thesenior noteholders Messer Holding’s rights to receive the proceeds of paymentsunder the intercompany loan. If Messer Holding defaults on the senior notes,the trustee has the right to receive the intercompany loan payment directlyfrom Messer Griesheim. As owner of the Messer Griesheim shares, Messer Holdinghas also assigned to the trustee its rights to receive the excess proceeds froma sale of those shares, in the event of an enforcement of the pledge of thoseshares given to the senior lenders, to the extent the proceeds from the saleare not required to discharge the obligations secured by the pledge.

 

As long as Messer Holding has not defaultedon payments due on the senior notes, Messer Holding is permitted to receivesuch excess proceeds. However, if a payment default on the senior notes occurs,the trustee for the senior noteholders has the right to require that anyproceeds under the intercompany loan be paid directly from Messer Griesheim tothe trustee and, if a sale of the Messer Griesheim shares has occurred pursuantto an enforcement of the pledge, to require that the excess proceeds from suchsale be paid directly to the trustee by the security trustee enforcing theshare pledge.

 

The rights of the trustee for the seniornoteholders under the assignment agreement only relate to the proceeds payableby Messer Holding under the intercompany loan and proceeds from a sale of theMesser Griesheim shares. Such rights do not entitle the trustee for the seniornoteholders otherwise to exercise rights or remedies or take enforcement actionagainst Messer Griesheim.

 

**10.DEXCHANGE CONTROLS**

 

There are, except in limited embargocircumstances pursuant to resolutions adopted by the United Nations or theEuropean Union, no governmental laws, decrees, regulations or other legislationof Germany that may affect the import or export of capital, the remittance ofdividends, interest or other payments to non-resident holders of oursecurities.

 

Neither German Law nor the Articles ofAssociation of Messer Holding impose any limitations on the rights ofNon-resident or foreign owners to hold or vote Messer Holding shares.

 

**10.ETAXATION**

 

Not applicable.

 

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**10.FDIVIDENDS AND PAYING AGENTS**

 

Not applicable.

 

**10.GSTATEMENT BY EXPERTS**

 

Not applicable.

 

**10.HDOCUMENTS ON DISPLAY**

 

We are subject to certain of theinformational requirements of the Securities Exchange Act of 1934. We, as a“foreign private issuer”, are not required to file annual, quarterly andcurrent reports and financial statements with the Securities and ExchangeCommission as frequently or as promptly as U.S. companies whose securities areregistered under the Securities Exchange Act. However, pursuant to theindentures governing the senior notes, within 120 days after the end ofeach fiscal year we will provide the trustees and the holders of the senior notesan annual report on Form 20-F containing financial statements audited byan independent accounting firm. We will also be required to furnish to thetrustee and the holders of the senior notes quarterly reports on Form 6-Kcontaining unaudited interim financial information after the end of each of thefirst three quarters. You may also find a copy of our code of ethics forspecified senior executives and other employees listed on our website atwww.messer.de.

 

**10.ISUBSIDIARY INFORMATION**

 

Not applicable.

 

**ITEM 11. ****QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK**

 

***InterestRate Risk Management***

 

We are exposed to interest rate risk mainlythrough our debt instruments. We manage interest rate risk on a group-widebasis with a combination of fixed and floating rate instruments. We haveentered into interest rate swap agreements that effectively convert a majorportion of our floating rate indebtedness to a fixed rate basis for the nexttwo years, thus reducing the impact of interest rate changes on future interestexpense.

 

***ForeignExchange Risk Management***

 

We also are exposed to foreign currencyexchange risk related to foreign currency denominated assets and liabilitiesincluding debt service payments denominated in foreign currencies. We manageforeign currency exchange risk on a group-wide basis using exchange forwardcontracts. Our current policy with respect to limiting foreign currencyexposure is to economically hedge foreign currency exposures when appropriate.

 

The table below provides information aboutour significant derivative financial instruments that are sensitive to changesin interest and foreign currency exchange rates as of December 31, 2002. Thetable presents the notional amounts and the weighted average contractualforeign exchange rates. The terms of our cross-currency exchange forwardcontracts generally do not exceed one year. At December 31, 2002, our interestrate swaps had remaining terms of two years.

 

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**DerivativeFinancial Instruments**

 
|                                      |   | **Contract  notional  amount**                                       |   | **Contractual  rates** |   | **Fair value  December 31,  2002** |   |
|-------------------------------------------|--------|----------------------------------------------------------------------|--------|------------------------|--------|------------------------------------|--------|
|                                      |   | **(€  equivalent in thousands,  except for contractual rates)** |   |
| **Interest rate cap contracts**           |   |                                                                 |   |                   |   |                               |   |
| EUR                                       |   | 25,565                                                               |   | 5.50000                | %      | 3                                  | (1)    |
| **Interest rate swap contracts**          |   |                                                                 |   |                   |   |                               |   |
| Euro                                      |   | 84,788                                                               |   | 4.45500                | %      | (2,234                             | )      |
| Euro                                      |   | 220,000                                                              |   | 4.69500                | %      | (6,645                             | )      |
| Euro                                      |   | 52,250                                                               |   | 4.73000                | %      | (1,610                             | )      |
| U.S. dollar                               |   | 248,843                                                              |   | 5.00000                | %      | (12,608                            | )      |
| Euro                                      |   | 42,750                                                               |   | 4.65250                | %      | (1,260                             | )      |
| **Interest Rates Forward Swap Contracts** |   |                                                                 |   |                   |   |                               |   |
| Euro                                      |   | 170,000                                                              |   | 4.84500                | %      | (1,276                             | )      |
| Euro                                      |   | 32,625                                                               |   | 4.21000                | %      | (121                               | )      |
| USD                                       |   | 225,000                                                              |   | 5.18500                | %      | (2,507                             | )      |

 
|                                    |   |   |   | **Forward****exchange  rate** |   |   |   |
|-----------------------------------------|--------|--------|--------|-------------------------------|--------|--------|--------|
| **Foreign currency forward contracts:** |   |   |   |                          |   |   |   |
| British pounds sterling/U.S. dollar     |   | 855    |   | 1.59447                       |   | 8      | (1)    |

 

----

(1) Freestanding Derivatives.

 

***CommodityPrice Risk***

 

We are exposed to commodity price risksthrough our dependence on various raw materials, such as chemical and energyprices. We seek to minimize these risks through our sourcing policies,operating procedures and pass-through clauses in our product pricingagreements. We currently do not utilize derivative financial instruments tomanage any exposure to fluctuations in commodity prices.

 

***RiskIdentification and Analysis***

 

The identification and analysis of risksrelating to our operations is conducted through the application of anenterprise-wide risk management system, encompassing all of our activitiesworldwide. The goal of this risk management system is to foster a group-wideculture of risk management using a common set of objectives and standards inthe measurement and treatment of risk. As with any risk management system, theresults are based on individual assessments that may be subject to error. Thereis no guarantee that this system will consistently identify all of theimportant risks or provide an adequate assessment of their potential impact.

 

We are exposed to market risk through ourcommercial and financial operations as described above. We are implementing apolicy of economic hedging against some of these exposures at present, but wemay still incur losses as a result of changes in currency exchange rates, interestrates and commodity risk. We do not purchase or sell derivative financialinstruments for trading purposes.

 

***Comparisonof 2000, April 30 and December 31, 2001 and December 31, 2002***

 

As of December 31, 2000, April 30, 2001,December 31, 2001 and December 31, 2002 the notional value of foreigncurrency forward contracts was €6.7 million, €9.4 million, €32.6 millionand €0.9 million, respectively.

 

The decrease in 2002 is mainly occurred torepayment of a covered Intercompany USD-loan.

 

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

 

Not applicable.

 

**PART II**

 

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

 

None.

 

**ITEM 14.****  MATERIAL MODIFICATIONS TO THE RIGHTS OFSECURITY HOLDERS AND USE OF PROCEEDS**

 

Not applicable.

 

**ITEM 15.**** CONTROLS AND PROCEDURES**

 

Messer Holding AG has performed an evaluationof the effectiveness of the design and operation of our disclosure controls andprocedures within 90 days prior to the date of this report. Disclosure controlsand procedures are designed to ensure that the material financial andnon-financial information (as defined in US Exchange Act rule 13a-14(c))required to be disclosed in Form 20-F and filed with the Securities andExchange Commission is recorded, processed, summarized and reported timely. Theevaluation was performed with the participation of our key corporate seniormanagement, senior management of each business group, and under the supervisionof our Chief Executive Officer (CEO), Dr. Klaus Jürgen Schmieder, and our ChiefFinancial Officer (CFO), Mr. Harald Pinger. In designing and evaluating thedisclosure controls and procedures, management recognized that any controls andprocedures, no matter how well designed and operated, can provide onlyreasonable, rather than absolute, assurance of achieving the desired controlobjectives, and management necessarily was required to apply its judgement inevaluating the cost-benefit relationship of possible controls and procedures. Basedon the foregoing, the Company’s management, including the CEO and CFO,concluded that Messers’ disclosure controls and procedures were effective toensure that information required to be disclosed in the report is recorded,processed, summarized and reported on a timely basis. There have been nosignificant changes in the Company’s internal controls or in other factors thatcould significantly affect internal controls subsequent to the date of theevaluation. No significant deficiencies and material weaknesses were identifiedthat required corrective actions.

 

**ITEM 16. RESERVED**

**PART III**

 

**ITEM 17.****  FINANCIAL STATEMENTS**

 

Not applicable.

 

**ITEM 18.**** FINANCIAL STATEMENTS**

 

The following financial statements are filedas part of this Form 20-F.

 
|                                                                                                                                                                                                                                                                                 |   | **Page** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|
| **Index to financial statements**                                                                                                                                                                                                                                                    |   | F-1      |
| **Messer Griesheim Holding AG**                                                                                                                                                                                                                                                      |   |     |
| Independent Auditors’  Reports                                                                                                                                                                                                                                                  |   | F-3      |
| Consolidated  Statements of Operations for the twelve months ended December 31, 2002, the  eight months ended December 31, 2001, the four months ended April 30,  2001 (predecessor) and for the twelve months ended December 31, 2000  (predecessor)                      |   | F-4      |
| Consolidated Balance Sheets  as of December 31, 2002 and as of December 31, 2001                                                                                                                                                                                                     |   | F-5      |
| Consolidated  Statements of Changes in Stockholders’ Equity for the twelve months ended  December 31, 2002, the eight months ended December 31, 2001, the four  months ended April 30, 2001 (predecessor) and for the twelve months ended  December 31, 2000 (predecessor) |   | F-6      |
| Consolidated Cash  Flow Statements for the twelve months ended December 31, 2002, the eight months  ended December 31, 2001, the four months ended April 30, 2001  (predecessor) and for the twelve months ended December 31, 2000  (predecessor)                          |   | F-7      |

 

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| Notes to  the Consolidated Financial Statements                                                                                                          |   | F-8    |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|                                                                                                                                                     |   |   |
| **Singapore Syngas Pte Ltd.**                                                                                                                            |   |   |
| Statement of Operations for the ten months  ended October 31, 2002 and the twelve months ended December 31, 2001  (unaudited)                       |   | F-67   |
| Balance Sheet as of October 31, 2002 and as  of December 31, 2001 (unaudited)                                                                       |   | F-68   |
| Statement of Changes in Stockholders’  Equity for the ten months ended October 31, 2002 and twelve months ended December 31,  2001 (unaudited) |   | F-69   |
| Cash Flow Statement for the ten months  ended October 31, 2002 and the twelve months ended December 31, 2001  (unaudited)                           |   | F-70   |
| Notes to the Financial Statements (unaudited)                                                                                                            |   | F-71   |
|                                                                                                                                                     |   |   |
| Independent Auditors’ Report                                                                                                                        |   | F-86   |
| Statements of Operations for the twelve  months ended December 31, 2000, 1999 and 1998                                                              |   | F-87   |
| Balance  Sheets as of December 31, 2000 and 1999                                                                                                    |   | F-88   |
| Statements of Changes in Stockholders’  Equity for the twelve months ended December 31, 2000, 1999 and 1998                                    |   | F-89   |
| Cash Flow Statements for the twelve months  ended December 31, 2000, 1999 and 1998                                                                  |   | F-90   |
| Notes to the Financial Statements                                                                                                                        |   | F-91   |

 

**ITEM 19.**** EXHIBITS**

 
| 1.1  |   | Purchase Agreement between Messer Griesheim Holding AG and Goldman  Sachs International, dated as of May 11, 2001.*                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1  |   | Business Combination Agreement among Messer Industriegesellschaft  mbH, Messer Griesheim GmbH, Cornelia Verwaltungsgesellschaft mbH, Hoechst  Aktiengesellschaft and Diogenes Zwanzigste Vermögensverwaltungs GmbH, dated  as of December 30/31, 2000.*                                                                                                                                                                                                                                                                                           |
| 2.2  |   | Amendment of the Business Combination Agreement among Messer  Industriegesellschaft mbH, Messer Griesheim GmbH, Cornelia  Verwaltungsgesellschaft mbH, Hoechst Aktiengesellschaft and Diogenes  Zwanzigste Vermögensverwaltungs GmbH, dated as of April 27, 2001.*                                                                                                                                                                                                                                                                                |
| 3.1  |   | Articles of Incorporation of Messer Griesheim Holding AG, as amended  (Satzung) (English translation).**                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.1  |   | Indenture between Messer Griesheim Holding AG and The Bank of New  York, dated as of May 16, 2001.*                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.2  |   | Form of 10.375% Senior Notes due 2011 (included as part of Exhibit  4.1).*                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.3  |   | Exchange and Registration Rights Agreement between Messer Griesheim  Holding AG and Goldman Sachs International, dated as of May 16, 2001.*                                                                                                                                                                                                                                                                                                                                                                                                            |
| 5.1  |   | Opinion of Milbank, Tweed, Hadley & McCloy LLP as to legality of  the securities being registered hereby.*                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 5.2  |   | Opinion of Hengeler Mueller as to certain matters under German law.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 8.1  |   | Opinion of Milbank, Tweed, Hadley & McCloy LLP as to certain U.S.  Federal income tax matters.*                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.1 |   | Shareholders’ Agreement among Messer Industrie GmbH, Allianz Capital  Partners GmbH; GS Capital Partners 2000, L.P.; GS Capital Partners 2000  Employee Fund, L.P.; GS Capital Partners 2000 Offshore, L.P.; GS Capital  Partners 2000 GmbH & Co.; Stone Street Fund 2000, L.P. and Bridge Street  Special Opportunities Fund 2000, L.P.; dated as of December 31, 2000 and  amended on April 27, 2001 (consolidated English translation).*                                                                                                   |
| 10.2 |   | Agreement Between Financial Investors among GS Capital Partners 2000,  L.P.; GS Capital Partners 2000 Employee Fund, L.P.; GS Capital Partners 2000  Offshore, L.P., GS Capital Partners 2000 GmbH & Co.; Stone Street Fund  2000, L.P.; Bridge Street Special Opportunities Fund 2000, L.P. and Allianz  Capital Partners GmbH; dated as of April 27, 2001.*                                                                                                                                                                                      |
| 10.3 |   | Senior Facilities Agreement among Cornelia Verwaltungsgesellschaft  mbH, Goldman Sachs International (as global co-ordinator and joint lead  arranger), Bayerische Hypo-und Vereinsbank AG, J.P. Morgan PLC and The Royal  Bank of Scotland, dated as of April 28, 2001, as amended to reflect amendments  made on May 16, 2001, June 14, 2001, January 17, 2002,  December 23, 2002 and February 11, 2003.***                                                                                                                |
| 10.4 |   | Intercreditor Deed among Chase Manhattan International Limited (as  security trustee and senior agent), Goldman Sachs International (as global  co-ordinator, senior arranger and mezzanine arranger), Bayerische Hypo-und  Vereinsbank AG (as senior arranger and mezzanine arranger), J.P. Morgan PLC,  The Royal Bank of Scotland PLC (as senior arranger and mezzanine arranger),  Hypovereinsbank Luxembourg Société Anonyme, the senior lenders named therein,  the mezzanine lenders named therein and others, dated April 28, 2001.* |
| 10.5 |   | High Yield Proceeds Loan Agreement between Messer Griesheim Holding  AG and Messer Griesheim GmbH, dated as of May 16, 2001.*                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.6 |   | High Yield Subordination Agreement between Messer Griesheim Holding  AG and Messer Griesheim GmbH, dated as of May 16, 2001.*                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.7 |   | Assignment Agreement between Messer Griesheim Holding AG and The Bank  of New York, dated as of May 2001.*                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 12.1 |   | Statement of the Computation of Ratio of Earnings to Fixed Charges.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 21.1 |   | List of Subsidiaries.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 23.1 |   | Consent of Milbank, Tweed, Hadley & McCloy LLP (included in  Exhibit 5.1).*                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 23.2 |   | Consent of Hengeler Mueller (included in Exhibit 5.2).*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 23.3 |   | Consent of KPMG Deutsche  Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft with  respect to Messer Griesheim GmbH                                                                                                                                                                                                                                                                                                                                                                                                         |

 

89

----

 
|   |   | and Messer Griesheim Holding  AG.**                                                                                                             |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------|
| 23.4   |   | Consent of PwC Deutsche Revision  Aktiengesellschaft Wirtschaftsprüfungsgesellschaft with respect to Messer  Griesheim GmbH.*              |
| 23.5   |   | Consent of PricewaterhouseCoopers with respect to Singapore Syngas  Pte Ltd.***                                                                 |
| 24.1   |   | Powers of Attorney (included on signature page to registration statement).*                                                                     |
| 25.1   |   | Form T-1 Statement of Eligibility of Trustee.*                                                                                                  |
| 99.1   |   | Form of Letter of Transmittal.*                                                                                                                 |
| 99.2   |   | Exchange Agent Agreement between Messer Griesheim Holding AG and The  Bank of New York.*                                                        |
| 99.3   |   | Certification of Periodic Financial Reports by Klaus-Jürgen Schmieder  in satisfaction of Section 906 of the Sarbanes-Oxley Act of 2002.** |
| 99.4   |   | Certification of Periodic Financial Reports by Harald Pinger in  satisfaction of Section 906 of the Sarbanes-Oxley Act of 2002.**               |

 

----

*As filed on Form F-4 at November 8,2001.

**Filed herewith.

***Incorporated by referencefrom Registration Statement on Post-Effective Amendment No. 2 to Form F-4 onForm F-3 Registration Statement filed March 27, 2003.

 

90

----

 

**Signatures**

 

The registrant hereby certifies that it meets all of the requirementsfor filing on Form 20-F and that it has duly caused and authorized theundersigned to sign this Form 20-F on its behalf.

 
| Date March 27, 2003 |                        |                            |
|---------------------|-----------------------------|---------------------------------|
|                | MESSER GRIESHEIM HOLDING AG |
|                |                        |                            |
|                | By:                         | /s/ KLAUS-JÜRGEN SCHMIEDER |
|                |                        | Klaus-Jürgen Schmieder     |
|                |                        | *Chief Executive Officer*       |
|                |                        |                            |
|                | By:                         | /s/ HARALD PINGER               |
|                |                        | Harald Pinger                   |
|                |                        | *Chief Finance Officer*         |

 

 

91

----

 

 

**CHIEFEXECUTIVE OFFICER CERTIFICATION**

 

I, **Dr. Klaus Jürgen Schmieder**, certify that:

 

1. I have reviewed this annual report on Form 20-F of Messer GriesheimHolding AG;

 

2. Based on my knowledge, this annual report does not contain anyuntrue statement of a material fact or omit to state a material fact necessaryto make the statements made, in light of the circumstances under which suchstatements were made, not misleading with respect to the period covered by thisannual report;

 

3. Based on my knowledge, the financial statements, and other financialinformation included in this annual report, fairly present in all materialrespects the financial condition, results of operations and cash flows of theregistrant as of, and for, the periods presented in this annual report;

 

4. The registrant’s other certifying officer and I are responsible forestablishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-14 and 15d-14) for the registrant and have:

 

a) designed such disclosure controls and procedures to ensure thatmaterial information relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularlyduring the period in which this annual report is being prepared;

 

b) evaluated the effectiveness of the registrant’s disclosure controlsand procedures as of a date within 90 days prior to the filing date of thisannual report (the “Evaluation Date”); and

 

c) presented in this annual report our conclusions about theeffectiveness of the disclosure controls and procedures based on our evaluationas of the Evaluation Date;

 

5. The registrant’s other certifying officer and I have disclosed,based on our most recent evaluation, to the registrant’s auditors and the auditcommittee of registrant’s board of directors (or persons performing theequivalent function):

 

a) all significant deficiencies in the design or operation of internalcontrols which could adversely affect the registrant’s ability to record,process, summarize and report financial data and have identified for theregistrant’s auditors any material weaknesses in internal controls; and

 

b) any fraud, whether or not material, that involves management orother employees who have a significant role in the registrant’s internalcontrols; and

 

6. The registrant’s other certifying officer and I have indicated inthis annual report whether or not there were significant changes in internalcontrols or in other factors that could significantly affect internal controlssubsequent to the date of our most recent evaluation, including any correctiveactions with regard to significant deficiencies and material weaknesses.

 

 
| Date: 27 March, 2003 |
|----------------------|
|                 | MESSER GRIESHEIM HOLDING AG |
|                 |   |
|                 | By: | /s/ Klaus-Jürgen Schmieder |
|                 | Name: | Dr. Klaus-Jürgen Schmieder |
|                 | *Title:* | *Chief Executive Officer* |

 

92

----

 

**CHIEFFINANCIAL OFFICER CERTIFICATION**

 

I, **Mr. Harald Pinger**, certify that:

 

1. I have reviewed this annual report on Form 20-F of Messer GriesheimHolding AG;

 

2. Based on my knowledge, this annual report does not contain anyuntrue statement of a material fact or omit to state a material fact necessaryto make the statements made, in light of the circumstances under which suchstatements were made, not misleading with respect to the period covered by thisannual report;

 

3. Based on my knowledge, the financial statements, and other financialinformation included in this annual report, fairly present in all materialrespects the financial condition, results of operations and cash flows of theregistrant as of, and for, the periods presented in this annual report;

 

4. The registrant’s other certifying officer and I are responsible forestablishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-14 and 15d-14) for the registrant and have:

 

a) designed such disclosure controls and procedures to ensure thatmaterial information relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularlyduring the period in which this annual report is being prepared;

 

b) evaluated the effectiveness of the registrant’s disclosure controlsand procedures as of a date within 90 days prior to the filing date of thisannual report (the “Evaluation Date”); and

 

c) presented in this annual report our conclusions about theeffectiveness of the disclosure controls and procedures based on our evaluationas of the Evaluation Date;

 

5. The registrant’s other certifying officer and I have disclosed,based on our most recent evaluation, to the registrant’s auditors and the auditcommittee of registrant’s board of directors (or persons performing theequivalent function):

 

a) all significant deficiencies in the design or operation of internalcontrols which could adversely affect the registrant’s ability to record,process, summarize and report financial data and have identified for theregistrant’s auditors any material weaknesses in internal controls; and

 

b) any fraud, whether or not material, that involves management or otheremployees who have a significant role in the registrant’s internal controls;and

 

6. The registrant’s other certifying officer and I have indicated inthis annual report whether or not there were significant changes in internalcontrols or in other factors that could significantly affect internal controlssubsequent to the date of our most recent evaluation, including any correctiveactions with regard to significant deficiencies and material weaknesses.

 

 
| Date: 27 March, 2003 |
|----------------------|
|                 | MESSER GRIESHEIM HOLDING AG |
|                 |   |
|                 | By: | /s/ Harald Pinger |
|                 | Name: | Mr. Harald Pinger |
|                 | *Title:* | *Chief Financial  Officer* |

 

93

----

 

**INDEXTO FI****NANCIAL STATEMENTS**

 
|                                                                                                                                                                                                                                                                           |   | **Page** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|
|                                                                                                                                                                                                                                                                           |   |     |   |
| **Messer Griesheim Holding AG**                                                                                                                                                                                                                                                |   |     |   |
| Independent Auditors’ Reports                                                                                                                                                                                                                                             |   | F-3      |   |
| Consolidated Statements of Operations for  the twelve months ended December 31, 2002, the eight months ended December  31, 2001, the four months ended April 30, 2001 (predecessor) and for the  twelve months ended December 31, 2000 (predecessor)                           |   | F-4      |   |
| Consolidated Balance Sheets as of December 31, 2002 and as of  December 31, 2001                                                                                                                                                                                               |   | F-5      |   |
| Consolidated Statements of Changes in  Stockholders’ Equity for the twelve months ended December 31, 2002, the eight  months ended December 31, 2001, the four months ended April 30, 2001  (predecessor) and for the twelve months ended December 31, 2000 (predecessor) |   | F-6      |   |
| Consolidated Cash Flow Statements for the  twelve months ended December 31, 2002, the eight months ended December 31,  2001, the four months ended April 30, 2001 (predecessor) and for the twelve  months ended December 31, 2000 (predecessor)                               |   | F-7      |   |
| Notes to the Consolidated Financial  Statements                                                                                                                                                                                                                                |   | F-8      |   |
|                                                                                                                                                                                                                                                                           |   |     |   |
| **Singapore Syngas Pte Ltd.**                                                                                                                                                                                                                                                  |   |     |   |
| Statement of Operations for the ten months  ended October 31, 2002 (unaudited) and for the twelve months ended December  31, 2001 (unaudited)                                                                                                                                  |   | F-67     |   |
| Balance Sheet as of October 31, 2002  (unaudited) and as of December 31, 2001 (unaudited)                                                                                                                                                                                      |   | F-68     |   |
| Statement of Changes in Stockholders’  Equity for the ten months ended October 31, 2002 (unaudited) and for the  twelve months ended December 31, 2001 (unaudited)                                                                                                   |   | F-69     |   |
| Cash Flow Statement for the ten months  ended October 31, 2002 (unaudited) and for the twelve months ended  December 31,2001 (unaudited)                                                                                                                                  |   | F-70     |   |
| Notes to the Financial Statements  (unaudited)                                                                                                                                                                                                                                 |   | F-71     |   |
| Independent Auditors’ Report                                                                                                                                                                                                                                              |   | F-86     |   |
| Statements of Operations for the years  ended December 31, 2000, 1999 and 1998                                                                                                                                                                                            |   | F-87     |   |
| Balance  Sheets as of December 31, 2000 and 1999                                                                                                                                                                                                                          |   | F-88     |   |
| Statements of Changes in Stockholders’  Equity for the years ended December 31, 2000, 1999 and 1998                                                                                                                                                                  |   | F-89     |   |
| Cash Flow Statements for the years ended  December 31, 2000, 1999 and 1998                                                                                                                                                                                                |   | F-90     |   |
| Notes to the Financial Statements                                                                                                                                                                                                                                              |   | F-91     |   |

 

 

----

 

**INDEX TO THEFINANCIAL STATEMENTS**

**MESSERGRIESHEIM HOLDING AG**

 
|                                                                                                                                                                                                                                                                                |   | **Page** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|
| Independent Auditors’ Reports                                                                                                                                                                                                                                                  |   | F-3      |   |
| Consolidated Statements of Operations for  the twelve months ended December 31, 2002, the eight months ended December  31, 2001, the four months ended April 30, 2001 (predecessor) and for the  twelve months ended December 31, 2000 (predecessor)                                |   | F-4      |   |
| Consolidated Balance Sheets as of December 31, 2002 and as of  December 31, 2001                                                                                                                                                                                                    |   | F-5      |   |
| Consolidated Statements of Changes in  Stockholders’ Equity for the twelve months ended December 31, 2002, the eight  months ended December 31, 2001, the four months ended April 30, 2001  (predecessor) and for the twelve months ended December 31, 2000 (predecessor) |   | F-6      |   |
| Consolidated Cash Flow Statements for the  twelve months ended December 31, 2002, the eight months ended December 31,  2001, the four months ended April 30, 2001 (predecessor) and for the twelve  months ended December 31, 2000 (predecessor)                                    |   | F-7      |   |
| Notes to the Consolidated Financial  Statements                                                                                                                                                                                                                                     |   | F-8      |   |

 

 

----

 

**INDEPENDENT AUDITOR’S REPORT**

 

To the Management Board of

Messer Griesheim Holding AG

 

                We haveaudited the accompanying consolidated balance sheets of Messer GriesheimHolding AG (“Messer Holding”, “the Successor” or “the Company”) and itssubsidiaries as of December 31, 2002 and 2001, the related consolidatedstatements of operations, changes in stockholders’ equity and cash flows forthe twelve months ended December 31, 2002 and the eight months ended December31, 2001, and the related consolidated statements of operations, changes instockholders’ equity and cash flows of Messer Griesheim GmbH (“MesserGriesheim” or “the Predecessor”) and its subsidiaries for the four months endedApril 30, 2001 and the twelve months ended December 31, 2000. The Successor andPredecessor consolidated financial statements are the responsibility ofmanagement. Our responsibility is to express an opinion on these consolidatedfinancial statements based on our audits. We did not audit the financialstatements of Singapore Syngas Pte Ltd, a 50% owned equity method investeecompany of the Predecessor in the year ended December 31, 2000. ThePredecessor’s equity in losses of Singapore Syngas Pte Ltd for the twelve monthsended December 31, 2000 was €165.3 million (after giving effect toprovisions and write-offs of the investment by the Predecessor of €61.2million). The Singapore Syngas Pte Ltd financial statements as ofDecember 31, 2000 and for the year then ended were audited by otherauditors whose report has been provided to us, and our opinion, insofar as itrelates to the amounts included for Singapore Syngas Pte Ltd, is based solelyon the report of the other auditors.

 

                We conductedour audits in accordance with auditing standards generally accepted in theUnited States of America. Those standards require that we plan and perform anaudit to obtain reasonable assurance about whether the financial statements arefree of material misstatement. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements. Anaudit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financial statementpresentation. We believe that our audit and the report of other auditorsprovide a reasonable basis for our opinion.

 

                In ouropinion, based on our audit and, with respect to the twelve months endedDecember 31, 2000, the report of the other auditors, the consolidated financialstatements referred to above present fairly, in all material respects, thefinancial position of the Successor and its subsidiaries as ofDecember 31, 2002 and 2001, and the results of their operations and theircash flows for the twelve months ended December 31, 2002 and the eight monthsended December 31, 2001, and the results of operations and cash flows of thePredecessor and its subsidiaries for the four months ended April 30, 2001 andthe twelve months ended December 31, 2000, in conformity with InternationalFinancial Reporting Standards as promulgated by the International AccountingStandards Board.

 

                The report ofthe other auditors on the financial statements of Singapore Syngas Pte Ltd asof and for the year ended December 31, 2000, includes an explanatoryparagraph regarding substantial doubt about Singapore Syngas Pte Ltd’s abilityto continue as a going concern. As disclosed in Note 18 to the Messer GriesheimHolding AG consolidated financial statements, the Predecessor had recordedlosses of €165.3 million with respect to the Singapore Syngas Pte Ltd for theyear ended December 31, 2000.

 

                InternationalFinancial Reporting Standards vary in certain significant respects fromaccounting principles generally accepted in the United States of America.Application of accounting principles generally accepted in the United States ofAmerica would have affected the results of operations for the twelve monthsended December 31, 2002, the eight months ended December 31, 2001, the fourmonths ended April 30, 2001 and the twelve months ended December 31, 2000and stockholders’ equity as of December 31, 2002 and 2001, to the extentsummarized in Note 40 to the accompanying consolidated financial statements.

 

Duesseldorf

# **March 27,2003**

 

KPMG Deutsche Treuhand-Gesellschaft

Aktiengesellschaft

Wirtschaftsprüfungsgesellschaft

 

 

F-3

----

 

MESSER GRIESHEIM HOLDING AG

CONSOLIDATEDSTATEMENTS OF OPERATIONS

(Amounts in € thousands, unlessotherwise stated)

 
|                                                                     |   |     |   | **Successor**                                 |       | **Predecessor**                                  |       |
|--------------------------------------------------------------------------|--------|----------|--------|-----------------------------------------------|------------|--------------------------------------------------|------------|
|                                                                     |   | **Note** |   | **Twelve  months  ended  December 31,  2002** |       | **Eight  months  ended  December 31,  2001 (1)** |       | **Four  months  ended  April 30,  2001** |   | **Twelve  months  ended  December 31,  2000** |   |
| Net sales                                                                |   |     |   | 1,525,996                                     |       | 1,046,588                                        |       | 574,463 |   | 1,695,923 |   |
| Cost of sales                                                            |   |     |   | (748,783                                      | )          | (528,416                                         | )          | (293,414 | ) | (844,534 | ) |
| **Gross  profit**                                                        |   |     |   | **777,213**                                   | ** ** | **518,172**                                      | ** ** | **281,049** | ** ** | **851,389** | ** ** |
| Distribution and selling costs                                           |   |     |   | (476,502                                      | )          | (342,184                                         | )          | (177,182 | ) | (568,942 | ) |
| Research and development costs                                           |   |     |   | (12,918                                       | )          | (9,542                                           | )          | (6,599 | ) | (24,938 | ) |
| General and administrative costs                                         |   |     |   | (127,555                                      | )          | (90,829                                          | )          | (45,027 | ) | (127,722 | ) |
| Other operating income                                                   |   | 7        |   | 25,665                                        |       | 10,658                                           |       | 10,242 |   | 38,010 |   |
| Other operating expense                                                  |   | 8        |   | (40,396                                       | )          | (23,526                                          | )          | (11,133 | ) | (21,723 | ) |
| Impairment of intangible assets and property, plant and equipment        |   | 10       |   | (1,543                                        | )          | —                                           |       | (2,356 | ) | (128,592 | ) |
| Restructuring and reorganization charges                                 |   | 11       |   | (12,782                                       | )          | (25,266                                          | )          | (2,540 | ) | (20,361 | ) |
| **Operating  profit (loss)**                                             |   |     |   | **131,182**                                   | ** ** | **37,483**                                       | ** ** | **46,454** | ** ** | **(2,879** | **)** |
| Equity method investments expense, net                                   |   | 18       |   | (12,621                                       | )          | (15,213                                          | )          | (5,106 | ) | (207,952 | ) |
| Other investment expense, net                                            |   | 9        |   | (4,693                                        | )          | (4,456                                           | )          | (4,544 | ) | (14,757 | ) |
| Interest expense, net                                                    |   | 12       |   | (140,022                                      | )          | (103,379                                         | )          | (36,364 | ) | (88,520 | ) |
| Changes in fair value of investments in subsidiaries available for  sale |   | 13       |   | (1,577                                        | )          | (5,472                                           | )          | — |   | — |   |
| Other financial income (expense), net                                    |   |     |   | (16,261                                       | )          | 255                                              |       | (6,990 | ) | (4,959 | ) |
| **Non-operating  expense**                                               |   |     |   | **(175,174**                                  | **)**      | **(128,265**                                     | **)**      | **(53,004** | **)** | **(316,188** | **)** |
| **Loss from  continuing operations**                                     |   |     |   | **(43,992**                                   | **)**      | **(90,782**                                      | **)**      | **(6,550** | **)** | **(319,067** | **)** |
| Loss from disposal of discontinuing operations                           |   | 14       |   | —                                        |       | —                                           |       | — |   | (17,120 | ) |
| **Loss  before income taxes and minority interests**                     |   |     |   | **(43,992**                                   | **)**      | **(90,782**                                      | **)**      | **(6,550** | **)** | **(336,187** | **)** |
| Income tax benefit (expense)                                             |   | 15       |   | (34,759                                       | )          | 26,163                                           |       | (4,813 | ) | 138,232 |   |
| **Loss  before minority interests**                                      |   |     |   | **(78,751**                                   | **)**      | **(64,619**                                      | **)**      | **(11,363** | **)** | **(197,955** | **)** |
| Minority interests, net of income taxes                                  |   | 30       |   | (11,120                                       | )          | (4,912                                           | )          | (2,135 | ) | (7,610 | ) |
| **Net loss**                                                             |   |     |   | **(89,871**                                   | **)**      | **(69,531**                                      | **)**      | **(13,498** | **)** | **(205,565** | **)** |

 

----

(1)                                  Certainreclassifications have been made to conform to the current periodclassification (see Note 2 “Accounting Principles”).

 

The accompanying Notes are an integral part of these consolidatedfinancial statements.

 

 

F-4

----

 

MESSER GRIESHEIM HOLDING AG

CONSOLIDATED BALANCE SHEETS

(Amounts in € thousands, unlessotherwise stated)

 
|                                                |   | **Note** |       | **As of  December 31,  2002** |       | **As of  December 31,  2001****(1)** |       |
|-----------------------------------------------------|--------|----------|------------|-------------------------------|------------|--------------------------------------|------------|
| **Assets**                                          |   |     |       |                          |       |                                 |       |
| Intangible assets                                   |   | 16       |       | 790,878                       |       | 852,809                              |       |
| Property, plant and equipment                       |   | 17       |       | 1,516,310                     |       | 1,697,679                            |       |
| Equity method investments                           |   | 18       |       | 13,200                        |       | 19,186                               |       |
| Other investments and longterm loans                |   | 19,20    |       | 36,861                        |       | 59,347                               |       |
| Deferred tax assets                                 |   | 15       |       | 3,734                         |       | 4,546                                |       |
| Other long-term receivables, net and other  assets  |   |     |       | 21,966                        |       | 43,081                               |       |
| **Non-current assets**                              |   |     |       | **2,382,949**                 | ** ** | **2,676,648**                        | ** ** |
|                                                |   |     |       |                          |       |                                 |       |
| Inventories                                         |   | 21       |       | 72,585                        |       | 80,098                               |       |
| Trade accounts receivable, net                      |   | 22       |       | 279,099                       |       | 290,743                              |       |
| Investments in subsidiaries available for  sale     |   | 13       |       | 18,078                        |       | 42,183                               |       |
| Other receivables and other assets                  |   | 23       |       | 50,879                        |       | 71,796                               |       |
| Cash and cash equivalents                           |   | 24       |       | 135,218                       |       | 188,018                              |       |
| **Current assets**                                  |   |     |       | **555,859**                   | ** ** | **672,838**                          | ** ** |
|                                                |   |     |       |                          |       |                                 |       |
| **Total assets**                                    |   |     |       | **2,938,808**                 | ** ** | **3,349,486**                        | ** ** |
|                                                |   |     |       |                          |       |                                 |       |
| **Stockholders’ equity and liabilities**       |   |     | ** ** |                          | ** ** |                                 | ** ** |
| Issued capital and reserves                         |   |     |       | 967,180                       |       | 967,180                              |       |
| Accumulated deficit                                 |   |     |       | (159,402                      | )          | (69,531                              | )          |
| Cumulative other comprehensive income               |   |     |       | (72,291                       | )          | 5,740                                |       |
|                                                |   |     |       |                          |       |                                 |       |
| **Stockholders’ equity**                       |   | 29       | ** ** | **735,487**                   | ** ** | **903,389**                          | ** ** |
|                                                |   |     |       |                          |       |                                 |       |
| **Minority interests**                              |   | 30       | ** ** | **84,012**                    | ** ** | **88,138**                           | ** ** |
|                                                |   |     |       |                          |       |                                 |       |
| Provisions for pensions and similar  obligations    |   | 25       |       | 169,287                       |       | 166,356                              |       |
| Other provisions                                    |   | 26       |       | 68,529                        |       | 39,127                               |       |
| Corporate debt, less current portion                |   | 27       |       | 1,327,120                     |       | 1,540,312                            |       |
| Deferred tax liabilities                            |   | 15       |       | 104,523                       |       | 135,933                              |       |
| Other liabilities                                   |   |     |       | 23,723                        |       | 25,353                               |       |
|                                                |   |     |       |                          |       |                                 |       |
| **Non-current liabilities**                         |   |     |       | **1,693,182**                 | ** ** | **1,907,081**                        | ** ** |
|                                                |   |     |       |                          |       |                                 |       |
| Other provisions                                    |   | 26       |       | 106,849                       |       | 136,863                              |       |
| Corporate debt                                      |   | 27       |       | 48,298                        |       | 40,927                               |       |
| Trade accounts payable                              |   |     |       | 124,697                       |       | 122,639                              |       |
| Miscellaneous liabilities                           |   | 28       |       | 146,283                       |       | 150,449                              |       |
| **Current liabilities**                             |   |     |       | **426,127**                   | ** ** | **450,878**                          | ** ** |
|                                                |   |     |       |                          |       |                                 |       |
| **Total stockholders’ equity and liabilities** |   |     |       | **2,938,808**                 | ** ** | **3,349,486**                        | ** ** |

 

----

(1)                                  Certainreclassifications have been made to conform to the current periodclassification (see Note 2 “Accounting Principles”).

 

The accompanying Notes are an integral part of these consolidatedfinancial statements.

 

 

F-5

----

 

MESSER GRIESHEIM HOLDING AG

CONSOLIDATEDSTATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Amounts in € thousands, unlessotherwise stated)

 
|                                       |   | **Predecessor**                 |       |
|--------------------------------------------|--------|---------------------------------|------------|
|                                       |   | **Other  comprehensive income** |       |
|                                       |   | **Subscribed  capital**         |       | **Additional  Paid-in  capital** |   | **Retained  earnings  (deficit)** |   | **Hedging  reserve** |   | **Translation  Reserve** |   | **Cumulative  other  comprehensive  income** |   | **Total  Stockholders’  equity** |   |
| **Balance as  of****December 31, 1999(1)** |   | **276,098**                     | ** ** | **118,722** | ** ** | **269,074** | ** ** | **—** | ** ** | **53,113** | ** ** | **53,113** | ** ** | **717,007** | ** ** |
| Capital contribution                       |   | —                          |       | 39,664 |   | — |   | — |   | — |   | — |   | 39,664 |   |
| Dividend payments                          |   | —                          |       | — |   | (143,673 | ) | — |   | — |   | — |   | (143,673 | ) |
| Net loss                                   |   | —                          |       | — |   | (205,565 | ) | — |   | — |   | — |   | (205,565 | ) |
| Translation adjustment                     |   | —                          |       | — |   | — |   | — |   | 31,091 |   | 31,091 |   | 31,091 |   |
|                                       |   |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Balance as  of****December 31, 2000**    |   | **276,098**                     | ** ** | **158,386** | ** ** | **(80,164** | **)** | **—** | ** ** | **84,204** | ** ** | **84,204** | ** ** | **438,524** | ** ** |
| IAS 39 transition adjustment               |   | —                          |       | — |   | 335 |   | — |   | — |   | — |   | 335 |   |
| Net loss                                   |   | —                          |       | — |   | (13,498 | ) | — |   | — |   | — |   | (13,498 | ) |
| Translation adjustment                     |   | —                          |       | — |   | — |   | — |   | 3,522 |   | 3,522 |   | 3,522 |   |
|                                       |   |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Balance as  of April 30, 2001**          |   | **276,098**                     | ** ** | **158,386** | ** ** | **(93,327** | **)** | **—** | ** ** | **87,726** | ** ** | **87,726** | ** ** | **428,883** | ** ** |

 
|                                |   | **Successor**                   |       |
|-------------------------------------|--------|---------------------------------|------------|
|                                |   | **Other  comprehensive income** |       |
|                                |   | **Subscribed  capital**         |       | **Additional  Paid-in  capital** |   | **Retained  earnings  (deficit)** |   | **Hedging  reserve** |   | **Translation  Reserve** |   | **Cumulative  other  comprehensive  income** |   | **Total  Stockholders’  equity** |   |
|                                |   |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Balance as of May 1, 2001**       |   | **90**                          | ** ** | **967,090** | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **967,180** | ** ** |
| Change in fair value of derivatives |   | —                          |       | — |   | — |   | (9,199 | ) | — |   | (9,199 | ) | (9,199 | ) |
| Net loss                            |   | —                          |       | — |   | (69,531 | ) | — |   | — |   | — |   | (69,531 | ) |
| Cumulative Translation adjustment   |   | —                          |       | — |   | — |   | — |   | 14,939 |   | 14,939 |   | 14,939 |   |
|                                |   |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Balance as of December 31, 2001** |   | **90**                          | ** ** | **967,090** | ** ** | **(69,531** | **)** | **(9,199** | **)** | **14,939** | ** ** | **5,740** | ** ** | **903,389** | ** ** |
| Change in fair value of derivatives |   | —                          |       | — |   | — |   | (7,744 | ) | — |   | (7,744 | ) | (7,744 | ) |
| Net loss                            |   | —                          |       | — |   | (89,871 | ) | — |   | — |   | — |   | (89,871 | ) |
| Cumulative Translation adjustment   |   | —                          |       | — |   | — |   | — |   | (70,287 | ) | (70,287 | ) | (70,287 | ) |
|                                |   |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Balance as of December 31, 2002** |   | **90**                          | ** ** | **967,090** | ** ** | **(159,402** | **)** | **(16,943** | **)** | **(55,348** | **)** | **(72,291** | **)** | **735,487** | ** ** |

 

----

(1)                                  Theseamounts have been converted using the official rate of €1.00 to DM 1.95583.

 

The accompanying Notes are an integral part of these consolidatedfinancial statements.

 

 

F-6

----

 

MESSER GRIESHEIM HOLDING AG

CONSOLIDATED CASH FLOW STATEMENTS

(Amounts in € thousands, unlessotherwise stated)

 
|                                                                                               |   | **Successor**                                 |       | **Predecessor**                              |       |
|----------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|------------|----------------------------------------------|------------|
|                                                                                               |   | **Twelve  months  ended  December 31,  2002** |       | **Eight  months  ended  December 31,  2001** |       | **Four  months  ended  April 30,  2001** |   | **Twelve  months  ended  December 31,  2000** |   |
| **Loss before income taxes and minority interests**                                                |   | **(43,992**                                   | **)**      | **(90,782**                                  | **)**      | **(6,550** | **)** | **(336,187** | **)** |
| Income taxes (paid) refunded                                                                       |   | (26,125                                       | )          | (7,636                                       | )          | 6,964 |   | 4,315 |   |
| Results of discontinuing operations                                                                |   | —                                        |       | —                                       |       | — |   | 17,120 |   |
| Depreciation, amortization and impairment of property, plant and equipment,  and intangible assets |   | 253,486                                       |       | 182,733                                      |       | 76,923 |   | 341,617 |   |
| Changes in fair value of subsidiaries available for sale                                           |   | 1,577                                         |       | 5,472                                        |       | — |   | — |   |
| Write-down of investments                                                                          |   | 1,647                                         |       | 2,688                                        |       | — |   | 15,545 |   |
| Reversal of write-down of property, plant and equipment, and  investments                          |   | —                                        |       | —                                       |       | — |   | (1,033 | ) |
| Losses (gains) on disposals of property, plant and equipment and  investments                      |   | (3,224                                        | )          | —                                       |       | 7,186 |   | (13,375 | ) |
| Change in goodwill                                                                                 |   | 1,733                                         |       | —                                       |       | — |   | — |   |
| Non-cash changes in equity method investments, net of dividends                                    |   | 20,630                                        |       | 19,293                                       |       | (5,106 | ) | 65,063 |   |
| Interest expense, net                                                                              |   | 140,022                                       |       | 103,379                                      |       | 36,364 |   | 88,520 |   |
| Other financial (income) expenses, net                                                             |   | 16,261                                        |       | (255                                         | )          | 6,990 |   | 4,959 |   |
| Changes in inventories                                                                             |   | 5,918                                         |       | 3,181                                        |       | (10,474 | ) | 7,038 |   |
| Changes in receivables and other assets                                                            |   | 44,898                                        |       | (33,287                                      | )          | (25,464 | ) | (27,443 | ) |
| Changes in provisions                                                                              |   | (35,319                                       | )          | (47,129                                      | )          | (68,752 | ) | 129,356 |   |
| Changes in accounts payable and other liabilities                                                  |   | (7,092                                        | )          | 212                                          |       | (26,991 | ) | (38,648 | ) |
| Other                                                                                              |   | —                                        |       | —                                       |       | — |   | 4,165 |   |
|                                                                                               |   |                                          |       |                                         |       |   |   |   |   |
| **Cash flow from (used in) operating activities**                                                  |   | **370,420**                                   | ** ** | **137,869**                                  | ** ** | **(8,910** | **)** | **261,012** | ** ** |
|                                                                                               |   |                                          |       |                                         |       |   |   |   |   |
| Purchases of property, plant and equipment, and intangible assets                                  |   | (135,901                                      | )          | (79,022                                      | )          | (49,467 | ) | (321,533 | ) |
| Purchases of investments and loans to related parties                                              |   | (3,858                                        | )          | (6,255                                       | )          | (35,429 | ) | (81,757 | ) |
| Investments in subsidiaries available for sale for extinguishment of  debt                         |   | (5,978                                        | )          | (169,986                                     | )          | — |   | — |   |
| Proceeds from sales of property, plant and equipment, and intangible  assets                       |   | 18,450                                        |       | 30,890                                       |       | 68 |   | 34,090 |   |
| Proceeds from sales of investments                                                                 |   | 40,469                                        |       | 120,117                                      |       | 13,746 |   | 27,489 |   |
| Interest received                                                                                  |   | 10,763                                        |       | 17,418                                       |       | 5,086 |   | 6,596 |   |
|                                                                                               |   |                                          |       |                                         |       |   |   |   |   |
| **Cash flow from (used in) investing activities**                                                  |   | **(76,055**                                   | **)**      | **(86,838**                                  | **)**      | **(65,996** | **)** | **(335,115** | **)** |
|                                                                                               |   |                                          |       |                                         |       |   |   |   |   |
| Capital increases                                                                                  |   | —                                        |       | —                                       |       | 66,962 |   | 1,752 |   |
| Net (repayment of) proceeds from non-current corporate debt                                        |   | (184,526                                      | )          | 616,077                                      |       | 118,656 |   | 205,670 |   |
| Net (repayment of) proceeds from current corporate debt                                            |   | 908                                           |       | (577,376                                     | )          | 133,407 |   | (14,346 | ) |
| Dividends paid to minority interest                                                                |   | (8,286                                        | )          | (3,049                                       | )          | (4,012 | ) | (7,669 | ) |
| Interest paid                                                                                      |   | (131,992                                      | )          | (110,951                                     | )          | (60,469 | ) | (94,443 | ) |
| Other financial income (expenses), net                                                             |   | (16,261                                       | )          | 255                                          |       | (6,990 | ) | (4,959 | ) |
|                                                                                               |   |                                          |       |                                         |       |   |   |   |   |
| **Cash flow from (used in) financing activities**                                                  |   | **(340,157**                                  | **)**      | **(75,044**                                  | **)**      | **247,554** | ** ** | **86,005** | ** ** |
|                                                                                               |   |                                          | ** ** |                                         | ** ** |   | ** ** |   | ** ** |
| **Cash flow from (used in) operating, investing and  financing activities**                        |   | **(45,792**                                   | **)**      | **(24,013**                                  | **)**      | **172,648** | ** ** | **11,902** | ** ** |
|                                                                                               |   |                                          |       |                                         |       |   |   |   |   |
| Effect of exchange rate changes on cash and cash equivalents                                       |   | (7,008                                        | )          | 270                                          |       | 3,522 |   | 1,216 |   |
| Cash flow from (used in) discontinuing operations                                                  |   | —                                        |       | —                                       |       | — |   | (19,929 | ) |
| Cash balances included in investments in subsidiaries available for  sale                          |   | —                                        |       | (14,812                                      | )          | — |   | — |   |
|                                                                                               |   |                                          |       |                                         |       |   |   |   |   |
| **Changes in cash and cash equivalents**                                                           |   | **(52,800**                                   | **)**      | **(38,555**                                  | **)**      | **176,170** | ** ** | **(6,811** | **)** |
|                                                                                               |   |                                          |       |                                         |       |   |   |   |   |
| **Cash and cash equivalents**                                                                      |   |                                          | ** ** |                                         | ** ** |   | ** ** |   | ** ** |
| **at beginning of reporting period**                                                               |   | **188,018**                                   | ** ** | **226,573**                                  | ** ** | **50,403** | ** ** | **57,214** | ** ** |
| **at end of reporting period**                                                                     |   | **135,218**                                   | ** ** | **188,018**                                  | ** ** | **226,573** | ** ** | **50,403** | ** ** |
|                                                                                               |   |                                          |       |                                         |       |   |   |   |   |
| **Supplemental cash flow information:**                                                            |   |                                          | ** ** |                                         | ** ** |   | ** ** |   | ** ** |
| **Non-cash financing and investing activities (see  notes 3 and 14)**                              |   |                                          | ** ** |                                         | ** ** |   | ** ** |   | ** ** |
| **Transfer of Cutting & Welding Division**                                                     |   | **—**                                    | ** ** | **—**                                   | ** ** | **—** | ** ** | **37,912** | ** ** |
| **Fair value of assets acquired in acquisitions, other  than cash**                                |   | **—**                                    | ** ** | **2,732,025**                                | ** ** | **—** | ** ** | **—** | ** ** |
| **Fair value of liabilities assumed in acquisitions**                                              |   | **—**                                    | ** ** | **2,734,628**                                | ** ** | **—** | ** ** | **—** | ** ** |
| **Increase in stockholders’ equity**                                                          |   | **—**                                    | ** ** | **967,180**                                  | ** ** | **—** | ** ** | **—** | ** ** |

 

The accompanying Notes are an integral part of these consolidatedfinancial statements.

 

 

F-7

----

 

**MESSER GRIESHEIMHOLDING AG**

**NOTES TO THE CONSOLIDATED FINANCIALSTATEMENTS**

**(Amounts in € thousands, unless otherwisestated)**

 

 

**1.             Backgroundand basis of presentation**

 

                MesserGriesheim Holding AG (“the Company” or “Successor”) is a supplier of industrialgases. The Company produces and markets industrial gases (including oxygen,nitrogen, argon, helium, carbon dioxide, hydrogen and rare & high-puritygases), gas application processes and customer-site gas production systems. TheCompany’s primary customers include major industrial, chemical andpharmaceutical manufacturers, and the food processing and waste treatmentindustries. As of December 31, 2002 the sole owner of the shares of MesserGriesheim Holding AG is Messer Griesheim Group GmbH & Co. KGaA.

 

                The Companyis a holding company, whose consolidated financial statements include theaccounts of Messer Griesheim GmbH and all companies which it controls(collectively, “the Messer Group”, “Messer” or “the Group”).

 

                TheSuccessor, incorporated on November 6, 1996, was a dormant company until April30, 2001, when it was activated to become the holding company for the shares ofMesser Griesheim GmbH (“Messer Griesheim” or “Predecessor”). As of December 31,2000, the Successor had net assets aggregating €44.9, represented by currentassets of €50.7 and current liabilities of €5.8. As discussed in Note 3“Acquisition transactions”, the Predecessor was re-capitalized to effect theacquisition transactions which have been accounted for at fair value.Accordingly, the assets and liabilities of the Group have been recorded attheir estimated fair values as of April 30, 2001, the date of the acquisitiontransactions. As a result, the financial statements of the Group for periodsprior to the acquisition are not comparable to the Group’s financial statementsfor periods subsequent to the acquisition. To highlight this lack ofcomparability, a solid vertical line has been inserted, where applicable, todistinguish information pertaining to the pre-acquisition and post-acquisitionperiods. The refinancing transactions and the divestiture program adopted bythe Group are described in Notes 4 “Financing transactions” and 13 “Divestitureprogram”, respectively.

 

 

**2.             AccountingPrinciples**

 

                Theconsolidated financial statements have been prepared in accordance withInternational Financial Reporting Standards (“IFRS”) as adopted by theInternational Accounting Standards Board. The Group applied all InternationalAccounting Standards and Interpretations of the Standing InterpretationsCommittee (SIC) effective as of December 31, 2002, 2001 and 2000, respectively.

 

***Consolidation***

 

                The completelist of Group ownership interests is provided in a joint listing and filed withthe Commercial Register in Husum, Germany. Significant subsidiaries as ofDecember 31, 2002 are as follows:

 

 

F-8

----

 
| **Name and  Office of Subsidiary**                         |   | **Country of  Incorporation  or Residence** |   | **Ownership  Percentage** |   |
|------------------------------------------------------------|--------|---------------------------------------------|--------|---------------------------|--------|
|                                                       |   |                                        |   |                      |   |
| Messer  Griesheim GmbH (Frankfurt a.M.)                    |   | Germany                                     |   | 100                       | %      |
| Messer Griesheim Industries, Inc. (Malvern,  Pennsylvania) |   | United  States                              |   | 100                       | %      |
| Messer France  S.A. (Asnieres)                             |   | France                                      |   | 100                       | %      |
| Messer Hungarogáz Kft. (Budapest)                     |   | Hungary                                     |   | 100                       | %      |
| Messer U.K.  Ltd. (Reigate)                                |   | United  Kingdom                             |   | 100                       | %      |
| Messer Austria GmbH (Gumpoldskirchen)                      |   | Austria                                     |   | 100                       | %      |
| Messer B.V.  (Moerdijk)                                    |   | Netherlands                                 |   | 100                       | %      |
| Messer Croatia  Plin d.d. (Zapresic)                       |   | Croatia                                     |   | 99.96                     | %      |
| Messer Belgium  N.V. (Machelen)                            |   | Belgium                                     |   | 99.41                     | %      |
| Messer Polska  Spólka z.o.o. (Chorzów)           |   | Poland                                      |   | 98.54                     | %      |
| Tehnogas AD (Beograd)                                      |   | Serbia                                      |   | 60                        | %      |

 

                Theconsolidated financial statements as of December 31, 2002 include the accountsof Messer Griesheim Holding AG and subsidiaries. The difference between theacquisition cost of a subsidiary and the book value at the time of theacquisition of the portion of the net equity acquired is allocated to thesubsidiary’s assets and liabilities based on their respective fair values. Anyremaining excess is capitalized as goodwill and amortized over its estimateduseful life. Intercompany accounts and transactions are eliminated inconsolidation.

 

***Purchase price allocation***

 

                In 2000 and2001, former shareholders Hoechst AG and Messer family entered into severaltransactions with the new shareholders of the Company. At the end of thesetransactions, all shares of Messer Griesheim GmbH became owned by MesserGriesheim Holding AG. The foregoing transactions have been accounted for in amanner similar to an acquisition of Messer Griesheim and, accordingly, theacquisition costs have been allocated to the assets acquired and liabilitiesassumed based on their estimated fair values as of April 30, 2001, theacquisition date.

 

                IAS 22requires that the cost of an acquisition be allocated to the identifiableassets and liabilities as recognized by reference to their fair values at thedate of the exchange transaction. The Company engaged the services of anoutside specialist to determine the fair value and assist in allocating thepurchase price, which was completed in March 2002. As a result, the December31, 2001 financial statements reflect the finalization of all adjustments toassets acquired and liabilities assumed. The cost of acquisition may beadjusted pending resolution of certain contingencies (see Note 3 “Acquisitiontransaction”).

 

***Investments in subsidiaries available forsale***

 

                As describedin Note 3 “Acquisition transactions”, a change in ownership of the Groupoccurred on April 30, 2001. Following the acquisition, in May 2001, the Groupadopted a divestiture program pursuant to which it intended to sellsubstantially all of the assets and operations in its non-core markets, locatedin Asia, Africa and Latin America, as well as certain non-strategic operationsin its core markets.

 

                As furtherdescribed in Note 3 “Acquisition transactions”, the acquisition transaction wasaccounted for in a manner similar to a “purchase” business combination and,accordingly, the cost of the acquisition has been allocated to the assetsacquired and liabilities assumed, including those to be disposed of under thedivestiture program, based on their estimated fair values as of April 30, 2001,the date of the acquisition transaction.

 

 

F-9

----

 

                The assetsand operations included in the divestiture program include certainsubsidiaries, and net assets comprising other operations. Management originallyexpected to substantially divest of these assets and operations by no laterthan the end of calendar year 2002. The subsidiaries and net assets included inthe divestiture program have been accounted for in the following manner:

 

•                                            Subsidiariesexpected to be sold within twelve months from the date of the acquisition transaction(i.e., by no later than April 30, 2002) are not consolidated, as control isintended to be temporary. The Group’s interests in such subsidiaries areclassified as financial instruments and are reflected in the Group’s balancesheet at their estimated fair value in current assets, under the caption:“Investments in subsidiaries available for sale”. Current period changes in theestimated fair value of such subsidiaries resulting from operating results arereflected in the consolidated statements of operations under the caption:“Changes in fair value of subsidiaries available for sale”. As of December 31,2002 the sale of the remaining subsidiaries in Indonesia and Peru has not yetbeen consummated (see also Note 38 “Subsequent Events”).

 

•                                            Subsidiariesoriginally expected to be sold subsequent to April 30, 2002, as well as the netassets of other operations held for sale, are consolidated until sold.

 

***Intangible assets***

 

                The excess ofthe Group’s cost of acquired businesses over the fair value of the assetsacquired and liabilities assumed (goodwill) resulting from the acquisitiontransactions is capitalized and amortized on a straight-line basis over anestimated useful life of 20 years. In determining the economic useful life ofgoodwill, the Group considers the stability of the acquired company’s marketsand the strength of the acquired company’s market position. Amortization ofgoodwill is included in “other operating expense”.

 

                Intangibleassets other than goodwill, including patents, licenses, trademarks, softwareand other similar assets, are capitalized at acquisition cost and amortized ona straight-line basis over their estimated useful lives of 3 to 20 years.Amortization of intangible assets, other than goodwill, is included as anexpense in the related functional costs.

 

***Property, plant and equipment***

 

                Property,plant and equipment are capitalized at acquisition or manufacturing costs, netof government grants, and depreciated over their estimated useful lives. Themanufacturing costs of self-constructed assets are based on directly allocableitemized costs and appropriate overhead costs, including depreciation. Financecosts related to the construction of property, plant and equipment arecapitalized as part of the manufacturing costs. In the case of disposals, theassets and related accumulated depreciation are removed from the accounts andthe net amount, less proceeds from disposal, is charged to the incomestatement. Repair costs are charged to expense when incurred.

 

                Depreciationof property, plant and equipment is based on a straight-line basis over theassets useful lives as follows:

 
| Buildings                                 |   | 10 to 50 years |   |
|-------------------------------------------|--------|----------------|--------|
| Plant and machinery                       |   | 10 to 20 years |   |
| Other plant, factory and office equipment |   | 3 to 20 years  |   |

 

                When theGroup leases assets under the terms of a long-term contract or otherarrangement that transfers substantially all of the benefits and risks ofownership to the Group, the leased property is capitalized at the lower of thefair value of the asset or the present value of future minimum lease paymentsand the corresponding obligation is recorded as a liability. Leased assets areamortized on a straight-line basis over the lives of the respective leases.

 

 

F-10

----

 

***Equity method investments***

 

                Investmentsin companies in which the group exercises significant influence or jointcontrol, are accounted for using the equity method (equity method investmentsor investments at equity). The excess of cost of an investment over the Group’sshare of the investee’s net assets at the acquisition date (basis difference)is being amortized on a straight-line basis over periods of 5 to 10 years. TheGroup’s proportionate share of the results from its equity method investments,including amortization of any associated basis difference, is included in“equity method investments expense”. Equity method investments are adjusted forany decrease in value that is deemed to be other than temporary. The amount ofimpairment is limited to the investment basis and any funding commitments.

 

***Research and development costs***

 

                Researchcosts are expensed as incurred. Development costs are charged as an expense inthe period in which they are incurred until market introduction due to theuncertainty of the future economic benefit, unless such benefit can bedemonstrated. If future economic benefit can be demonstrated, such expendituresare capitalized at cost, including the cost of materials, direct labor and anappropriate allocation of overhead, and amortized over the expected period ofbenefit.

 

***Inventories***

 

                Inventoriesare valued at the lower of cost or net realizable value at the balance sheetdate. Inventory costs are determined by using the average cost method.Manufacturing costs include direct costs, indirect material, factory overheadand depreciation.

 

***Receivables***

 

                Tradeaccounts receivable and other receivables are stated at net realizable value.Appropriate valuation allowances are made to account for the risks associatedwith the collection of receivable balances.

 

***Cash and cash equivalents***

 

                Cash iscomprised of unrestricted cash on hand and demand deposits. Cash equivalentsare comprised of highly liquid investments with a maturity of three months orless from the date of acquisition. Restricted cash funds are recorded in otherlong-term receivables, net and other assets.

 

***Impairment of long-lived assets***

 

                In the eventfacts and circumstances indicate that the Group’s long-lived assets, includingproperty, plant and equipment and intangible assets may be impaired, anevaluation of recoverability is performed. If an evaluation is required, therecoverable amount of the asset is compared to the asset’s carrying amount todetermine whether a write-down to the recoverable amount is required. Therecoverable amount is defined as the higher of the asset’s net selling price orvalue in use. Value in use is based on the discounted cash flows expected toarise from the continuing use of an asset and from its disposal at the end ofits useful life. The original values of current and non-current assets, exceptfor goodwill, are reinstated when the reasons for write-down no longer exist.

 

***Provisions for pensions and similarobligations***

 

                The Group’snet obligation in respect of defined benefit pension plans is calculatedseparately for each plan by estimating the amount of future benefit thatemployees have earned in return for their service in the current and priorperiods; that benefit is discounted to determine the present value, and thefair value of any plan assets is deducted. The calculation is performed by aqualified actuary using the projected unit credit method. When the benefits ofa plan are improved, the portion of increased benefit relating to past serviceby employees is recognized as an expense in the income statement on astraight-line basis over the average period until the benefits become vested.

 

 

F-11

----

 

                To the extentthat any cumulative unrecognized actuarial gain or loss exceeds ten percent ofthe greater of the present value of the defined projected benefit obligation orthe fair value of the plan assets, it is recognized in the income statementover the expected average remaining working lives of the employeesparticipating in the plan. Otherwise, the cumulative unrecognized actuarialgain or loss is not recognized.

 

                Obligationsfor severance and early retirement benefits are generally determined throughactuarial calculations using discount rates and salary trends prevailing in therespective countries.

 

                Obligationsfor contributions to defined contribution plans are recognized as an expense inthe income statement as incurred.

 

***Other provisions***

 

                Otherprovisions are recognized when it is probable that an obligation has beenincurred and a reasonable estimate of the amount can be made.

 

***Trade accounts payable and other liabilities***

 

                Trade accounts payable and other liabilities are carried at theexpected settlement amount.

 

***Derivative financial instruments***

 

                The Group’sactivities expose it to a variety of financial risks, including the effects offoreign currency exchange rates and interest rates. The Group’s overall riskmanagement program focuses on the unpredictability of financial markets andseeks to minimize potential adverse effects on the financial performance of theGroup. The Group uses derivative financial instruments such as foreign exchangecontracts and interest rate swaps to hedge interest rate and foreign exchangerisks.

 

                Riskmanagement is carried out by a central treasury department (Group Treasury)under policies approved by the Management Board. Group Treasury identifies,evaluates and hedges financial risks. The policies contain written principlesfor overall risk management, as well as written policies covering specific areas,such as foreign exchange risk, interest rate risk, and use of derivativefinancial instruments and investing excess liquidity.

 

                The Groupoperates internationally and is exposed to foreign exchange risk arising fromvarious currency exposures primarily U.S. dollars (US$) and British Pound(GBP). Group Treasury is responsible for hedging the exposure to foreigncurrency risk by using currency borrowings and external forward currencycontracts.

 

                Additionally,the Group hedges the foreign currency exposure of its major foreign contractcommitments to purchase or sell certain production parts mainly in US$ and GBPdenominated transactions.

 

                The Group’sincome and operating cash flows are substantially independent of changes inmarket interest rates. The Group has no significant interest-bearingassets. The Group borrows at variable rates and uses interest rate swaps ascash flow hedges of future interest payments, which have the economic effect ofconverting borrowings from floating rates to fixed rates. Under the interestrate swaps, the Group agrees with other parties to exchange, at specifiedintervals, the difference between fixed contract rates and floating rateinterest amounts calculated by reference to the agreed notional principalamounts.

 

                Derivativefinancial instruments are initially recognized in the balance sheet at cost andsubsequently are remeasured to fair value. The method of recognizing theresulting gain or loss is dependent on the nature of the item being hedged. Onthe date a derivative contract is entered into, the Group designates certainderivatives as either (1) a hedge of the fair value of a recognized asset orliability (fair value hedge), or (2) a hedge of a forecasted transaction or ofa firm commitment (cash flow hedge).

 

 

F-12

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                Changes inthe fair value of derivatives that are designated and qualify as fair valuehedges and that are highly effective, are recorded in the income statement,along with any changes in the fair value of the hedged asset or liability thatis attributable to the hedged risk.

 

                Changes inthe fair value of derivatives that are designated and qualify as cash flowhedges and that are highly effective, are recognized in equity. Where theforecasted transaction or firm commitment results in the recognition of anasset or a liability, the gains and losses previously deferred in equity aretransferred from equity and included in the initial measurement of the cost ofthe asset or liability. Otherwise, amounts deferred in equity are transferredto the income statement and classified as revenue or expense in the sameperiods during which the hedged firm commitment or forecasted transactionaffects the income statement*.*

 

                Certainderivative transactions, while providing effective economic hedges under theGroup’s risk management policies, do not qualify for hedge accounting under thespecific rules in IAS 39. Changes in the fair value of any derivativeinstruments that do not qualify for hedge accounting under IAS 39 arerecognized immediately in the statement of operations.

 

                When ahedging instrument expires or is sold, or when a hedge no longer meets thecriteria for hedge accounting under IAS 39, any cumulative gain or lossexisting in equity at that time remains in equity and is recognized when thecommitted or forecasted transaction ultimately is recognized in the statementof operations. However, if a committed or forecasted transaction is no longerexpected to occur, the cumulative gain or loss that was reported in equity isimmediately recognized in the statement of operations.

 

***Deferred income taxes***

 

                Deferredincome taxes are recorded for temporary differences between the carryingamounts of assets or liabilities in the balance sheet and their associated taxbases, as well as for operating loss and tax credit carry forwards. Deferredtaxes are based on the currently enacted tax rates. Deferred tax assets arerecognized to the extent that it is probable that future taxable profit will beavailable against which the unused tax losses can be utilized. Deferred taxassets and deferred tax liabilities are offset only if they relate to incometaxes levied by the same tax authority and the enterprise has a legallyenforceable right to offset tax assets against tax liabilities.

 

***Stock-Based Compensation***

 

                As describedin Note 37 “Stock purchase and option plan”, and in the absence of a specificstandard for the measurement of compensation expenses under IFRS, the Companyhas elected to measure compensation costs by using the intrinsic valueapproach, pursuant to which compensation cost is equal to the differencebetween the market value of the share under option and the exercise price atthe measurement date. The measurement date is the first date on which both theexercise price and the number of shares under option become fixed. This methodof measurement is consistent with Accounting Principles Board Opinion (APBO)No. 25, “Accounting for Stock Issued to Employees”. In accordance with therequirements of SFAS No. 123 “Accounting for Stock Based Compensation” the proforma disclosures relating to net income as if SFAS No. 123 had been used tomeasure compensation costs are presented when appropriate.

 

***Revenue recognition***

 

***a              Bulk supply sales***

 

                Bulk suppliesare stored in tanks, which the Group owns and leases to the customer on thecustomers’ premises. The Group delivers gases to customers by tanker trucks,tube trailers or rail cars, from which it transfers the gases to the leased 

 

 

F-13

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tanks. The agreements used in the bulk supply business in Germanytypically have a term of two to three years. Bulk-supply contracts in theUnited States typically have a five to seven year term. Revenue is recognizedon bulk supply sales when the gases are delivered to the tanks. Income fromrental of tanks is recognized on a straight line basis over the terms of therental agreements.

 

***b              Cylinder sales***

 

                Customersrequiring small volumes of gases (including most specialty gases) are suppliedproducts in cylinders which the Group typically owns and rents to the customer.Cylinder gases are generally sold by purchase orders or by contracts with termsranging between one to two years in Europe and three to five years in theUnited States. Revenue is recognized on the gas sale when delivery occurs.Income on the rental of cylinder is recognized on a straight line basis overthe terms of the rental agreements.

 

***c              On-site sales and pipeline sales***

 

                Customersthat require large volumes of industrial gases (typically oxygen, nitrogen,hydrogen and carbon monoxide) and that have a relatively constant demand aretypically supplied by plants built adjacent to or on these customers’facilities. The Messer Group owns and maintains these plants. The productsupply contracts typically have terms of 10 to 15 years, and contain minimumtake or pay purchase requirements and price escalation provisions under theterms of the contract. Revenue is recognized when delivery has taken place.Where the customer does not take delivery of the minimum purchase requirements,the Group records the additional revenue up to the contractual minimum on aperiodic basis. Contractual sales made through pipelines typically have similarterms and accounting treatment.

 

***Distribution and selling costs***

 

                Distributionand selling costs include all expenses which are related to the sale andmarketing of a product. This mainly includes expenses for the sales department,representatives’ commissions, packaging and delivery, freight, transportationinsurance, insurance coverage for receivables, securing of foreign currencyreceivables, bank fees for exporting, advertising (related to the product),technical customer consulting, samples and exhibitions.

 

***Reclassifications***

 

                Certainreclassifications have been made to the presentation of prior periods toconform to the current period classification.

 

***a.******              Consolidatedstatements of operations***

 

                In 2002, theSuccessor  included the depreciation fortanks and cylinders representing packaging costs in distribution and sellingcosts. In the consolidated statement of operations for the eight months endedDecember 31, 2001, these costs were treated as an expense in cost of sales ofthe Successor. This change in classification resulted in a decrease  amounting to €36,500 in  cost of sales and a corresponding increasein distribution and selling costs for the eight months ended December 31, 2001,respectively. Additionally, during 2002, the allocation of overhead costs forthe bulk centers was changed from distribution and selling costs to general andadministrative costs for the twelve months ended 2002. To conform with thecurrent period, €8,161 were reclassified from the distribution and sellingcosts to general and administrative costs for the eight months ended December31, 2001.

 

 

F-14

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                The followingtable gives the reclassifications made to the consolidated statements ofoperations for the eight months ended December 31, 2001, as it relates to thesuccessor’s consolidated financial statements:

 
|                                     |   | **As  Reported in  2001** |         | **Reclassifications** |       | **As  Reported in  2002** |       |
|------------------------------------------|--------|---------------------------|--------------|-----------------------|------------|---------------------------|------------|
|                                     |   |                      |         |                  |       |                      |       |
| Net sales                                |   | 1,046,588                 | * *     | *—*              |       | 1,046,588                 |       |
| Cost of sales                            |   | (564,916                  | )            | 36,500                |       | (528,416                  | )          |
| **Gross profit**                         |   | **481,672**               | ** **   | **36,500**            | ** ** | **518,172**               | ** ** |
| Distribution and selling costs           |   | (313,845                  | )            | (28,339               | )          | (342,184                  | )          |
| Research and development costs           |   | (9,542                    | *)*          | *—*              |       | (9,542                    | )          |
| General and administration costs         |   | (82,668                   | )            | (8,161                | )          | (90,829                   | )          |
| Other operating income                   |   | 10,658                    | * *     | *—*              |       | 10,658                    |       |
| Other operating expense                  |   | (23,526                   | *)*          | *—*              |       | (23,526                   | )          |
| Restructuring and reorganization charges |   | (25,266                   | *)*          | *—*              |       | (25,266                   | )          |
| **Operating profit**                     |   | **37,483**                | *** *** | ***—***          | ** ** | **37,483**                | ** ** |

 

***b.******              Consolidatedbalance sheet***

 

                In 2002,liabilities representing  the fairvalue  of derivative financialinstruments were classified as miscellaneous liabilities. To conform thebalance sheet presentation as of December 31, 2001, with the presentation as atDecember 31, 2002, an amount of €14,217 was reclassified from other non-currentprovisions to miscellaneous liabilities. Additionally, accruals for outstandinginvoices and employee related accruals in 2002 were classified as tradeaccounts payable and miscellaneous liabilities, respectively, resulting in areclassification of €22,352 from other provisions to trade accounts payable(€4,295) and miscellaneous liabilities (€18,057) to conform the balance sheetpresentation as of December 31, 2001 with the presentation as of December 31,2002.

 

                The followingtable presents the reclassifications made to the consolidated balance sheet asof December 31, 2001:

 
|                                             |   | **As  Reported in  2001** |         | **Reclassifications** |       | **As  Reported in  2002** |       |
|--------------------------------------------------|--------|---------------------------|--------------|-----------------------|------------|---------------------------|------------|
|                                             |   |                      |         |                  |       |                      |       |
| Provisions for pensions and similar  obligations |   | 166,356                   | * *     | *—*              |       | 166,356                   |       |
| Other provisions                                 |   | 53,344                    |         | (14,217               | )          | 39,127                    |       |
| Corporate debt, less current portion             |   | 1,540,312                 | * *     | *—*              |       | 1,540,312                 |       |
| Deferred tax liabilities                         |   | 135,933                   | * *     | *—*              |       | 135,933                   |       |
| Other long term liabilities                      |   | 25,353                    | * *     | *—*              |       | 25,353                    |       |
| **Non-current liabilities**                      |   | **1,921,298**             | ** **   | **(14,217**           | **)**      | **1,907,081**             | ** ** |
|                                             |   |                      |         |                  |       |                      |       |
| Other provision                                  |   | 159,215                   |         | (22,352               | )          | 136,863                   |       |
| Corporate debt                                   |   | 40,927                    | * *     | *—*              |       | 40,927                    |       |
| Trade accounts payable                           |   | 118,344                   |         | 4,295                 |       | 122,639                   |       |
| Miscellaneous liabilities                        |   | 118,175                   |         | 32,274                |       | 150,449                   |       |
| **Current liabilities**                          |   | **436,661**               | ** **   | **14,217**            | ** ** | **450,878**               | ** ** |
|                                             |   |                      |         |                  |       |                      |       |
| **Total liabilities**                            |   | **2,357,959**             | *** *** | ***—***          | ** ** | **2,357,959**             | ** ** |

 

***Use of estimates***

 

                Thepreparation of financial statements in conformity with IFRS requires managementto make certain estimates and assumptions that affect the reported amounts ofassets, liabilities and disclosure of contingent assets and liabilities at thedate of financial statements, and the reported amounts of revenues and expensesduring the reporting period. Principal estimates required to be made inpreparing its financial statements include those related to the purchase priceallocation, the investment in subsidiaries available for sale, the valuationallowances on deferred tax assets and the pension provision. Other estimatesare used in the computation of potential impairment on long lived assets, theallowance for bad debt and the inventory valuation. Actual results could differfrom those estimates.

 

 

F-15

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***Risks and uncertainties***

 

                The Group’sfuture results of operations involve a number of risks and uncertainties.Factors that could affect the Group’s future operating results and cause actualresults to vary materially from historical results include but are not limitedto the following items.

 

                Theindustrial gas business is highly competitive, which has resulted in acontinued trend of decreasing prices. This highly competitive environment couldpotentially reduce the profitability and cash flows of the Group in the future.

 

                The Groupsupplies a cross section of industries including steel, metal working, primarymetal, chemicals, oil refining, food and beverages, healthcare, electronics andglass and include long-term contracts over periods of up to 15 years. Asignificant decline in market demand in any one of these industries couldadversely affect future operating results. No single customer represents asignificant portion of total revenues.

 

                Energy is thesingle most significant production cost for the Group. Although the Group oftencan pass through a portion of these energy costs to their customers, increasesin energy costs can reduce the Group’s profitability significantly.

 

                The Groupoperates globally, making it subject to risks related to the differingpolitical, social and economic conditions of the various countries in which itconducts its operations. The majority of the Group’s revenues are derived inGermany, the rest of Europe and the United States of America, which makes theGroup sensitive to market or economic conditions in these geographic areas.

 

***New IAS accounting standards***

 

                The Group hasadopted each of the following standards effective January 1, 2001. Unlessotherwise stated, adoption of these standards did not have a material impact onthe Group’s financial position or results of operations.

 

                In 1998 theIASC issued IAS 39 *“Financial Instruments: Recognition and Measurement”*.The standard significantly increases the use of fair values in accounting forfinancial instruments and establishes specific criteria relating to hedgeaccounting. IAS 39 has been adopted on January 1, 2001. Adoption of thisstandard on January 1, 2001 resulted in a €335 cumulative effect of change inaccounting principles, which is net of deferred taxes totaling €223, reportedin other comprehensive income.

 

                In 2000 theIASC issued IAS 40 “*Investment Property*”. IAS 40 was effectivefor financial statements covering periods beginning on or after January 1,2001. IAS 40 prescribes the accounting treatment for investment property andrelated disclosure requirements and replaces previous requirements in IAS 25 “*Accountingfor Investments*”. Under IAS 40, investment property is defined asproperty held to earn rentals or for capital appreciation or both rather thanfor use in the production or supply of goods or services or for administrativepurposes or for sale in the ordinary course of business. The Group has optedfor the cost model under which investment property is measured at depreciatedcost less any impairment losses.

 

                In 2000 theIASC revised IAS 19 *“Employee Benefits”*. IAS 19 (revised 2000)was effective for fiscal periods beginning on or after January 1, 2001. Thestandard changes the definition of plan assets and introduces recognition,measurement and disclosure requirements for reimbursements. The standardprescribes the accounting and disclosure by employers for employee benefits,post employment benefits, other long term employee benefits, terminationbenefits and equity compensation benefits.

 

***Currency translation***

 

                For Groupcompanies, the functional currency is their local currency. The financialstatements of Group companies 

 

 

F-16

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located outside the European Monetary Union are translated into Euro.Assets and liabilities of these companies are translated into Euro at theclosing exchange rate on the balance sheet date. The items in the incomestatement are translated into Euro using average annual exchange rates.Differences resulting from movements in exchange rates are included as aseparate component of stockholders’ equity.

 

                Foreigncurrency gains and losses from trade receivables and trade payables denominatedin a currency other than the reporting currency are included in “otheroperating income” or “other operating expense.”

 

                The Group hasa subsidiary operating in Serbia that is considered hyperinflationary. The Groupapplies the principles of IAS 29 “*Financial Reporting in Hyperinflationary Economies*”,to the entities it considers affected by such economies. As such, the localcurrency financial statements in 2002, 2001 and 2000 of the entity operating inSerbia have been restated using the consumer price indices to current values atthe balance sheet date prior to translation into the Group’s reportingcurrency.

 

                Currencies,which are of particular importance to the Group, that have experiencedexchange-rate fluctuations are shown below:

 
|                          |       | **Exchange  rate applicable on  the balance sheet date** |       | **Average  exchange rate** |       |
|-------------------------------|------------|----------------------------------------------------------|------------|----------------------------|------------|
| **Selected  currencies**      | ** ** | **December  31, 2002**                                   | ** ** | **December  31, 2001**     | ** ** | **Twelve  months  ended  December 31,  2002** | ** ** | **Eight  months  ended  December 31,  2001** | ** ** | **Four months  ended  April 30,  2001** | ** ** | **Twelve  months  ended  December 31,  2000** | ** ** |
|                          |       |                                                     |       |                       |       |   |   |   |   |   |   |   |   |
| 1 U.S. Dollar : Euro          |       | 0.96                                                     |       | 1.13                       |       | 1.05 |   | 1.13 |   | 1.10 |   | 1.08 |   |
| 1 Pound Sterling : Euro       |       | 1.54                                                     |       | 1.64                       |       | 1.59 |   | 1.63 |   | 1.59 |   | 1.64 |   |
| 100 Hungarian Forint : Euro   |       | 0.42                                                     |       | 0.41                       |       | 0.41 |   | 0.40 |   | 0.38 |   | 0.38 |   |
| 100 Yugoslavian Dinar : Euro. |       | 1.61                                                     |       | 1.70                       |       | 1.66 |   | 1.66 |   | 1.70 |   | 2.62 |   |

 

**3.             Acquisition transactions**

 

                On December31, 2000, Aventis S.A. (parent company to Hoechst AG (“Hoechst”)) entered intoan agreement with Allianz Capital Partners GmbH (“ACP”) and six private equityfunds managed by affiliates of The Goldman Sachs Group, Inc. (the “GSFunds”), regarding the purchase of Hoechst’s shares in Messer Griesheim. Thetransaction was consummated on April 30, 2001.

 

                In order tofacilitate the purchase of Hoechst’s shares in Messer Griesheim by ACP and theGS Funds, Hoechst transferred its 66 2/3% share interestin Messer Griesheim to the Company on April 30, 2001. In addition, on the samedate Messer Industrie GmbH (“MIG”) transferred its 33 1/3%equity interest in Messer Griesheim to the Company for nominal cash and a 331/3% equity interest in the Company. As explained in thefollowing paragraph, the Company was then immediately acquired by MesserGriesheim Group GmbH & Co. KGaA.

 

                ACP and theGS funds formed a new company, Messer Griesheim Group GmbH & Co. KGaA. OnApril 30, 2001, through Messer Griesheim Group GmbH & Co. KGaA, ACP and theGS Funds acquired Hoechst’s share of the Company for €618 million, payable in cash€388 million and deferred notes €230 million. The €230 million note is due fromMesser Griesheim Group GmbH & Co. KGaA on November 11, 2011, together withinterest which, although not currently payable, will accrue thereon at a rateof 250 basis points above the three month EURIBOR. In certain circumstances,the deferred purchase price may be payable earlier. Further, Hoechst has beenissued 300,000 bonds (€300) which are convertible into 3% of the equity sharesof Messer Griesheim Group GmbH & Co. KGaA upon the occurrence of certainevents at a nominal conversion price. In addition, MIG transferred its share inthe Company for a 32.67% share in Messer Griesheim Group GmbH & Co. KGaAand cash of €33.2 million. MIG is also entitled to receive additional cashconsideration of up to €35.8 

 

 

F-17

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million upon the occurrence of certain events. As a result of theforegoing transactions, the Company was 100% owned by Messer Griesheim GroupGmbH & Co. KGaA, which in turn was owned by ACP (33.665%), the GS Funds(collectively 33.665%) and Messer Industrie GmbH (32.67%) at April 30, 2001.

 

                Also as a result of the foregoing transactions, the Company owns 100%of Messer Griesheim.

 

                The foregoing transactions have beenaccounted for in a manner similar to an acquisition of Messer Griesheim.Accordingly, the purchase consideration for the acquisition transaction hasbeen allocated to the assets acquired and liabilities assumed as of April 30,2001, the date of consummation of the acquisition transactions, based on theirestimated fair values.

 

                As part of the business combinationagreement, Hoechst and Messer Griesheim Group GmbH & Co. KGaA received a“call” option and a “counter-call” option, respectively, on 66 2/3%of the shares of the Company. During January 2002, a subsidiary of Hoechst(“DIOGENES 20. Vermögensverwaltung GmbH”) exercised its “call” option toacquire the 66 2/3% of the Company for a promissory notein the amount equal to the purchase price paid by Messer Griesheim Group GmbH& Co. KGaA for its interest in the Company. Messer Griesheim Group GmbH& Co. KGaA subsequently exercised its “counter-call” option to acquire theHoechst subsidiary (and re-acquire indirectly the shares of the Company) for anominal amount. The “call” and “counter-call” provisions were included as partof the business combination agreement to meet German tax planning requirementsof Hoechst. InOctober 2002, DIOGENES 20. Vermögensverwaltungs GmbH was merged into MesserGriesheim Group.

 

**4.             Financing transactions**

 

***Refinancing transactions***

 

                Pursuant tothe debt covenants, a substantial portion of Messer Griesheim’s existing debtbecame due and payable upon the change in control, which occurred on April 30,2001 (see Note 3 “Acquisition transactions”). As a result, Messer Griesheimentered into refinancing transactions with a consortium of banks during Apriland May 2001. The refinancing transactions involved borrowings under a seniorfacilities agreement with aggregate available funds of €1,650 million (€1,340million of term loan facilities and €310 million under a revolving facility),and a mezzanine bridge facility in the aggregate amount of €400 million.

 

                The amountsborrowed under the “senior facilities agreement” €1,160 million and under themezzanine bridge facility (€400 million) were used to repay Messer Griesheim’sexisting debt obligations of €1,303 million. As the existing debt was repaid inconnection with the acquisition transactions, the prepayment penaltiesaggregating €19.1 million have been reflected as part of the purchaseaccounting adjustments. No part of the existing debt or the refinanced debt wasused to finance the acquisition transactions. Refinancing costs of €90.0million were capitalized, and are being amortized over the period of maturitiesof the borrowings using the effective interest rate method.

 

                The seniorfacilities agreement contains certain covenants that require Messer Griesheim,among other things, to maintain certain specified financial ratios, to observecapital expenditure limits, and to ensure that the combination of the repaymentof the senior term disposal facility and the assumption of indebtedness bythird parties in connection with the divestment of assets will result in thereduction of the aggregate indebtedness of Messer Griesheim and itsconsolidated subsidiaries by at least €255 million by April 2003.

 

***Senior Notes***

 

                On May 16,2001, the Company issued €550 million principal amount of 10.375% Senior Notesmaturing on June 1, 2011. At any time prior to June 1, 2006, the Company mayredeem all but not part of the Senior Notes at a redemption price equal to 100%of the principal amount thereof, plus a redemption premium and unpaid interest,and special interest, if any, to 

 

 

F-18

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the redemption date. At any time on or after June 1, 2006, the Companymay redeem all or part of the Senior Notes at specific redemption prices,expressed as percentages of the principal amount, accrued and unpaid interest,special interest, if any, and additional amounts, if any, to the applicableredemption date on a sliding scale. In addition, prior to June 1, 2004, theCompany may redeem up to 35% of the Senior Notes with the proceeds of one ormore public equity offerings at a redemption price equal to 110.375% of theprincipal amount of the Senior Notes redeemed.

 

                The proceedsfrom these Senior Notes have been used by the Company to make an inter-companyloan to Messer Griesheim. Messer Griesheim used the inter-company loan toextinguish the mezzanine bridge facility of €400 million, prepay €115 millionprincipal of the outstanding term borrowings under the senior facilitiesagreement, and the balance of €35 million for general corporate purposes. Theissuance cost of the Senior Notes of €14.4 million has been capitalized and isbeing amortized over the period to maturity under the effective interest ratemethod. The Company is dependent upon the payments it receives under theinter-company loan to make interest and repayments on the Senior Notes. Theclaims of the Company under the inter-company loan are subordinated to theclaims of the lenders under the senior facilities. Payments on theinter-company loan are not permitted in certain cases involving payment andnon-payment defaults under the senior facilities.

 

                During thetwelve months ended December 31, 2002, Messer Griesheim repurchased nominal€56.3 million Senior Notes for an average price of 102.9%. The repurchasedSenior Notes have been deducted from the outstanding amount of €550 million. Inconnection with the repurchase, unamortized financing costs of €4.0 million,fees and tender premium of €2.2 million were expensed and are classified asother financial expense for the twelve month ended December 31, 2002 (see Note36 “Related parties”).

 

                The aggregatefacilities, outstanding amounts borrowed as of December 31, 2002 and thematurity profile is given below:

 

| **Description**                                   |   | **Interest  rate** |   | **Available  amount**     |   | **Amounts  outstanding**  |   | **Maturity  date(7)** |   |
|---------------------------------------------------|--------|--------------------|--------|---------------------------|--------|---------------------------|--------|-----------------------|--------|
|                                              |   |               |   | **(in €  millions)** |   | **(in €  millions)** |   |                  |   |
|                                              |   |               |   |                      |   |                      |   |                  |   |
| €300 Million Senior Term A facility(4)(5)(6) |   | 5.35%              | (2)    | 237.1                     | (1)    | 237.1                     |   | April  20, 2008       |   |
| €170 Million Senior Term B facility(4)       |   | 6.15%              | (2)    | 167.6                     |   | 167.6                     |   | April  30, 2009       |   |
| $124 Million Senior Term B facility(4)            |   | 4.58%              | (2)    | 117.9                     | (1)    | 117.9                     |   | April 30, 2009        |   |
| €115 Million Senior Term C facility(4)       |   | 6.65%              | (2)    | 52.4                      |   | 52.4                      |   | April  30, 2010       |   |
| $162 Million Senior Term C facility(4)(6)         |   | 4.99%              | (2)    | 154.7                     | (1)    | 154.7                     |   | April  30, 2010       |   |
| €260 Million Senior Revolving facility I     |   | —             |   | 260.0                     |   | —                    |   | March  31, 2008       |   |
| €50 Million Senior Revolving facility II     |   | —             |   | 34.0                      | (3)    | —                    |   | March  31, 2008       |   |
| Senior Notes                                      |   | 10.375             | %      | 550.0                     |   | 493.7                     |   | June  1, 2011         |   |
| Other existing debt(6)                            |   | 5.65               | %      | 215.5                     |   | 215.5                     |   |                  |   |
|                                              |   |               |   |                      |   | 1,438.9                   |   |                  |   |
| Unamortized debt issuance costs                   |   |               |   |                      |   | (63.5                     | )      |                  |   |
|                                              |   |               |   |                      |   |                      |   |                  |   |
| Total                                             |   |               |   | 1,789.2                   |   | 1,375.4                   |   |                  |   |

 

----

(1)              U.S. Dollar (US-$) amounts under thefacility have been converted into EURO at the rate of €1 = US-$ 1.0415, BritishPound (GBP) amounts at the rate of €1 = GBP 0.6502, the exchange rates atDecember 31, 2002.

(2)              Variable interest rates as of December31, 2002.

(3)              €16.0 million drawn as trade andcommercial guarantees.

(4)              The Senior Term Facilities (Tranches A, Band C) are non-revolving credit facilities, i.e. the available facilities arereduced by the amount of repayments.

(5)              Tranche A is a multicurrency facility.Interest rate is a weighted rate.

(6)              Interest rate is a weighted rate.

(7)              The Company is required to use 50% of theexcess cash flow, as defined under the senior facilities agreement, in anygiven year to repay the outstanding loans (see further information regardinglong-term debt, including a schedule of maturities, in Note 27 “Corporatedebt”).

 

***Interest expense and interest swap agreements***

 

                Interestexpense for the twelve months ended December 31, 2002, the eight month endedDecember 31, 2001, the 

 

 

F-19

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four month ended April 30, 2001 and the twelve months ended December31, 2000 was €150.8 million, €120.8 million, €41.5 million, and €96.1 million,respectively. Interest expense for the twelve month ended December 31, 2002 andthe eight month ended December 31, 2001 included amortization of capitalizeddebt issuance costs of €18.9 million and €7.6 million, respectively.

 

                The Group hasentered into interest rate swaps in order to hedge future interest ratevariability for its senior term facilities. Approximately, €638.7 million and€812.4 million of the Group’s outstanding indebtedness was designated as hedgedby interest rate swap agreements as of December 31, 2002 and 2001, respectively.Due to the refinancing agreements, the Group agreed to enter into loanagreements with fixed interest rates, interest swap agreements, caps or otherinstruments so as to ensure that interest payments on at least 75% of theGroup’s total debt is hedged. Had the Company not entered into interest swapagreements, the interest expense would have been reduced by €13,339 and €3,266for the twelve month ended December 31, 2002 and the eight month ended December31, 2001, respectively.

 

***Pledges***

 

                In connectionwith the refinancing program, the Company has given several pledges to thelenders of the senior facilities. Substantially all of the assets of the Groupare pledged as collateral.

 

                In addition,the lenders of the senior facilities have obtained irrevocable andunconditional guarantees from certain subsidiaries of the Company. Theseguarantees will remain outstanding until the repayment of the SeniorFacilities.

 

                Additionally,in connection with the refinancing program, Messer Griesheim Holding AG has pledgedall of its shares in Messer Griesheim to the senior lenders as security for thesenior facilities. Moreover, Messer Griesheim Holding AG has agreed that if thesenior lenders foreclose on that share pledge following an event of default andseek to sell the Company’s shares of Messer Griesheim, the Company will releaseits claims against Messer Griesheim for payment of the inter-company loan. Ifthe Company is ever required to release its claims for repayment of theinter-company loan, its only source of repayment for the notes will be netproceeds, if any, from a foreclosure sale of the Messer Griesheim shares afterthe senior lenders have been repaid in full. In addition, the inter-companyloan is effectively subordinated to all existing and future debt of MesserGriesheim’s subsidiaries.

 

**5.             Divestmentof Cuban subsidiaries**

 

                As aprecondition to the consummation of the acquisition transaction, on April 24,2001, the Group sold its interest in a holding company that controls threeoperating companies in Cuba to an entity which is controlled by Mr. StefanMesser, a member of the management board of the Group. Mr. Stefan Messer isalso a director and minority shareholder in MIG. The total purchase price forthe Cuban holding company was US$7.0 million, of which US$1.2 million was paidin cash and the remainder by an unsecured note in the principal amount ofUS$5.8 (€5.6) million, which matures in 2006 and accrues interest at the rateof 5.5% per year. The sale resulted in a pre tax loss of €5.6 million, whichhas been reflected in the statement of operations for the period ended April30, 2001.

 

**6.             Segmentinformation**

 

                Messer Groupreports its segment information in accordance with IAS 14 “*Segment reporting*” andcomplies with the provisions of the U.S. Financial Accounting Standards BoardStatement of Financial Accounting Standards (SFAS) 131 “*Disclosures about Segments of anEnterprise and Related Information*”.

 

                Messer Groupoperates its business as a single business - the production, supply anddistribution of industrial gases. The Group’s segment reporting follows themanagement structure and internal management reporting system of the MesserGroup. Based upon the characteristics of the industrial gas market, Messer’sbusiness operations are separated into 

 

 

F-20

----

 

geographic regions. The geographic regions and principal countriesincluded in each segment are as follows:

 
| **Geographic Regions** |   | **Countries**                                                                                                                      |
|------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------|
| Germany                |   | Germany                                                                                                                            |
| Western Europe         |   | France, Switzerland, Netherlands, Spain, Belgium, Italy and Great  Britain                                                         |
| Eastern Europe         |   | Austria, Slovakia, Czech Republic, Hungary,  Slovenia, Croatia, Poland, Finland, Bulgaria, Serbia, Bosnia-Herzegovina, and  Greece |
| North America          |   | United States of America and Canada                                                                                                |
| Other                  |   | China, Guatemala and El  Salvador,                                                                                                 |

 

                Each ofthese geographic regions has a segment manager reporting directly to the ChiefExecutive Officer who effectively serves as the Chief Operating Decision Maker(“CODM”). The CODM makes decisions about resources to be allocated to thesegments and assesses their performance using sales and operating profits.

 

                The accountingpolicies of segments are the same as those described in the summary ofsignificant accounting policies included in the Group’s annual consolidatedfinancial statements. Performance of the segments is evaluated on net sales andoperating profit before income taxes.

 

                The followingtables present selected segment data for the twelve months ended December 31,2002, the eight months ended December 31, 2001, four months ended April 30,2001 and the twelve months ended December 31, 2000:

 

***Statement of operations segment disclosures***

 

**Successor**

 
| **Twelve months ended  December 31, 2002  Business Areas**                      |   | **Germany** |       | **Western  Europe** |       | **Eastern  Europe** |       | **North  America** |       | **Others*** |       | **Reconciliation/  Corporate** |       | **Total**     |       |
|---------------------------------------------------------------------------------|--------|-------------|------------|---------------------|------------|---------------------|------------|--------------------|------------|-------------|------------|--------------------------------|------------|---------------|------------|
| Total sales                                                                     |   | 718,952     |       | 283,051             |       | 239,820             |       | 338,593            |       | 56,792      |       | 12,068                         |       | 1,649,276     |       |
| Inter-segment sales                                                             |   | 69,384      |       | 21,565              |       | 20,991              |       | 1,615              |       | 490         |       | 9,235                          |       | 123,280       |       |
| **Net sales**                                                                   |   | **649,568** | ** ** | **261,486**         | ** ** | **218,829**         | ** ** | **336,978**        | ** ** | **56,302**  | ** ** | **2,833**                      | ** ** | **1,525,996** | ** ** |
| Operating profit (loss)                                                         |   | 110,744     |       | 8,237               |       | 33,539              |       | 22,905             |       | 7,633       |       | (51,876                        | )          | 131,182       |       |
| Depreciation and amortization of intangibles and property, plant and  equipment |   | 85,402      |       | 46,824              |       | 35,565              |       | 70,170             |       | 8,738       |       | 6,787                          |       | 253,486       |       |
| *Thereof  impairment losses*                                                    |   | *—*    | * *   | *1.251*             | * *   | *—*            | * *   | *—*           | * *   | *292*       | * *   | *—*                       | * *   | *1.543*       | * *   |
| Interest income                                                                 |   | 403         |       | 509                 |       | 3,737               |       | 800                |       | 291         |       | 5,023                          |       | 10,763        |       |
| Interest expense                                                                |   | 2,383       |       | 1,368               |       | 836                 |       | 22,776             |       | 1,869       |       | 121,553                        |       | 150,785       |       |
| Equity method investments income (expense), net                                 |   | 2,109       |       | —              |       | (68                 | )          | (20,564            | )          | 5.902       |       | —                         |       | (12,621       | )          |
| Income tax benefit (expense)                                                    |   | (50,173     | )          | (205                | )          | (6,402              | )          | (4,321             | )          | (580        | )          | 26,922                         |       | (34,759       | )          |

 

----

*                                         includesLatin America and Asia

 
| **Eight  months ended  December 31, 2001  Business Areas**                      |   | **Germany** |       | **Western  Europe** |       | **Eastern  Europe** |       | **North  America** |       | **Others*** |       | **Reconciliation/  Corporate** |       | **Total**     | ** ** |
|---------------------------------------------------------------------------------|--------|-------------|------------|---------------------|------------|---------------------|------------|--------------------|------------|-------------|------------|--------------------------------|------------|---------------|------------|
| Total sales                                                                     |   | 472,694     |       | 189,817             |       | 153,483             |       | 259,511            |       | 39,433      |       | 5,252                          |       | 1,120,190     |       |
| Inter-segment sales                                                             |   | 45,841      |       | 13,313              |       | 10,096              |       | 717                |       | 284         |       | 3,351                          |       | 73,602        |       |
| **Net sales**                                                                   |   | **426,853** | ** ** | **176,504**         | ** ** | **143,387**         | ** ** | **258,794**        | ** ** | **39,149**  | ** ** | **1,901**                      | ** ** | **1,046,588** | ** ** |
| Operating profit (loss)                                                         |   | 38,234      |       | 7,652               |       | 15,336              |       | (894               | )          | 5,676       |       | (28,521                        | )          | 37,483        |       |
| Depreciation and amortization of intangibles and property, plant and  equipment |   | 66,413      |       | 28,422              |       | 21,427              |       | 59,413             |       | 6,759       |       | 299                            |       | 182,733       |       |
| Interest income                                                                 |   | 89          |       | 196                 |       | 2,622               |       | 1,823              |       | 431         |       | 12,257                         |       | 17,418        |       |
| Interest expense                                                                |   | 17,997      |       | 1,878               |       | 1,813               |       | 22,364             |       | 2,010       |       | 74,735                         |       | 120,797       |       |
| Equity method investments income (expense), net                                 |   | 2,231       |       | —              |       | —              |       | (1,244             | )          | (16,200     | )          | —                         |       | (15,213       | )          |
| Income tax benefit (expense)                                                    |   | (22,482     | )          | (2,981              | )          | (4,042              | )          | 9,538              |       | (438        | )          | 46,568                         |       | 26,163        |       |

 

----

*              includes Latin America and Asia

 

 

F-21

----

 

**Predecessor**

** **
| **Four months ended  April 30, 2001  Business Areas**                                       |   | **Germany** |       | **Western  Europe** |       | **Eastern  Europe** |       | **North  America** |       | **Latin  America** |       | **Asia/  Africa** |       | **Reconciliation/  Corporate** |       | **Total**     |       |
|---------------------------------------------------------------------------------------------|--------|-------------|------------|---------------------|------------|---------------------|------------|--------------------|------------|--------------------|------------|-------------------|------------|--------------------------------|------------|---------------|------------|
| Total sales                                                                                 |   | 241,280     |       | 91,423              |       | 74,802              |       | 131,785            |       | 26,395             |       | 35,707            |       | 2,003                          |       | 603,395       |       |
| Inter-segment sales                                                                         |   | 16,173      |       | 5,813               |       | 4,357               |       | 125                |       | 1,279              |       | 275               |       | 910                            |       | 28,932        |       |
|                                                                                        |   |        |       |                |       |                |       |               |       |               |       |              |       |                           |       |          |       |
| **Net sales**                                                                               |   | **225,107** | ** ** | **85,610**          | ** ** | **70,445**          | ** ** | **131,660**        | ** ** | **25,116**         | ** ** | **35,432**        | ** ** | **1,093**                      | ** ** | **574,463**   | ** ** |
|                                                                                        |   |        |       |                |       |                |       |               |       |               |       |              |       |                           |       |          |       |
| Operating (loss) profit                                                                     |   | 50,314      |       | 5,871               |       | 9,197               |       | 7,446              |       | (4,258             | )          | (814              | )          | (21,302                        | )          | 46,454        |       |
| Depreciation, amortization and impairment of intangibles and property,  plant and equipment |   | 16,072      |       | 11,119              |       | 9,858               |       | 22,729             |       | 10,122             |       | 4,214             |       | 2,809                          |       | 76,923        |       |
| *Thereof  impairment losses*                                                                |   | *2,356*     | * *   | *—*            | * *   | *—*            | * *   | *—*           | * *   | *—*           | * *   | *—*          | * *   | *—*                       | * *   | *2,356*       | * *   |
| Interest income                                                                             |   | —      |       | 75                  |       | 959                 |       | 384                |       | 245                |       | 368               |       | 3,055                          |       | 5,086         |       |
| Interest expense                                                                            |   | 2,558       |       | 1,781               |       | 1,691               |       | 6,891              |       | 2,041              |       | 3,476             |       | 23,012                         |       | 41,450        |       |
| Share of loss in equity investments                                                         |   | —      |       | —              |       | —              |       | —             |       | (1,966             | )          | (3,140            | )          | —                         |       | (5,106        | )          |
| Income tax benefit (expense)                                                                |   | (29,398     | )          | (1,229              | )          | (1,807              | )          | 3,756              |       | 544                |       | (3,144            | )          | 26,465                         |       | (4,813        | )          |
|                                                                                        |   |        |       |                |       |                |       |               |       |               |       |              |       |                           |       |          |       |
| **Twelve  months ended  December 31, 2000  Business Areas**                                 |   | **Germany** |       | **Western  Europe** |       | **Eastern  Europe** |       | **North  America** |       | **Latin  America** |       | **Asia/  Africa** |       | **Reconciliation/  Corporate** |       | **Total**     | ** ** |
| Total sales                                                                                 |   | 788,314     |       | 278,529             |       | 213,432             |       | 414,743            |       | 80,997             |       | 92,662            |       | —                         |       | 1,868,677     |       |
| Inter-segment sales                                                                         |   | 116,566     |       | 16,043              |       | 15,294              |       | 20,407             |       | 3,148              |       | 1,296             |       | —                         |       | 172,754       |       |
|                                                                                        |   |        |       |                |       |                |       |               |       |               |       |              |       |                           |       |          |       |
| **Net sales**                                                                               |   | **671,748** | ** ** | **262,486**         | ** ** | **198,138**         | ** ** | **394,336**        | ** ** | **77,849**         | ** ** | **91,366**        | ** ** | **—**                     | ** ** | **1,695,923** | ** ** |
|                                                                                        |   |        |       |                |       |                |       |               |       |               |       |              |       |                           |       |          |       |
| Operating (loss) profit                                                                     |   | 103,108     |       | 19,799              |       | 25,656              |       | (7,490             | )          | (65,900            | )          | (17,791           | )          | (60,261                        | )          | (2,879        | )          |
| Depreciation, amortization and impairment of intangibles and property  plant and equipment  |   | 73,819      |       | 33,704              |       | 29,944              |       | 99,775             |       | 68,381             |       | 35,994            |       | —                         |       | 341,617       |       |
| *Thereof  impairment losses*                                                                |   | *23,150*    | * *   | *—*            | * *   | *3,469*             | * *   | *31,645*           | * *   | *48,241*           | * *   | *22,087*          | * *   | *—*                       | * *   | *128,592*     | * *   |
| Interest income                                                                             |   | (1,859      | )          | 461                 |       | 2,689               |       | 2,104              |       | 766                |       | 718               |       | 2,732                          |       | 7,611         |       |
| Interest expense                                                                            |   | 2,816       |       | 5,290               |       | 4,226               |       | 27,885             |       | 16,310             |       | 3,534             |       | 36,070                         |       | 96,131        |       |
| Share of profit (loss) in equity investments                                                |   | 1,797       |       | —              |       | 3,716               |       | —             |       | (6,372             | )          | (207,093          | )          | —                         |       | (207,952      | )          |
| Income tax benefit (expense)                                                                |   | 179,845     |       | (7,557              | )          | (6,739              | )          | 17,069             |       | (487               | )          | (913              | )          | (42,986                        | )          | 138,232       |       |

 

 

F-22

----

 

***Balance sheet segment disclosures***

 

**Successor**

 

**December 31, 2002**

 
| **Business  Areas**       |   | **Germany** |   | **Western  Europe** |   | **Eastern  Europe** |   | **North  America** |   | **Others(*)** |   | **Reconciliation/  Corporate** |   | **Total** |   |
|---------------------------|--------|-------------|--------|---------------------|--------|---------------------|--------|--------------------|--------|---------------|--------|--------------------------------|--------|-----------|--------|
|                      |   |        |   |                |   |                |   |               |   |          |   |                           |   |      |   |
| Operating assets          |   | 940,599     |   | 426,836             |   | 407,728             |   | 617,571            |   | 103,405       |   | 209,182                        |   | 2,705,321 |   |
| Operating liabilities     |   | 157,574     |   | 62,272              |   | 39,976              |   | 45,755             |   | 11,115        |   | 196,153                        |   | 512,845   |   |
| Capital expenditures      |   | 35,864      |   | 23,794              |   | 29,028              |   | 37,531             |   | 8,827         |   | 857                            |   | 135,901   |   |
| Equity method investments |   | 256         |   | —              |   | 2,732               |   | —             |   | 10,212        |   | —                         |   | 13,200    |   |

 

----

*                                         includesLatin America and Asia.

 

**December 31, 2001**

 
| **Business  Areas**       |   | **Germany** |   | **Western  Europe** |   | **Eastern  Europe** |   | **North  America** |   | **Others(*)** |   | **Reconciliation/  Corporate** |   | **Total** |   |
|---------------------------|--------|-------------|--------|---------------------|--------|---------------------|--------|--------------------|--------|---------------|--------|--------------------------------|--------|-----------|--------|
|                      |   |        |   |                |   |                |   |               |   |          |   |                           |   |      |   |
| Operating assets          |   | 1,101,224   |   | 437,976             |   | 393,116             |   | 785,652            |   | 122,540       |   | 143,327                        |   | 2,983,835 |   |
| Operating liabilities     |   | 175,451     |   | 64,805              |   | 40,651              |   | 61,707             |   | 12,236        |   | 168,054                        |   | 522,904   |   |
| Capital expenditures      |   | 30,006      |   | 16,527              |   | 13,271              |   | 14,993             |   | 4,100         |   | 125                            |   | 79,022    |   |
| Equity method investments |   | 256         |   | —              |   | 200                 |   | 6,453              |   | 12,277        |   | —                         |   | 19,186    |   |

 

----

*      includesLatin America and Asia.

 

 

                The column *reconciliation/corporate*primarily includes income and expenses as well as assets and liabilitiesrelated to corporate items that are included separately within the Group, whichare not allocated to the segments.

 

                Segmentoperating assets are defined as total assets excluding investments, deposits,certain receivables and deferred tax assets. Segment operating liabilities aredefined as total liabilities excluding deferred tax liabilities, certainprovisions, derivative financial instruments, minority interest, corporate debtand taxes payable.

 

                The pricing of inter-segment sales is based on an arms lengthprinciple.

 

                The UnitedStates of America is the only country, other than Germany, with sales greaterthan 10% of the Group’s consolidated net sales. Selected information relatingsolely to the United States of America is presented in the table below:

 
|                    |   | **Successor**                                 |   | **Predecessor**                              |   |
|-------------------------|--------|-----------------------------------------------|--------|----------------------------------------------|--------|
|                    |   | **Twelve  months  ended  December 31,  2002** |   | **Eight  months  ended  December 31,  2001** |   | **Four  months  ended  April 30,  2001** |   | **Twelve  months  ended  December 31,  2000** |   |
|                    |   |                                          |   |                                         |   |   |   |   |   |
| Net sales               |   | 327,858                                       |   | 243,922                                      |   | 121,335 |   | 360,715 |   |
| Operating profit (loss) |   | 25,010                                        |   | (1,136                                       | )      | 7,118 |   | (9,070 | ) |
| Capital expenditures    |   | 37,354                                        |   | 14,307                                       |   | 7,043 |   | 51,262 |   |
| Operating assets        |   | 620,397                                       |   | 771,102                                      |   | 701,720 |   | 670,413 |   |

 

 

F-23

----

 

                Thereconciliation of segment operating assets and liabilities to the consolidatedtotal assets and liabilities at the end of each year is as follows:

 
|                                                                  |   | **December  31,  2002** |       | **December  31,  2001** |       |
|-----------------------------------------------------------------------|--------|-------------------------|------------|-------------------------|------------|
| **Assets**                                                            |   |                    |       |                    |       |
| Segment operating assets for total  reportable business segments      |   | 2,496,139               |       | 2,840,508               |       |
| Items excluded from segment assets                                    |   | 233,487                 |       | 365,651                 |       |
| Other corporate assets                                                |   | 209,182                 |       | 143,327                 |       |
|                                                                  |   |                    |       |                    |       |
| **Total**                                                             |   | **2,938,808**           | ** ** | **3,349,486**           | ** ** |
|                                                                  |   |                    |       |                    |       |
| **Liabilities**                                                       |   |                    |       |                    |       |
| Segment operating liabilities for total  reportable business segments |   | 316,692                 |       | 354,850                 |       |
| Items excluded from segment liabilities                               |   | 1,606,464               |       | 1,835,055               |       |
| Other corporate liabilities                                           |   | 196,153                 |       | 168,054                 |       |
|                                                                  |   |                    |       |                    |       |
| **Total**                                                             |   | **2,119,309**           | ** ** | **2,357,959**           | ** ** |

 

                Thereconciliation of segment operating profit to the consolidated net loss foreach year is as follows:

 
|                                                             |   | **Successor**                                 |   | **Predecessor**                              |   |
|------------------------------------------------------------------|--------|-----------------------------------------------|--------|----------------------------------------------|--------|
|                                                             |   | **Twelve  months  ended  December 31,  2002** |   | **Eight  months  ended  December 31,  2001** |   | **Four  months  ended  April 30,  2001** |   | **Twelve  months  ended  December 31,  2000** |   |
|                                                             |   |                                          |   |                                         |   |   |   |   |   |
| Segment operating profit for total  reportable business segments |   | 183,058                                       |   | 66,004                                       |   | 67,756 |   | 57,382 |   |
| Items excluded from segment operating  profit                    |   | (221,053                                      | )      | (107,014                                     | )      | (59,952 | ) | (202,686 | ) |
| Other corporate expense                                          |   | (51,876                                       | )      | (28,521                                      | )      | (21,302 | ) | (60,261 | ) |
|                                                             |   |                                          |   |                                         |   |   |   |   |   |
| **Total**                                                        |   | **(89,871**                                   | **)**  | **(69,531**                                  | **)**  | **(13,498** | **)** | **(205,565** | **)** |

 

**7.             Otheroperating income**

 
|                                                                      |   | **Successor**                                 |       | **Predecessor**                              |       |
|---------------------------------------------------------------------------|--------|-----------------------------------------------|------------|----------------------------------------------|------------|
|                                                                      |   | **Twelve  months  ended  December 31,  2002** |       | **Eight  months  ended  December 31,  2001** |       | **Four  months  ended  April 30,  2001** |   | **Twelve  months  ended  December 31,  2000** |   |
|                                                                      |   |                                          |       |                                         |       |   |   |   |   |
| Gains on disposal of intangible assets and  property, plant and equipment |   | 2,829                                         |       | —                                       |       | 1,196 |   | 14,362 |   |
| Legal settlement with foreign government                                  |   | —                                        |       | —                                       |       | — |   | 6,240 |   |
| Release of provisions                                                     |   | 7,977                                         |       | —                                       |       | 105 |   | 3,265 |   |
| Rental income                                                             |   | 2,374                                         |       | 2,271                                        |       | 413 |   | 2,637 |   |
| Appreciation of property, plant and  equipment                            |   | —                                        |       | —                                       |       | — |   | 1,026 |   |
| Foreign currency exchange gains                                           |   | 2,202                                         |       | 752                                          |       | 783 |   | 783 |   |
| Recovery of accounts receivable written-off                               |   | —                                        |       | —                                       |       | 617 |   | 519 |   |
| Insurance claims                                                          |   | 456                                           |       | 155                                          |       | 101 |   | 355 |   |
| Revaluation due to inflation accounting                                   |   | 513                                           |       | 952                                          |       | 67 |   | — |   |
| Miscellaneous                                                             |   | 9,314                                         |       | 6,528                                        |       | 6,960 |   | 8,823 |   |
| **Total**                                                                 |   | **25,665**                                    | ** ** | **10,658**                                   | ** ** | **10,242** | ** ** | **38,010** | ** ** |

 

 

                Gains on thedisposal of intangible assets and property, plant and equipment in 2000resulted primarily from the sale of land in Germany totaling €9,189 and thesale of property, plant and equipment not used in business operations withinthe rest of the Group.

 

 

F-24

----

 

**8.             Otheroperating expense**

 
|                                                                       |   | **Successor**                                 |       | **Predecessor**                              |       |
|----------------------------------------------------------------------------|--------|-----------------------------------------------|------------|----------------------------------------------|------------|
|                                                                       |   | **Twelve  months  ended  December 31,  2002** |       | **Eight  months  ended  December 31,  2001** |       | **Four  months  ended  April 30,  2001** |   | **Twelve  months  ended  December 31,  2000** |   |
|                                                                       |   |                                          |       |                                         |       |   |   |   |   |
| Amortization of goodwill                                                   |   | 28,697                                        |       | 19,484                                       |       | 5,978 |   | 9,322 |   |
| Foreign currency exchange losses                                           |   | 4,052                                         |       | 701                                          |       | 66 |   | 488 |   |
| Losses on disposal of intangible assets and  property, plant and equipment |   | 2,488                                         |       | —                                       |       | — |   | 3,106 |   |
| Change in goodwill                                                         |   | 1,733                                         |       | —                                       |       | — |   | — |   |
| Devaluations due to inflation accounting                                   |   | —                                        |       | —                                       |       | 514 |   | 4,005 |   |
| Product liabilities                                                        |   | —                                        |       | —                                       |       | — |   | 865 |   |
| Miscellaneous                                                              |   | 3,426                                         |       | 3,341                                        |       | 4,575 |   | 3,937 |   |
| **Total**                                                                  |   | **40,396**                                    | ** ** | **23,526**                                   | ** ** | **11,133** | ** ** | **21,723** | ** ** |

 

**9.             Otherinvestment income (expense), net**

 
|                                                 |   | **Successor**                                 |       | **Predecessor**                              |       |
|------------------------------------------------------|--------|-----------------------------------------------|------------|----------------------------------------------|------------|
|                                                 |   | **Twelve  months  ended  December 31,  2002** |       | **Eight  months  ended  December 31,  2001** |       | **Four  months  ended  April 30,  2001** |   | **Twelve  months  ended  December 31,  2000** |   |
|                                                 |   |                                          |       |                                         |       |   |   |   |   |
| Income from other investments                        |   | 1,552                                         |       | 427                                          |       | 644 |   | 1,103 |   |
| Gain on disposal of other investments                |   | 3,033                                         |       | —                                       |       | — |   | 2,349 |   |
| Release of   provisions                         |   | 2,270                                         |       | —                                       |       | — |   | — |   |
| Other income from investments and long-term  loans   |   | 233                                           |       | 47                                           |       | — |   | 407 |   |
|                                                 |   |                                          |       |                                         |       |   |   |   |   |
| **Investment income**                                |   | **7,088**                                     | ** ** | **474**                                      | ** ** | **644** | ** ** | **3,859** | ** ** |
|                                                 |   |                                          |       |                                         |       |   |   |   |   |
| Write-off of other investments                       |   | (1,647                                        | )          | (2,688                                       | )          | — |   | (15,545 | ) |
| Losses on disposal of other investments              |   | (150                                          | )          | —                                       |       | (5,104 | ) | (229 | ) |
| Other expenses from investments and  long-term loans |   | (9,984                                        | )          | (2,242                                       | )          | (84 | ) | (2,842 | ) |
|                                                 |   |                                          |       |                                         |       |   |   |   |   |
| **Investment expense**                               |   | **(11,781**                                   | **)**      | **(4,930**                                   | **)**      | **(5,188** | **)** | **(18,616** | **)** |
|                                                 |   |                                          |       |                                         |       |   |   |   |   |
| **Investment income (expense), net**                 |   | **(4,693**                                    | **)**      | **(4,456**                                   | **)**      | **(4,544** | **)** | **(14,757** | **)** |

 

                Other expensefrom investments and long-term loans in 2002 resulted mainly from provisionsfor the at equity method investments €3,786 and Vietnam €1,000 and additionalprovisions for our divestiture program €3,142.

 

 

F-25

----

 

**10.          Impairmentof intangible assets and property, plant and equipment**

 
|                                                                   |   | **Successor**                                |       | **Predecessor**                              |       |
|------------------------------------------------------------------------|--------|----------------------------------------------|------------|----------------------------------------------|------------|
|                                                                   |   | **Twelve months  ended  December 31,  2002** |       | **Eight  months  ended  December 31,  2001** |       | **Four  months  ended  April 30,  2001** |   | **Twelve  months  ended  December 31,  2000** |   |
|                                                                   |   |                                         |       |                                         |       |   |   |   |   |
| Goodwill and other intangible assets (see  Note 16)                    |   | —                                       |       | —                                       |       | 2,356 |   | 11,842 |   |
| Property, plant and equipment                                          |   | 1,543                                        |       | —                                       |       | — |   | 116,750 |   |
|                                                                   |   |                                         |       |                                         |       |   |   |   |   |
| **Impairment of intangible assets and  property, plant and equipment** |   | **1,543**                                    | ** ** | **—**                                   | ** ** | **2,356** | ** ** | **128,592** | ** ** |

 

                During thetwelve months ended December 31, 2002, impairment charges amounting to €1,251and €292 related to plants in Spain and in China respectively, were recorded.

 

                During thetwelve months ended December 31, 2000, the Group recorded impairment chargesrelating to property, plant and equipment aggregating €116,750, included inadditions to depreciation of property, plant and equipment, as follows:

 

•                                            €89,402relating to values of filling stations and on-site plants located in Germany,the United States, Brazil, Singapore, Mexico, Peru and Argentina. Discountedfuture cash flows of these plants indicated that impairment had occurred.

 

•                                            €8,129relating to plants located in Mexico and Trinidad and Tobago. The plants werepurchased for production, initially for permanent use, while additional plantswere under construction. Upon completion of the additional plants, it wasdetermined that there would be no future uses for the purchased facilities.

 

•                                            €19,219relating to equipment and other assets (primarily in the United States andTrinidad and Tobago) to be disposed of. The impaired assets in the UnitedStates relate to on-site assets and assets used as spare parts. The assets arenon-revenue producing and accordingly valued at disposal value. The impairmentcharge in Trinidad and Tobago relates to nitrogen compressors which were builtspecifically for Messer Trinidad and Tobago, but never put into operation. Thevaluation of these assets was determined based on previous experience and thirdparty appraisals.

 

**11.          Restructuringand reorganization charges**

 

                During 2000,and as a direct result of the anticipated changes in the Group’s ownership, theGroup has realigned itself and was planning to exit from the Asian, African andLatin American markets. The Group has recognized restructuring andreorganization costs in connection with this realignment, as summarized below:

 
|            |   | **Successor**                                 |       | **Predecessor**                              |       |
|-----------------|--------|-----------------------------------------------|------------|----------------------------------------------|------------|
|            |   | **Twelve  months  ended  December 31,  2002** |       | **Eight  months  ended  December 31,  2001** |       | **Four  months  ended  April 30,  2001** |   | **Twelve  months  ended  December 31,  2000** |   |
|            |   |                                          |       |                                         |       |   |   |   |   |
| Severance costs |   | 4,630                                         |       | 16,231                                       |       | 2,540 |   | 16,868 |   |
| Other           |   | 8,152                                         |       | 9,035                                        |       | — |   | 3,493 |   |
|            |   |                                          |       |                                         |       |   |   |   |   |
| **Total**       |   | **12,782**                                    | ** ** | **25,266**                                   | ** ** | **2,540** | ** ** | **20,361** | ** ** |

 

                The Grouprecorded total charges of €12,782 during the twelve months ended December 31,2002. These charges relate to severance costs €4,630 and other restructuringand reorganization charges €8,152. Severance costs consist mainly ofcompensation for employees in the U.K. and Germany. Other restructuring andreorganization charges relate to cost incurred in connection with thedivestiture program.

 

 

F-26

----

 

                Additionalrestructuring and reorganization charges amounted to €25,266 in the eightmonths ended December 31, 2001. These additional restructuring charges relatedto severance costs €16,231 and other restructuring and reorganization charges€9,035. Severance costs consist of compensation for employees in Serbia,Belgium, Austria, Germany, France, United Kingdom, Croatia, Canada andsubsidiaries in Central America. Other restructuring and reorganization chargesrelate to various projects of reorganization within treasury and logistics aswell as to relocation costs and rentals for non-used locations related to thedivestiture program.

 

                In May 2001,the Company finalized the terms of the restructuring plan and recognized anadditional restructuring provisions aggregating to €13,562 as part of thepurchase price allocation which meets the criteria of IAS 22 “BusinessCombinations”.

 

                As of April30, 2001, the Company was in the process of developing the main features of arestructuring plan involving, among other things, providing compensation toemployees of Messer Griesheim, based in Europe, for involuntarily terminationof their employment. The Group had announced the main features of the planprior to May 1, 2001 to its employees.

 

                Prior to theacquisition transaction in 2001, the Group recorded restructuring chargestotaling €2,540 related primarily to severance payments made to the Group’scorporate functions, in addition to the U.S., U.K. and Serbian operations.

 

                In 2000,severance costs include payments to former executive employees associated withthe Asian and Latin American operations who were released in connection withthe Group’s planned exit from these markets, and payments to executives upontermination of the Group’s long-term incentive plan. These costs were recordedin accordance with IAS 37 “*Provisions, Contingent Liabilities and ContingentAssets*”.

 

**12.          Interestexpense, net**

 
|                                                                   |   | **Successor**                                 |   | **Predecessor**                              |   |
|------------------------------------------------------------------------|--------|-----------------------------------------------|--------|----------------------------------------------|--------|
|                                                                   |   | **Twelve  months  ended  December 31,  2002** |   | **Eight  months  ended  December 31,  2001** |   | **Four months  ended  April 30,  2001** |   | **Twelve  months  ended  December 31,  2000** |   |
| Interest income                                                        |   | 10,763                                        |   | 17,418                                       |   | 5,086 |   | 7,611 |   |
| Interest expense                                                       |   | (131,878                                      | )      | (113,236                                     | )      | (42,044 | ) | (100,475 | ) |
| Capitalized finance costs related to the  construction of fixed assets |   | —                                        |   | —                                       |   | 594 |   | 4,344 |   |
| Amortization of deferred financing fees                                |   | (18,907                                       | )      | (7,561                                       | )      | — |   | — |   |
|                                                                   |   |                                          |   |                                         |   |   |   |   |   |
| **Interest expense, net**                                              |   | **(140,022**                                  | **)**  | **(103,379**                                 | **)**  | **(36,364** | **)** | **(88,520** | **)** |

 

                Financingfees relate to the refinancing of the Group as described in Note 4 “Financingtransactions”. The recorded amount of €18,907 and €7,561 for the twelve monthsended December 31, 2002 and the eight months ended December 31, 2001respectively, consists of the amortization of capitalized consulting fees andcapitalized placement fees for the Senior Notes and Senior facilitiesagreement. During 2002 unamortized financing costs of €8,392 were expensed inconnection with the repurchase of senior notes, voluntary and mandatory earlyrepayments of senior facilities. Interest expense for the twelve months endedDecember 31, 2002 and eight months ended December 31, 2001, includes effectsfrom interest rate swap agreements of €13,339 and €3,266 respectively.

 

 

F-27

----

 

**13.          Divestitureprogram**

 

***Investments in subsidiaries available forsale***

 

                As ofDecember 31, 2002 and 2001, the Group has determined the fair value of theinvestments in subsidiaries available for sale to be approximately €18,078 and€42,183 respectively. This amount is comprised of the following:

 
|                                                          |   | **December  31,  2002** |       | **December  31,  2001** |       |
|---------------------------------------------------------------|--------|-------------------------|------------|-------------------------|------------|
|                                                          |   |                    |       |                    |       |
| Net assets of investments in subsidiaries  available for sale |   | 14,559                  |       | 41,623                  |       |
| Advances to subsidiaries (net of  impairment)                 |   | 3,519                   |       | 7,760                   |       |
| Provision for obligations                                     |   | —                  |       | (7,200                  | )          |
|                                                          |   |                    |       |                    |       |
| **Total**                                                     |   | **18,078**              | ** ** | **42,183**              | ** ** |

 

                Set forthbelow is summarized financial information relating to the net assets of thesubsidiaries which are classified as “investments in subsidiaries available forsale” as of December 31, 2002 and 2001:

 
|                    |   | **December  31,  2002** |       | **December  31,  2001** |       |
|-------------------------|--------|-------------------------|------------|-------------------------|------------|
|                    |   |                    |       |                    |       |
| Current assets          |   | 14,226                  |       | 42,960                  |       |
| Non-current assets      |   | 20,685                  |       | 220,607                 |       |
|                    |   |                    |       |                    |       |
| **Total assets**        |   | **34,911**              | ** ** | **263,567**             | ** ** |
|                    |   |                    |       |                    |       |
| Current liabilities     |   | 6,562                   |       | 90,486                  |       |
| Non-current liabilities |   | 13,790                  |       | 131,458                 |       |
|                    |   |                    |       |                    |       |
| **Total liabilities**   |   | **20,352**              | ** ** | **221,944**             | ** ** |
|                    |   |                    | ** ** |                    | ** ** |
| **Total net assets**    |   | **14,559**              | ** ** | **41,623**              | ** ** |

 

                In connectionwith the funding of the working capital of non-consolidated subsidiariesavailable for sale, Messer Griesheim has entered into credit agreements withseveral of its subsidiaries, with a total of €3,519 and €7,760 outstanding asof December 31, 2002 and December 31, 2001, respectively. The interest rate onthese credit agreements is 7.67% and 5.77%, respectively. In addition to thecredit agreements provided to several subsidiaries for working capital, MesserGriesheim made cash investments in subsidiaries available for sale for thepurpose of extinguishing the subsidiary debt as part of the divestitureprogram.

 

During the twelve months ended December 31, 2002 and the eight monthsended December 31, 2001, pursuant to its divestiture program, the groupcompleted the following disposals of its business activities:

 

**Divestiture of Messer Gases S.A. in Venezuela**

 

                In February,2002 the Group sold all of the outstanding shares of Messer Gases S.A. inVenezuela to Lecont AG. The impact of this transaction on the consolidatedfinancial statements was not significant.

 

**Divestiture of Nitrogen services business inthe U.K.**

 

                In March 2002the Group sold all assets as well as the existing customer contracts andcontacts of the Nitrogen service business in the U.K. to Weatherford U.K. Ltd.The impact of this transaction on the consolidated financial statements was notsignificant.

 

**Divestiture of the Company’s activities inEgypt**

 

                In April 2002the Group sold all shares of Messer Egypt S.A.E, Messer Gases Suez S.A.E andMesser Gases Dekheila S.A.E in Egypt to Air Liquide. The impact of thistransaction on the consolidated financial statements was not significant.

 

 

F-28

----

 

**Divestiture of the Company’s activities inTrinidad & Tobago**

 

                In May 2002the Group sold all shares of Messer Trinidad & Tobago Ltd. and Neal andMassy Gas Products, Ltd. in Trinidad & Tobago to Air Liquide. The impact ofthis transaction on the consolidated financial statements was not significant.

 

**Divestitureof Canada**

 

                During August2002 the company sold the assets of Messer Griesheim Industries of Canada Inc.,Canada to Air Liquide. The impact of this transaction on the consolidatedfinancial statements was not significant.

 

**Divestiture of Messer Medical GmbH**

 

                OnJuly 5, 2001 the Group sold all of the outstanding shares of MesserMedical GmbH (Germany), the leading company for the home care business inGermany, to Air Products GmbH (Germany). The difference between the net saleconsideration received and the initial purchase price allocation was recordedas an adjustment to goodwill.

 

**Divestiture of healthcare business in Canada**

 

                OnAugust 1, 2001 the Group sold all assets of the healthcare business withinMesser Griesheim Industries Canada Inc. (Canada) to PraxairCanada, Inc. The difference between the net sale consideration receivedand the initial purchase price allocation was recorded as an adjustment to goodwill.

 

**Divestiture of INO business in Austria**

 

                OnDecember 12, 2001 the Group sold all assets of the INO business withinMesser Austria GmbH. (Austria) to Linde. The INO business activities wereengaged in the production and distribution of pharmaceutical NO mixtures. Thedifference between the net sale consideration received and the initial purchaseprice allocation was recorded as an adjustment to goodwill.

 

**Divestiture of CO2-activitiesin North America**

 

                OnDecember 21, 2001 the Group sold all assets of its CO2-activitiesin North America. The difference between the net sale consideration receivedand the initial purchase price allocation was recorded as an adjustment togoodwill*.*

 

**Divestiture of Messer Griesheim do Brazil**

 

                OnOctober 23, 2001 the Group sold all of the outstanding shares of MesserGriesheim do Brazil Ltda. (Brazil) to Air Liquide. Messer Griesheim doBrazil is engaged in the production and sale of industrial gases in Brazil andowns air separation units and filling stations for hydrogen and carbon dioxide.The difference between the net sale consideration received and the initialpurchase price allocation was recorded as an adjustment to goodwill.

 

**Divestiture of Messer Argentina**

 

                OnOctober 23, 2001 the Group sold all shares of Messer Argentina Ltd.to Air Liquide. Messer Argentina is an industrial gas production company withair separation units, filling stations and a nitrogen pipeline including thedistribution services. The difference between the net sale consideration receivedand the initial purchase price allocation was recorded as an adjustment togoodwill*.*

 

 

F-29

----

 

**Divestiture of Messer Mexico**

 

                OnDecember 14, 2001 the Group sold all shares of Messer Griesheim de MexicoS.A. de C.V. to Air Products. Messer Mexico was engaged in the production andsale of industrial gases and operated air separation units and filling stationsespecially in the production of oxygen. The difference between the net saleconsideration received and the initial purchase price allocation was recordedas an adjustment to goodwill*.*

 

**Divestiture of the non-cryogenic business**

 

                OnOctober 3, 2001 the Group sold all shares of Mahler Italfilo Holding GmbH,Generon Inc. and Messer Shareholdings in SMC to Management. Mahler ItalfiloHolding was the shareholder of Mahler Italfilo Engineering S.r.l. and MahlerAGS GmbH, which owned the non-cryogenic plant production operations withlocations in Germany, United States, Italy and China. The difference betweenthe net sale consideration received and the initial purchase price allocationwas recorded as an adjustment to goodwill*.*

 

**Divestiture of Fedgas (South Africa)**

 

                OnOctober 23, 2001 the Group sold all shares of Fedgas, the leadingsubsidiary of the Company`s activities in Southern Africa, to Air Liquide.Fedgas and its subsidiaries were engaged in the production and distribution ofindustrial and specialty gases, the sale of compressed industrial gases andwelding equipment, services for safety, inspection and downtime services duringshutdowns to their clients and the distribution of liquid petroleum gases anddiesel fuel. The difference between the net sale consideration received and theinitial purchase price allocation was recorded as an adjustment to goodwill*.*

 

**Divestiture of Messer Korea**

 

                OnDecember 20, 2001 the Group sold all shares of Messer Korea to a localJoint Venture partner. Messer Korea operated three filling stations and wasengaged in the production and distribution of Carbon dioxide and other specialgases. The difference between the net sale consideration received and theinitial purchase price allocation was recorded as an adjustment to goodwill*.*

 

***Change in fair value of investments insubsidiaries available for sale***

 

                During thetwelve months ended December 31, 2002, the eight months ended December 31,2001, the four months ended April 30, 2001 and the twelve months ended December31, 2000 changes in the estimated fair value of investments in subsidiariesavailable for sale amounted to a loss of €1,577, €5,472, €0 and €0respectively, which has been reflected as “changes in fair value ofsubsidiaries available for sale” in the consolidated statement of operations.

 

 

F-30

----

 

***Other subsidiaries included in thedivestiture program***

 

                The Groupcontinues to consolidate in its financial statements the subsidiaries includedin the divestiture program which were originally expected to be sold subsequentto April 30, 2002 (see Note 40 “Reconciliation to U.S. GAAP” for a discussionof SFAS 144). These operations are reflected in the “Others” segment in theSuccessor’s financial statements. Summarized condensed financial informationrelated to these subsidiaries and net assets at December 31, 2002 and 2001 areset forth below:

 
|                                                       |   | **December  31,  2002** |       | **December  31,  2001** |       |
|------------------------------------------------------------|--------|-------------------------|------------|-------------------------|------------|
|                                                       |   |                    |       |                    |       |
| **Balance Sheet**                                          |   |                    |       |                    |       |
| Current assets of other operations held for  sale          |   | 28,208                  |       | 38,091                  |       |
| Non-current asset of other operations held  for sale       |   | 87,423                  |       | 100,686                 |       |
|                                                       |   |                    |       |                    |       |
| **Total assets**                                           |   | **115,631**             | ** ** | **138,777**             | ** ** |
|                                                       |   |                    |       |                    |       |
| Current liabilities of other operations  held for sale     |   | 15,329                  |       | 13,221                  |       |
| Non-current liabilities of other operations  held for sale |   | 18,523                  |       | 30,946                  |       |
|                                                       |   |                    |       |                    |       |
| **Total liabilities**                                      |   | **33,852**              | ** ** | **44,167**              | ** ** |

 

**Resultsof operations, included in consolidated totals:**

 
|                 |   | **Twelve  months ended  December 31, 2002** |       | **Eight  months ended  December 31, 2001** |       |
|----------------------|--------|---------------------------------------------|------------|--------------------------------------------|------------|
|                 |   |                                        |       |                                       |       |
| Net sales            |   | 56,302                                      |       | 39,149                                     |       |
| Cost of sales        |   | (33,598                                     | )          | (22,716                                    | )          |
| Other expenses (net) |   | (16,449                                     | )          | (13,048                                    | )          |
| Income tax expense   |   | (580                                        | )          | (438                                       | )          |
|                 |   |                                        |       |                                       |       |
| **Net income**       |   | **5,675**                                   | ** ** | **2,947**                                  | ** ** |

 

**Cashflows, included in consolidated totals:**

 
|                 |   | **Twelve  months ended  December 31, 2002** |   | **Eight  months ended  December 31, 2001** |   |
|----------------------|--------|---------------------------------------------|--------|--------------------------------------------|--------|
|                 |   |                                        |   |                                       |   |
| Operating activities |   | 14,415                                      |   | 11,713                                     |   |
| Investing activities |   | (6,640                                      | )      | (4,228                                     | )      |
| Financing activities |   | (10,374                                     | )      | (11,292                                    | )      |
|                 |   |                                        |   |                                       |   |
| **Total**            |   | **(2,599**                                  | **)**  | **(3,807**                                 | **)**  |

 

                Results ofoperations for all subsidiaries and net assets included in the divestitureprogram for all periods prior to the acquisition transactions are included inthe consolidated totals in the Company’s consolidated financial statements.Summarized condensed results of operations related to such subsidiaries and netassets are set forth below:

 
|                                                                       |   | **Four  months  ended April 30, 2001** |   | **Twelve  months ended  December 31, 2000** |   |
|----------------------------------------------------------------------------|--------|----------------------------------------|--------|---------------------------------------------|--------|
|                                                                       |   |                                   |   |                                        |   |
| Net sales                                                                  |   | 84,793                                 |   | 407,692                                     |   |
| Cost of sales                                                              |   | (64,541                                | )      | (273,372                                    | )      |
| Losses of investments accounted for under  the equity method of accounting |   | (499                                   | )      | (2,283                                      | )      |
| Other expenses (net)                                                       |   | (36,826                                | )      | (251,464                                    | )      |
| Income tax income (expense)                                                |   | (438                                   | )      | 12,779                                      |   |
|                                                                       |   |                                   |   |                                        |   |
| **Net loss**                                                               |   | **(17,511**                            | **)**  | **(106,648**                                | **)**  |

 

**14.          Resultsfrom discontinuing operations**

 

                In 1999, theCompany announced a plan to dispose of the Group’s cutting and welding division(“C&W”). C&W manufactures products used for steel and aluminiummaterials in oxy-fuel and laser technology, and did not represent a corebusiness area for the Group. In connection with this plan, on December 30,1999, the Group entered into an agreement with MIG, the Group’s minorityshareholder, to acquire the C&W shares. The transaction was to befacilitated via a non-pro rata special dividend to MIG for the amount of thefair value of C&W, followed by (i) a purchase of the C&W shares by MIG,using the dividend as currency, and (ii) a cash payment from MIG to Hoechst foran amount equal to two-thirds of the special dividend. At December 30, 1999,the €150,341 carrying value of the C&W net assets exceeded its thenestimated fair value of €136,000. Accordingly, the Group recorded a €14,341loss and a related tax benefit of €11,588 in 1999.

 

                In 2000, theGroup declared the €136,000 special dividend. As a result of the finaldetermination of the purchase 

 

 

F-31

----

 

price, the Group was released of its obligation to make a capitalcontribution to C&W in April 2000. In addition, the price to be paid by MIGto Hoechst was reduced in August 2000. Accordingly, subsequent to settlement,the Group recorded an additional loss of €18,066 and a related tax benefit of€946 during fiscal 2000.

 

                The operatingresults of C&W have been classified as discontinuing operations in theconsolidated statements of operations for all periods presented.

 

**15.          Incometaxes**

 

                Thecomponents of the provision for income taxes from continuing operations are asfollows:

 
|                                       |   | **Successor**                                 |       | **Predecessor**                              |       |
|--------------------------------------------|--------|-----------------------------------------------|------------|----------------------------------------------|------------|
|                                       |   | **Twelve  months  ended  December 31,  2002** |       | **Eight  months  ended  December 31,  2001** |       | **Four  months  ended  April 30,  2001** |   | **Twelve  months  ended  December 31,  2000** |   |
| **Current income tax benefit (expense):**  |   |                                          |       |                                         |       |   |   |   |   |
| Germany                                    |   | (21,369                                       | )          | (1,389                                       | )          | 716 |   | (1,207 | ) |
| Abroad                                     |   | (13,076                                       | )          | (12,886                                      | )          | 2,701 |   | (9,058 | ) |
|                                       |   |                                          |       |                                         |       |   |   |   |   |
| **Current income tax benefit (expense)**   |   | **(34,445**                                   | **)**      | **(14,275**                                  | **)**      | **3,417** | ** ** | **(10,265** | **)** |
|                                       |   |                                          |       |                                         |       |   |   |   |   |
| **Deferred income tax benefit (expense):** |   |                                          | ** ** |                                         | ** ** |   | ** ** |   | ** ** |
| Germany                                    |   | (1,929                                        | )          | 25,475                                       |       | (6,851 | ) | 137,982 |   |
| Abroad                                     |   | 1,615                                         |       | 14,963                                       |       | (1,379 | ) | 10,515 |   |
|                                       |   |                                          |       |                                         |       |   |   |   |   |
| **Deferred income tax benefit (expense)**  |   | **(314**                                      | **)**      | **40,438**                                   | ** ** | **(8,230** | **)** | **148,497** | ** ** |
|                                       |   |                                          |       |                                         |       |   |   |   |   |
| **Total income tax benefit (expense)**     |   | **(34,759**                                   | **)**      | **26,163**                                   | ** ** | **(4,813** | **)** | **138,232** | ** ** |

 

                In 2000, theGerman government enacted new tax legislation which, among other changes,reduces the Group’s statutory corporate tax rate for German companies from 40%on retained earnings and 30% on distributed earnings to a uniform 25%. Ingeneral, retained (undistributed) German corporate income was initially subjectto federal corporation income tax at a rate of 40% for 2000 plus a surcharge of5.5% on federal corporate taxes payable. Giving effect to this surcharge, thefederal corporate tax rate was 42.2% for 2000. For 2002 and 2001, the combinedfederal corporation income tax rate was 26.38%. Including German trade tax ofapproximately 13% (net), the total income tax rate for the German companies is40% for 2002 and 2001.

 

                In September2002, the German government enacted new tax legislation effective for the Groupon January 2003 which will increase the federal corporation income tax rate by1.5% only for 2003. The effect of this change is  immaterial to the Group’s financial statements.

 

                In December2002 the Group used approximately €324 million of its tax loss carry forwardsin Germany through an intercompany transaction, as part of its tax planningstrategy. These transactions resulted in a decrease of deferred tax assets ofapproximately €130 million offset by a decrease of deferred tax liabilities forintangible and tangible assets.

 

 

F-32

----

 

                For thetwelve months ended December 31, 2002, the eight months ended December 31,2001, the four months ended April 30, 2001 and the twelve months ended December31, 2000, income tax expense differed from the amounts computed by applying theGerman federal corporation income tax rate of 26.38% for the twelve monthsended December 31, 2002, the eight months ended December 31, 2001, and the fourmonths ended April 30, 2001, 42.2% for 2000, to (loss) income from continuingoperations as a result of the following:

 
|                                                             |   | **Successor**                                 |       | **Predecessor**                              |   |
|------------------------------------------------------------------|--------|-----------------------------------------------|------------|----------------------------------------------|--------|
|                                                             |   | **Twelve  months  ended  December 31,  2002** |       | **Eight  months  ended  December 31,  2001** |   | **Four  months  ended  April 30,  2001** |   | **Twelve  months  Ended  December 31,  2000** |   |
|                                                             |   |                                          |       |                                         |   |   |   |   |   |
| Statutory tax rate                                               |   | 26,38                                         | %          | 26,38                                        | %      | 26,38 | % | 42,20 | % |
| **(Loss) income from continuing operations**                     |   | **(43,992**                                   | **)**      | **(90,782**                                  | **)**  | **(6,550** | **)** | **(319,067** | **)** |
| Corporation tax benefit including solidarity tax                 |   | (11,605                                       | )          | (23,944                                      | )      | (1,728 | ) | (134,646 | ) |
| Tax losses of entities not recognized                            |   | 492                                           |       | 4,273                                        |   | 1,347 |   | 103,540 |   |
| Non tax deductible expense                                       |   | 23,733                                        |       | —                                       |   | — |   | — |   |
| Non taxable income                                               |   | —                                        |       | (16,147                                      | )      | (741 | ) | (124,641 | ) |
| Change in fair value of subsidiaries available for sale          |   | (151                                          | )          | 1,443                                        |   | — |   | — |   |
| Non-deductible goodwill                                          |   | 8,840                                         |       | 4,611                                        |   | 839 |   | 4,460 |   |
| Effect of German tax law changes                                 |   | —                                        |       | —                                       |   | — |   | (10,892 | ) |
| Income tax (benefit) loss for previous years                     |   | (2,475                                        | )          | —                                       |   | — |   | 2,759 |   |
| Withholding tax                                                  |   | 8,025                                         |       | —                                       |   | — |   | — |   |
| Tax rate differences at foreign subsidiaries                     |   | (5,712                                        | )          | (255                                         | )      | (128 | ) | 429 |   |
| Utilization of tax loss carry forwards not previously recognized |   | (309                                          | )          | —                                       |   | — |   | (230 | ) |
| Trade tax on income in Germany                                   |   | 7,436                                         |       | (17,224                                      | )      | (5,317 | ) | 862 |   |
| Non-deductible interest                                          |   | 6,527                                         |       | 19,473                                       |   | 9,736 |   | — |   |
| Other (net)                                                      |   | (42                                           | )          | 1,607                                        |   | 889 |   | 20,127 |   |
|                                                             |   |                                          |       |                                         |   |   |   |   |   |
| **Income tax (benefit) expense from continuing  operations**     |   | **34,759**                                    | ** ** | **(26,163**                                  | **)**  | **4,897** | ** ** | **(138,232** | **)** |

 

                Theutilization of tax loss carry forwards lowered the tax charge by €309, €0, €0and €230 for the twelve months ended December 31, 2002, the eight months endedDecember 31, 2001, the four months ended April 30, 2001 and the twelve monthsended December 31, 2000, respectively. Deferred tax assets are recognizedfor tax loss carry forwards only to the extent that realization of the relatedtax benefit is probable. Total tax loss carry forwards amount to €206,528,€582,123, €508,631 and €502,081 at December 31, 2002, December 31, 2001, April30, 2001, and December 31, 2000, respectively, the majority of which have noexpiration dates. Tax loss carry forwards resulted in deferred tax benefitamounting to €3,435, €26,550, €2,620 and €122,304 for the twelve months endedDecember 31, 2002, the eight months ended December 31, 2001, the four monthsended April 30, 2001 and the twelve months ended December 31, 2000,respectively.

 

                Deferredtaxes as of December 31, 2002, December 31, 2001 are attributable to the followingbalance sheet items:

 
|                                       |   | **December  31,  2002** |       | **December  31,  2001** |       |
|--------------------------------------------|--------|-------------------------|------------|-------------------------|------------|
| **Deferred tax assets**                    |   |                    |       |                    |       |
| Tax loss carry forwards                    |   | 27,869                  |       | 130,310                 |       |
| Property, plant and equipment              |   | 4,204                   |       | 7,683                   |       |
| Inventories                                |   | 2,465                   |       | —                  |       |
| Provisions for pensions                    |   | 18,015                  |       | 17,262                  |       |
| Other provisions                           |   | 15,603                  |       | 35,472                  |       |
| Other items                                |   | 12,048                  |       | 7,741                   |       |
| **Total**                                  |   | **80,204**              | ** ** | **198,468**             | ** ** |
|                                       |   |                    |       |                    |       |
| **Deferred tax liabilities**               |   |                    |       |                    |       |
| Intangible assets                          |   | 35,325                  |       | 100,062                 |       |
| Property, plant and equipment              |   | 104,250                 |       | 179,600                 |       |
| Investments                                |   | 10,889                  |       | 14,494                  |       |
| Unamortized debt issuance costs            |   | 24,708                  |       | 32,327                  |       |
| Other provisions                           |   | 2,465                   |       | 1,518                   |       |
| Other items                                |   | 3,356                   |       | 1,854                   |       |
| **Total**                                  |   | **180,993**             | ** ** | **329,855**             | ** ** |
| **Deferred tax assets (liabilities), net** |   | **(100,789**            | **)**      | **(131,387**            | **)**      |

 

 

F-33

----

 

                Net deferredincome tax assets and liabilities in the consolidated balance sheets are asfollows:

 
|                                       |   | **December  31,  2002** |   | **December  31,  2001** |   |
|--------------------------------------------|--------|-------------------------|--------|-------------------------|--------|
|                                       |   |                    |   |                    |   |
| Deferred tax assets                        |   | 3,734                   |   | 4,546                   |   |
| Deferred tax liabilities                   |   | 104,523                 |   | 135,933                 |   |
| **Deferred tax assets (liabilities), net** |   | **(100,789**            | **)**  | **(131,387**            | **)**  |

 

**16.          Intangibleassets**

** **
|                                       |   | **Goodwill** |       | **Other  Intangible  Assets** |       | **Total**   |       |
|--------------------------------------------|--------|--------------|------------|-------------------------------|------------|-------------|------------|
|                                       |   |         |       |                          |       |        |       |
| **Acquisition cost**                       |   |         | ** ** |                          | ** ** |        | ** ** |
|                                       |   |         | ** ** |                          | ** ** |        | ** ** |
| **Balance as of January 1, 2002**          |   | **585,682**  | ** ** | **326,212**                   | ** ** | **911,894** | ** ** |
|                                       |   |         |       |                          |       |        |       |
| Additions                                  |   | 103          |       | 15,945                        |       | 16,048      |       |
| Disposals                                  |   | (2,967       | )          | (899                          | )          | (3,866      | )          |
| Exchange rate changes                      |   | (23,064      | )          | (3,161                        | )          | (26,225     | )          |
|                                       |   |         |       |                          |       |        |       |
| **Balance as of December 31, 2002**        |   | **559,754**  | ** ** | **338,097**                   | ** ** | **897,851** | ** ** |
|                                       |   |         |       |                          |       |        |       |
| **Amortization**                           |   |         | ** ** |                          | ** ** |        | ** ** |
|                                       |   |         | ** ** |                          | ** ** |        | ** ** |
| **Balance as of January 1, 2002**          |   | **19,506**   | ** ** | **39,579**                    | ** ** | **59,085**  | ** ** |
|                                       |   |         |       |                          |       |        |       |
| Additions                                  |   | 28,697       |       | 23,360                        |       | 52,057      |       |
| Disposals                                  |   | (1,234       | )          | (897                          | )          | (2,131      | )          |
| Exchange rate changes                      |   | (1,358       | )          | (680                          | )          | (2,038      | )          |
|                                       |   |         |       |                          |       |        |       |
| **Balance as of December 31, 2002**        |   | **45,611**   | ** ** | **61,362**                    | ** ** | **106,973** | ** ** |
| **Net Book value as of December 31, 2001** |   | **566,176**  | ** ** | **286,633**                   | ** ** | **852,809** | ** ** |
| **Net Book value as of December 31, 2002** |   | **514,143**  | ** ** | **276,735**                   | ** ** | **790,878** | ** ** |

 

                Otherintangible assets consist of trademarks and similar rights, customer base andother intangible assets for which the net book values as of December 31, 2002are €140,348, €101,345 and €35,042 and as of December 31, 2001 are €148,453,€109,516 and €28,664, respectively.

 

 

F-34

----

 

**17.          Property, plant and equipment**

 
|                                       |   | **Land and  buildings** |       | **Plant and  machinery** |       | **Other  plants,  factory and  office  equipment** |       | **Advance  payments and  construction  in progress** |       | **Total**     |       |
|--------------------------------------------|--------|-------------------------|------------|--------------------------|------------|----------------------------------------------------|------------|------------------------------------------------------|------------|---------------|------------|
|                                       |   |                    |       |                     |       |                                               |       |                                                 |       |          |       |
| **Acquisition or production costs**        |   |                    | ** ** |                     | ** ** |                                               | ** ** |                                                 | ** ** |          | ** ** |
|                                       |   |                    | ** ** |                     | ** ** |                                               | ** ** |                                                 | ** ** |          | ** ** |
| **Balance as of January 1, 2002**          |   | **386,111**             | ** ** | **2,548,978**            | ** ** | **409,924**                                        | ** ** | **65,229**                                           | ** ** | **3,410,242** | ** ** |
|                                       |   |                    |       |                     |       |                                               |       |                                                 |       |          |       |
| Additions                                  |   | 4,038                   |       | 73,874                   |       | 38,878                                             |       | 3,063                                                |       | 119,853       |       |
| Disposals                                  |   | (11,343                 | )          | (52,929                  | )          | (21,933                                            | )          | (655                                                 | )          | (86,860       | )          |
| Transfers                                  |   | 201                     |       | (6,793                   | )          | 14,894                                             |       | (8,302                                               | )          | —        |       |
| Exchange rate changes                      |   | (11,148                 | )          | (141,961                 | )          | (6,109                                             | )          | (2,661                                               | )          | (161,879      | )          |
|                                       |   |                    |       |                     |       |                                               |       |                                                 |       |          |       |
| **Balance as of December 31, 2002**        |   | **367,859**             | ** ** | **2,421,169**            | ** ** | **435,654**                                        | ** ** | **56,674**                                           | ** ** | **3,281,356** | ** ** |
|                                       |   |                    |       |                     |       |                                               |       |                                                 |       |          |       |
| **Accumulated depreciation**               |   |                    | ** ** |                     | ** ** |                                               | ** ** |                                                 | ** ** |          | ** ** |
|                                       |   |                    | ** ** |                     | ** ** |                                               | ** ** |                                                 | ** ** |          | ** ** |
| **Balance as of January 1, 2002**          |   | **165,232**             | ** ** | **1,322,848**            | ** ** | **221,613**                                        | ** ** | **2,870**                                            | ** ** | **1,712,563** | ** ** |
|                                       |   |                    |       |                     |       |                                               |       |                                                 |       |          |       |
| Additions                                  |   | 11,483                  |       | 157,784                  |       | 32,161                                             |       | 1                                                    |       | 201,429       |       |
| Disposals                                  |   | (7,284                  | )          | (41,377                  | )          | (20,092                                            | )          | —                                               |       | (68,753       | )          |
| Exchange rate changes                      |   | (4,602                  | )          | (79,809                  | )          | 4,658                                              |       | (440                                                 | )          | (80,193       | )          |
| Transfers                                  |   | —                  |       | 805                      |       | (805                                               | )          | —                                               |       | —        |       |
|                                       |   |                    |       |                     |       |                                               |       |                                                 |       |          |       |
| **Balance as of December 31, 2002**        |   | **164,829**             | ** ** | **1,360,251**            | ** ** | **237,535**                                        | ** ** | **2,431**                                            | ** ** | **1,765,046** | ** ** |
|                                       |   |                    |       |                     |       |                                               |       |                                                 |       |          |       |
| **Net Book value as of December 31, 2001** |   | **220,879**             | ** ** | **1,226,130**            | ** ** | **188,311**                                        | ** ** | **62,359**                                           | ** ** | **1,697,679** | ** ** |
| **Net Book value as of December 31, 2002** |   | **203,030**             | ** ** | **1,060,918**            | ** ** | **198,119**                                        | ** ** | **54,243**                                           | ** ** | **1,516,310** | ** ** |

 

                The Companyleases certain property, plant and equipment under various operating andfinance lease arrangements. Assets capitalized and recorded under finance leaseagreements included in property, plant and equipment consist of the following:

 
|                                          |   | **December  31,  2002** |       | **December  31,  2001** |       |
|-----------------------------------------------|--------|-------------------------|------------|-------------------------|------------|
|                                          |   |                    |       |                    |       |
| Land and buildings                            |   | 11,172                  |       | 10,813                  |       |
| Machinery, equipment and other leased  assets |   | 164,597                 |       | 164,042                 |       |
|                                          |   |                    |       |                    |       |
|                                          |   | **175,769**             |       | **174,855**             |       |
| Accumulated depreciation                      |   | (49,219                 | )          | (49,335                 | )          |
|                                          |   |                    |       |                    |       |
| **Total**                                     |   | **126,550**             | ** ** | **125,520**             | ** ** |

 

                Depreciation of property, plant and equipment under capital leases isincluded in depreciation expense.

 

**18.          Equity method investments**

 

                The followingsignificant investments are accounted for under the equity method at December31, 2002:

 
| **Name and  headquarters of the company**                                    |   | **Ownership  percentage** |   |
|------------------------------------------------------------------------------|--------|---------------------------|--------|
|                                                                         |   |                      |   |
| Messer de  Honduras S.A. de C.V., Tegucigalpa/Honduras                       |   | 50.0                      |   |
| Technische Gase  Hoesch Messer Griesheim GmbH & Co. KG, Dortmund/Germany |   | 50.0                      |   |
| Goyal MG Gases Pvt.Ltd., New Delhi/India                                     |   | 49.0                      |   |
| Secomex Manufacturing (M) Snd. Bhd., Kuala  Lumpur/Malaysia                  |   | 49.0                      |   |
| Messer  Singapore Holding GmbH, Frankfurt am Main/Germany                    |   | 39.0                      |   |
| Constar LLC, Norcross, Georgia/USA                                           |   | 50.0                      |   |

 

 

F-35

----

 

                The tablebelow contains summarized financial information for the equity methodinvestments of the Group:

 
|                              |   | **Successor**                                 |   | **Predecessor**                              |   |
|-----------------------------------|--------|-----------------------------------------------|--------|----------------------------------------------|--------|
|                              |   | **Twelve  months  ended  December 31,  2002** |   | **Eight  months  ended  December 31,  2001** |   | **Four  months  ended  April 30,  2001** |   | **Twelve  months  ended  December 31,  2000** |   |
|                              |   |                                          |   |                                         |   |   |   |   |   |
| Net Sales                         |   | 45,178                                        |   | 56,043                                       |   | 32,653 |   | 76,149 |   |
| Operating loss                    |   | (3,755                                        | )      | (21,873                                      | )      | (9,065 | ) | (114,949 | ) |
| Net loss                          |   | (1,057                                        | )      | (32,994                                      | )      | (16,373 | ) | (127,363 | ) |
| Property, plant and equipment     |   | 22,121                                        |   | 118,188                                      |   | 253,327 |   | 220,982 |   |
| Current liabilities               |   | 18,857                                        |   | 25,844                                       |   | 60,311 |   | 205,359 |   |
| Non-current liabilities           |   | 32,853                                        |   | 333,438                                      |   | 242,430 |   | 142,169 |   |
| Stockholders’ Equity deficit |   | (17,278                                       | )      | (186,778                                     | )      | (19,829 | ) | (11,693 | ) |

 

                Equity methodinvestments and changes therein, are as follows:

 
| **Balance as of January 1, 2002**           |   | **19,186** | ** ** |
|---------------------------------------------|--------|------------|------------|
| Additions                                   |   | 957        |       |
| Disposals                                   |   | (5,443     | )          |
| Exchange rate changes                       |   | (3,495     | )          |
| Changes resulting from the at equity method |   | 1,995      |       |
|                                        |   |       |       |
| **Balance as of December 31, 2002**         |   | **13,200** | ** ** |

 

                The changesresulting from the at equity method include the proportionate share of theinvestee’s income (losses) and other elements such as dividends.

 
|                                                    |   | **Successor**                                 |   | **Predecessor**                              |   |
|---------------------------------------------------------|--------|-----------------------------------------------|--------|----------------------------------------------|--------|
|                                                    |   | **Twelve  months  ended  December 31,  2002** |   | **Eight  months  ended  December 31,  2001** |   | **Four  months  ended  April 30,  2001** |   | **Twelve  months  ended  December 31,  2000** |   |
|                                                    |   |                                          |   |                                         |   |   |   |   |   |
| Proportionate share of investees’ income  (losses) |   | 6,036                                         |   | (15,213                                      | )      | (5,106 | ) | 2,883 |   |
| Amortization of basis differences                       |   | —                                        |   | —                                       |   | — |   | (2,263 | ) |
| Impairment charges on equity method  investments        |   | (18,657                                       | )      | —                                       |   | — |   | (208,572 | ) |
|                                                    |   |                                          |   |                                         |   |   |   |   |   |
| **Total**                                               |   | **(12,621**                                   | **)**  | **(15,213**                                  | **)**  | **(5,106** | **)** | **(207,952** | **)** |

 

                Impairment charges of €18,657 in fiscal year2002 related to Constar LLC, Norcross, Georgia/USA (“Constar”). Constar is an equity method investeeof MG Industries (“MGI”) a wholly owned company of the Group. MGI maintainsinvestments in and holds notes due from Constar. MGI has also guaranteed aportion of Constar’s third party financing arrangements. The provisions of thethird party financing arrangements require Constar to adhere to certainfinancial and non-financial covenants. Constar was not in compliance with thesecovenants at December 31, 2002. At December 31, 2002, amounts availableand outstanding under Constar’s guaranteed financing arrangements were US$20million and US$19.3 million, respectively, of which approximately US$18.2million are due on September 15, 2003.

 

                OnJanuary 17, 2002, Constar’s entire executive management team was replaced.During the period from January 1, 2002 through October 1, 2002,Constar’s new management team expended significant effort in transitioning keycustomer relationships, identifying excessive costs, and developing a newstrategic plan. In October 2002, management developed a revised 2002 budget anda multi year plan. Actual cash flows having been significantly below previouslybudgeted amounts, combined with the newly developed management plan resulted inmanagement reviewing Constar’s goodwill for impairment.

 

 

F-36

----

 

                In connectionwith management’s October 2002 analysis and in accordance with IAS 36,management also reviewed the recoverability of its cash generating units(CGU’s) including goodwill. The application of IAS 36 resulted in an impairmentcharge of approximately €18.7 million which was recorded as a component ofConstar’s €20.7 million loss for the twelve months ended December 31,2002.

 

                Constar’smembers equity was completely exhausted effective June 1, 2002 as a resultof continued losses. For the year ended December 31, 2002, in accordancewith the provisions of IAS 28 “Accounting for Investments in Associates” andStanding Interpretations Committee 20, (SIC-20) “Equity Accounting Method —Recognition of losses” the Group through its wholly owned subsidiary MGI hasrecorded €20.5 million of Constar’s total €20.7 million operating loss in itsconsolidated statement of operations as equity method investments expense, net(see Note 40 “Reconciliation to U.S. GAAP).

 

Impairment charges in fiscal year 2000 related to the Group’s equitymethod investments are summarized below:

 
| Singapore Syngas Pte. Ltd.                             |   | 165,270     |       |
|--------------------------------------------------------|--------|-------------|------------|
| Bombay Oxygen Corporation Ltd. (Messer  Holdings Ltd.) |   | 32,400      |       |
| Other equity method investments                        |   | 10,902      |       |
|                                                   |   |        |       |
| **Total**                                              |   | **208,572** | ** ** |

 

***Singapore Syngas Pte. Ltd.***

 

                In 1998, theGroup established Singapore Syngas Pte. Ltd. (“Syngas”), a joint venturewith Texaco Nederland B.V. for the production and distribution of synthesizedgases in Singapore.

 

                The basis forthe joint venture was a significant carbon monoxide supply contract with amajor customer (Celanese). The development of the plant was financed via bankdebt, which was guaranteed by the joint venture partners. The Celanese supplycontract provided for, among other things, penalty provisions if the Syngasplant were unable to produce carbon monoxide meeting certain specifiedproperties and volume levels by July 1, 2000, a “date certain”, for whichthe joint venture partners provided a performance guarantee.

 

                Although theplant was constructed by the date certain, the plant did not meet the requiredspecifications due to technical and operational problems in plant construction.As of December 31, 2000, Syngas became liable for liquidated damages, asthe plant still had not met the required performance specifications. Theproject also incurred significant cost overruns, which were funded by the jointventure partners. Syngas and the joint venture partners entered into asettlement agreement with Celanese for liquidated damages in March 2001(see below).

 

                In view ofthe operational and technical difficulties encountered by the joint venture,the Group made a determination during 2000 that its investment in Syngas wasimpaired, based on a discounted cash flow analysis. Although the Company held a50% joint venture equity interest in Syngas at the time, the Company calculatedits share of losses arising from the joint venture at 75% due to the fact thatTexaco had a “put option” to sell 50% of its 50% ownership in Syngas to theGroup, which was “in-the-money” as of December 31, 2000.

 

                As aprecondition to the acquisition transactions, the Group was required to limitits exposure to its Singapore investments. On April 30, 2001, the Grouptransferred its 100% interest in Messer Singapore Pte. Ltd. and its 50%interest in Syngas to Messer Singapore Holding GmbH. The Group has anon-controlling 39% equity interest in Messer Singapore Holding GmbH. The othershareholders are Hoechst AG (39%), Bandinelli GmbH, a special purpose companyowned by MIG (11%), and members of the group’s senior management (11%). OnJune 20, 2001, Texaco transferred half of its 50% interest in Syngas toMesser Singapore Holding GmbH. As a result of these transactions, MesserGriesheim holds an indirect 29.25% interest in Syngas through its equity interestin Messer Singapore Holding GmbH.

 

 

F-37

----

 

                Concurrentlywith the transfer of the Syngas business, Messer Singapore Holding GmbHindemnified the Group for its outstanding guarantee obligations in connectionwith the Singapore operations. To finance Messer Singapore Holding GmbH, theGroup and Hoechst have made shareholder loans. The loans have been allocatedtwo-thirds to Hoechst and one-third to the Group, as per the shareholders’agreement. Although the transfer to Messer Singapore Holding occurred on April30, 2001, this funding arrangement takes account of all funding of MesserGriesheim to its Singapore operations since September 1, 2000. Under theshareholders’ agreement, the Group’s funding obligations (shareholder loans andother financial support including funding provided by the Group to itsSingapore operations since September 1, 2000) has been limited to €92 million.Messer Griesheim received from Hoechst a €26.4 million cash paymentrepresenting two-thirds of the funding by the Group for the Singaporeoperations since September 1, 2000 and has accounted for the receipt as anadvance towards a capital contribution in the Predecessor balance sheet atApril 30, 2001. This payment excludes amounts funded by Hoechst with respect topayments to Celanese Singapore Pte. Ltd (“Celanese”) and Texaco as describedbelow.

 

                Further, asof May 1, 2001, the Successor’s obligations to fund loss commitments of Syngashave been revalued to give effect to the portion which are expected to befunded by Hoechst. Accordingly, Messer Griesheim’s remaining fundingobligations under this cap, net of 33 1/3% of variousshareholder loans and other financial support already provided by MesserGriesheim to its Singapore operations since September 1, 2000, were €63.2million as of April 30, 2001, €14.5 million as of December 31, 2001 and €10.2million as of December 31, 2002.

 

                In March2001, Texaco and Messer Griesheim entered into settlement arrangements withCelanese which settled the claims of Celanese under the completion guaranteeprovided by Messer Griesheim, and amended the existing gas supply agreementbetween Syngas and Celanese. These amendments and modifications involved, amongother things, cash payments by Messer Griesheim to Celanese, the liability forwhich is included in the overall allocation of Syngas exposures of one-third toMesser Griesheim and two-thirds to Hoechst. The settlement amount allocated toand paid by Messer Griesheim was €28.6 million, of which €19.8 million wasfinanced by Hoechst as an advance towards a capital contribution in thePredecessor balance sheet at April 30, 2001. The repayment claim against MesserGriesheim for this financing was waived by Hoechst on April 30, 2001.

 

                Inconjunction with the Celanese settlement, Messer Griesheim and Texaco modifiedtheir put option. The original put option agreement gave Texaco an option tosell 25% of the shares in Syngas to Messer Griesheim. Under the modified putoption agreement, Messer Griesheim purchased from Texaco the outstandingshareholder loans made by Texaco to Syngas in excess of Texaco’s remaining 25%equity interest in Syngas and related funding obligations. Messer Griesheimpaid a purchase price of €17.2 million for the loans. Of that amount,Hoechst loaned €11.3 million to Messer Griesheim as an advance towards acapital contribution in the Predecessor balance sheet at April 30, 2001.In exchange, Texaco agreed that Hoechst can require Texaco to exercise the putoption with respect to 25% of the shares in Syngas at any time on or afterMay 1, 2001 and no later than June 30, 2001 for a consideration ofUS-$1. The put was exercised on June 20, 2001, at which time the Syngas sharesacquired from Texaco were transferred directly to Messer Singapore HoldingGmbH. As a result of the change in ownership that occurred when the Texaco putoption was exercised, Syngas was required to repay its outstanding bank creditfacilities, which became due on June 30, 2001. Shareholder loans were extendedto Syngas for this purpose. Of these shareholder loans, 75% were funded byMesser Singapore Holding GmbH and 25% were funded by Texaco.

 

                DuringDecember 2001 Messer Griesheim transferred its 39% interest in Messer SingaporeHolding to Messer International GmbH, a wholly owned subsidiary of MesserGriesheim GmbH.

 

                In February 2002, Aventis, Messer Griesheimand Messer Singapore Holding reached an agreement with Celanese and CelaneseSingapore Pte. Ltd. in which Messer Singapore Holding agreed to pay US$12.5million to Celanese Singapore on settlement of a prior agreement requiringMesser Griesheim to pay Celanese certain concession fees. One third of the US$12.5million was applied towards the €92.0 million funding limit by Messer Griesheimto the Singapore operations.

 

 

F-38

----

 

                In October 2002 Messer Singapore Pte. Ltd.sold its Air Separation and Vacuum Flasher Units to Singapore Syngas Pte. Ltd.and its remaining assets to Air Products Singapore Pte. Ltd. and SingaporeOxygen Air Liquide Pte. Ltd. Following these transactions, Messer SingaporeHolding GmbH sold all its shares in Singapore Syngas Pte. Ltd. to ChevronTexaco Singapore Energy Company. In conjunction with the agreements, certainguarantees totaling €16.0 million were given. The Company has evaluated theseguarantees and set up a provision for the remaining risks.

 

Summarized financial information for Syngas as of and for the tenmonths ended October 31, 2002, years ended December 31, 2001 and 2000 isset forth as follows:

 
|                                |   | **Ten months  ended:  October 31,  2002** |   | **Year  ended:  December 31,  2001** |   | **Year  ended:  December 31,  2000** |   |
|-------------------------------------|--------|-------------------------------------------|--------|--------------------------------------|--------|--------------------------------------|--------|
| Net Sales                           |   | 39,773                                    |   | 39,125                               |   | 3,785                                |   |
| Operating Profit (loss)             |   | 67                                        |   | (34,202                              | )      | (132,298                             | )      |
| Net loss                            |   | (5,050                                    | )      | (46,952                              | )      | (140,121                             | )      |
| Property, plant and equipment       |   | 91,552                                    |   | 94,387                               |   | 96,079                               |   |
| Total Assets                        |   | 100,390                                   |   | 102,771                              |   | 103,557                              |   |
| Stockholders’ Equity (deficit) |   | (181,094                                  | )      | (198,930                             | )      | (143,511                             | )      |

 

***Bombay Oxygen Corporation Ltd. (MesserHoldings Limited)***

 

                The Group hada 37% investment in Bombay Oxygen Corporation Ltd. through direct and indirectinvestments in Messer Holdings Limited, British Virgin Islands. Due to anexisting agreement with another Indian joint venture partner, the Groupcontributed its shares in Bombay Oxygen Corporation Ltd. to Messer HoldingsLtd., a British Virgin Island company formed in 2000. In addition, the Grouphad guaranteed various borrowings of Bombay Oxygen Corporation Ltd. During2000, one of the financial institutions made a claim against the company for€25,284, of which €24,773 has been paid in 2000. The Group recorded a provisionin its financial statements for the remaining claim of €511 as of December 31,2000. The amount of €511 was paid in 2001.

 

                DuringDecember 2002, the Messer Holdings Ltd. has irrevocably transferred all itsrights in shares in Bombay Oxygen Corporation Ltd. to the “Ruia” family and theGroup settled all litigation with respect to this investment (see Note 35“Litigations”).

 

**19.          Other investments**

 

                Otherinvestments are comprised of investments in various companies that are notconsolidated or accounted for by the equity method.

 
| **Acquisition cost**                       |   |       |       |
|--------------------------------------------|--------|------------|------------|
|                                       |   |       | ** ** |
| **Balance as of January 1, 2002**          |   | **72,672** | ** ** |
|                                       |   |       |       |
| Additions                                  |   | 908        |       |
| Disposals                                  |   | (8,081     | )          |
| Exchange rate changes                      |   | (5,076     | )          |
|                                       |   |       |       |
| **Balance as of December 31, 2002**        |   | **60,423** | ** ** |
|                                       |   |       |       |
| **Valuation allowances**                   |   |       | ** ** |
|                                       |   |       | ** ** |
| **Balance as of January 1, 2002**          |   | **42,573** | ** ** |
|                                       |   |       |       |
| Additions                                  |   | 1,647      |       |
| Disposals                                  |   | (2,552     | )          |
| Exchange rate changes                      |   | (482       | )          |
|                                       |   |       |       |
| **Balance as of December 31, 2002**        |   | **41,186** | ** ** |
|                                       |   |       | ** ** |
| **Net Book value as of December 31, 2001** |   | **30,099** | ** ** |
| **Net Book value as of December 31, 2002** |   | **19,237** | ** ** |

 

**20.          Long-term loans**

 

                Changes inlong-term loans are summarized below:

 
| **Balance as of January 1, 2002**   |   | **29,248** | ** ** |
|-------------------------------------|--------|------------|------------|
| Additions                           |   | 1,993      |       |
| Disposals                           |   | (3,397     | )          |
| Exchange rate changes               |   | (724       | )          |
| Other changes                       |   | (9,496     | )          |
|                                |   |       |       |
| **Balance as of December 31, 2002** |   | **17,624** | ** ** |

 

                Long-termloans relate primarily to loans receivable on advances made to non-consolidatedequity and other investments.

 

**21.          Inventories**

 

                Inventoriesconsist of the following:

 
|                           |   | **December  31,  2002** |       | **December  31,  2001** |       |
|--------------------------------|--------|-------------------------|------------|-------------------------|------------|
|                           |   |                    |       |                    |       |
| Raw materials and supplies     |   | 21,721                  |       | 20,657                  |       |
| Work in progress               |   | 12,794                  |       | 21,996                  |       |
| Finished goods and merchandise |   | 38,070                  |       | 37,445                  |       |
| **Total**                      |   | **72,585**              | ** ** | **80,098**              | ** ** |

 

**22.          Trade accounts receivable**

 
|                                |   | **December  31,  2002** |       | **December  31,  2001** |       |
|-------------------------------------|--------|-------------------------|------------|-------------------------|------------|
|                                |   |                    |       |                    |       |
| Trade accounts receivable (current) |   | 304,685                 |       | 317,059                 |       |
| Allowance for doubtful accounts     |   | (25,586                 | )          | (26,316                 | )          |
| **Trade accounts receivable, net**  |   | **279,099**             | ** ** | **290,743**             | ** ** |

 

 

F-39

----

 

**23.          Other receivables and other assets**

 
|                                              |   | **December  31,  2002** |       | **December  31,  2001** |       |
|---------------------------------------------------|--------|-------------------------|------------|-------------------------|------------|
|                                              |   |                    |       |                    |       |
| Receivables from related parties                  |   | 7,251                   |       | 7,058                   |       |
| Tax receivables                                   |   | 8,265                   |       | 6,720                   |       |
| Prepaid assets                                    |   | 4,816                   |       | 8,596                   |       |
| Advance payments                                  |   | 2,183                   |       | 4,155                   |       |
| Receivable from sale of fixed assets              |   | —                  |       | 1,277                   |       |
| Other loans                                       |   | 1,272                   |       | 8,088                   |       |
| Interest receivable                               |   | 396                     |       | 89                      |       |
| Prepaid employee expenses                         |   | 2,279                   |       | 1,695                   |       |
| Receivables from suppliers and agents             |   | 2,290                   |       | 1,713                   |       |
| Receivables from insurance companies              |   | 846                     |       | 629                     |       |
| Security deposits                                 |   | 4,594                   |       | 1,470                   |       |
| Marketable securities                             |   | 8,160                   |       | 8,331                   |       |
| Sundry receivables from non-operating  activities |   | 1,467                   |       | 6,418                   |       |
| Miscellaneous                                     |   | 7,060                   |       | 15,557                  |       |
|                                              |   |                    |       |                    |       |
| **Total**                                         |   | **50,879**              | ** ** | **71,796**              | ** ** |

 

**24.          Cash and cash equivalents**

 

                The Companydefines cash and cash equivalents as cash on hand, demand deposits and shortterm, highly liquid investments that are readily convertible to known amountsof cash and which are subject to an insignificant risk of change in value inthe future. In addition, cash and cash equivalent include unrestricted cashbalances at subsidiaries in foreign jurisdictions from which those amountscannot easily be transferred. These cash balances amounted to approximately€62.2 million and €56.5 million, as of December 31, 2002 and December 31, 2001,respectively.

 

                The Companyprovided cash collateral for bank guarantees relating to the operating businessand for long term loan facilities which were not refinanced on certain of itsforeign subsidiaries. As the cash collateral is not available to the Companywhile the facilities remain outstanding, the cash collateral has beenclassified within non-current “other assets”. As of December 31, 2002 and 2001,the cash collateral balances were approximately €6.3 million and €28.3 million,respectively.

 

**25.          Provisions for pensions and similarobligations**

 
|                                               |   | **December  31,  2002** |   | **December  31,  2001** |   |
|----------------------------------------------------|--------|-------------------------|--------|-------------------------|--------|
|                                               |   |                    |   |                    |   |
| Prepaid pension expenses included in other  assets |   | 132                     |   | 307                     |   |
| Provisions for pension obligations                 |   | (164,826                | )      | (160,875                | )      |
| Provisions for similar obligations                 |   | (4,461                  | )      | (5,481                  | )      |

 

                The Groupprovides pension benefits to the majority of its hourly and salaried employeesthrough both defined benefit and defined contribution pension plans. Thebenefits offered by the Group vary according to the legal, fiscal and economicconditions of the country in which the plans are established. Plan benefits areprincipally based on years of service and employee compensation. Provisions forsimilar obligations consist primarily of company or statutory severancebenefits and early retirement benefits.

 

                Certaincommitments related to the Group’s defined benefit obligations are covered byplan assets maintained in independent trust funds. The funds’ net assetsconsist primarily of real estate, debt securities and marketable equitysecurities.

 

 

F-40

----

 

                The pensionprovision is derived as follows:

 
|                                                     |   | **German  Plans**       |   | **Foreign  plans**      |   | **German  plans** |   | **Foreign  plans** |   |
|----------------------------------------------------------|--------|-------------------------|--------|-------------------------|--------|-------------------|--------|--------------------|--------|
|                                                     |   | **December  31,  2002** |   | **December  31,  2001** |   |
|                                                     |   |                    |   |                    |   |              |   |               |   |
| Present value of unfunded projected benefit  obligations |   | 147,921                 |   | 2,318                   |   | 145,808           |   | 5,676              |   |
| Present value of funded projected benefit  obligations   |   | —                  |   | 93,216                  |   | —            |   | 97,794             |   |
| Fair value of plan assets                                |   | —                  |   | (59,504                 | )      | —            |   | (78,850            | )      |
|                                                     |   |                    |   |                    |   |              |   |               |   |
| Present value of net obligations                         |   | 147,921                 |   | 36,030                  |   | 145,808           |   | 24,620             |   |
| Unrecognized actuarial (losses) gains                    |   | 1,533                   |   | (20,790                 | )      | 711               |   | (10,571            | )      |
|                                                     |   |                    |   |                    |   |              |   |               |   |
| Recognized liability for defined benefit  obligations    |   | 149,454                 |   | 15,240                  |   | 146,519           |   | 14,049             |   |

 

                The followingtable reconciles the funded status of the Group’s employee benefit plans withamounts recognized in the Group’s consolidated balance sheet as of December 31,2002 and 2001:

 
|                                                         |   | **German  plans**       |       | **Foreign  plans**      |       | **German  plans** |       | **Foreign  plans** |       |
|--------------------------------------------------------------|--------|-------------------------|------------|-------------------------|------------|-------------------|------------|--------------------|------------|
|                                                         |   | **December  31,  2002** |       | **December  31,  2001** |       |
| **Change in projected benefit obligations:**                 |   |                    | ** ** |                    | ** ** |              | ** ** |               | ** ** |
| Projected benefit obligations at beginning  of year (period) |   | 145,808                 |       | 103,470                 |       | 144,591           |       | 93,680             |       |
| Foreign currency exchange rate changes                       |   | —                  |       | (11,044                 | )          | —            |       | 2,320              |       |
| Service cost (net of plan participant  contribution)         |   | 2,472                   |       | 5,618                   |       | 1,632             |       | 4,144              |       |
| Interest cost                                                |   | 8,007                   |       | 5,922                   |       | 5,412             |       | 3,879              |       |
| Plan participant contributions                               |   | —                  |       | 116                     |       | —            |       | —             |       |
| Actuarial losses (gains)                                     |   | (822                    | )          | (4,418                  | )          | (352              | )          | 2,645              |       |
| Terminations                                                 |   | 800                     |       | —                  |       | —            |       | —             |       |
| Benefits paid                                                |   | (8,344                  | )          | (4,130                  | )          | (5,475            | )          | (3,198             | )          |
|                                                         |   |                    |       |                    |       |              |       |               |       |
| **Projected benefit obligations at end of  year (period)**   |   | **147,921**             | ** ** | **95,534**              | ** ** | **145,808**       | ** ** | **103,470**        | ** ** |
|                                                         |   |                    |       |                    |       |              |       |               |       |
| **Change in plan assets:**                                   |   |                    |       |                    |       |              |       |               |       |
| Fair value of plan assets at beginning of  year              |   | —                  |       | 78,850                  |       | —            |       | 82,285             |       |
| Foreign currency exchange rate changes                       |   | —                  |       | (7,590                  | )          | —            |       | 2,110              |       |
| Actual return on plan assets                                 |   | —                  |       | (10,984                 | )          | —            |       | (5,264             | )          |
| Employer contributions                                       |   | —                  |       | 2,849                   |       | —            |       | 2,042              |       |
| Plan participant contributions                               |   | —                  |       | 262                     |       | —            |       | —             |       |
| Benefits paid                                                |   | —                  |       | (3,883                  | )          | —            |       | (2,323             | )          |
|                                                         |   |                    |       |                    |       |              |       |               |       |
| **Fair value of plan assets at end of year  (period)**       |   | **—**              | ** ** | **59,504**              | ** ** | **—**        | ** ** | **78,850**         | ** ** |

 

                Thecomponents of net periodic costs for defined benefit plans consist of thefollowing:

 
|                                                   |   | **Successor**                                |   | **Predecessor**                             |   |
|--------------------------------------------------------|--------|----------------------------------------------|--------|---------------------------------------------|--------|
|                                                   |   | **German  Plans**                            |   | **Foreign  plans**                          |   | **German  Plans** |   | **Foreign  plans** |   | **German  Plans** |   | **Foreign  plans** |   | **German  Plans** |   | **Foreign  plans** |   |
|                                                   |   | **Twelve  months  Ended  December 31, 2002** |   | **Eight  months  ended  December 31, 2001** |   | **Four months  ended  April 30, 2001** |   | **Twelve  months  ended  December 31, 2000** |   |
| Service cost                                           |   | 2,472                                        |   | 5,618                                       |   | 1,632 |   | 4,144 |   | 928 |   | 2,072 |   | 2,990 |   | 5,109 |   |
| Interest cost                                          |   | 8,007                                        |   | 5,922                                       |   | 5,412 |   | 3,879 |   | 2,630 |   | 1,940 |   | 8,318 |   | 5,189 |   |
| Terminations                                           |   | 800                                          |   | —                                      |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Expected return on plan assets                         |   | —                                       |   | (5,672                                      | )      | — |   | (4,810 | ) | — |   | (2,405 | ) | — |   | (6,778 | ) |
| Amortization of unrecognized net annual losses (gains) |   | —                                       |   | 344                                         |   | — |   | — |   | — |   | (86 | ) | — |   | (63 | ) |
|                                                   |   |                                         |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net periodic pension cost                              |   | 11,279                                       |   | 6,212                                       |   | 7,044 |   | 3,213 |   | 3,558 |   | 1,521 |   | 11,308 |   | 3,457 |   |

 

 

F-41

----

 

                The followingtable shows the principal actuarial assumptions for these plans (expressed asweighted averages):

 
|                              |   | **Successor**          |   | **Predecessor**        |   |
|-----------------------------------|--------|------------------------|--------|------------------------|--------|
|                              |   | **German  Plans**      |   | **Foreign  plans**     |   | **German  Plans** |   | **Foreign  plans** |   | **German  Plans** |   | **Foreign  plans** |   | **German  Plans** |   | **Foreign  plans** |   |
|                              |   | **December  31, 2002** |   | **December  31, 2001** |   | **April 30,  2001** |   | **December  31, 2000** |   |
|                              |   | **(in %)**             |   | **(in %)**             |   | **(in %)** |   | **(in %)** |   | **(in %)** |   | **(in %)** |   | **(in %)** |   | **(in %)** |   |
|                              |   |                   |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Discount rate                     |   | 5.75                   |   | 6.40                   |   | 5.75 |   | 6.43 |   | 6.25 |   | 6.43 |   | 6.5 |   | 6.9 |   |
| Expected rate of wage increases   |   | 3.0                    |   | 3.65                   |   | 3.0 |   | 4.3 |   | 2.75 |   | 4.3 |   | 2.75 |   | 6.7 |   |
| Expected rate of salary increases |   | 3.0                    |   | 3.65                   |   | 3.0 |   | 4.3 |   | 2.75 |   | 4.3 |   | 1.75 |   | 6.7 |   |
| Expected return on assets         |   | N/A                    |   | 8.15                   |   | N/A |   | 7.1 |   | N/A |   | 7.1 |   | N/A |   | 5.8 |   |

 

                Expensesrelated to defined contribution plans totaled €1,447, €1,033, €516 and €1,625in the twelve months ended December 31, 2002, the eight months ended December31, 2001, the four months ended April 30, 2001 and the twelve months endedDecember 31, 2000, respectively.

 

**26.          Other provisions**

 
|                                    |   | **January 1,  2002** |       | **Consumption** |   | **Release** |   | **Additions** |       | **Exchange  rate  changes** |   | **December  31,  2002** |       |
|-----------------------------------------|--------|----------------------|------------|-----------------|--------|-------------|--------|---------------|------------|-----------------------------|--------|-------------------------|------------|
| **Non-current**                         |   |                 |       |            |   |        |   |          |       |                        |   |                    |       |
| Tax provision                           |   | 20,303               |       | (337            | )      | —      |   | 32,959        |       | (69                         | )      | 52,856                  |       |
| Employee-related provisions             |   | 9,667                |       | (2,783          | )      | —      |   | 1,956         |       | (13                         | )      | 8,827                   |       |
| Purchase and sales contracts            |   | 4,482                |       | —          |   | (1,249      | )      | —        |       | (12                         | )      | 3,221                   |       |
| Other                                   |   | 4,675                |       | (587            | )      | (268        | )      | —        |       | (195                        | )      | 3,625                   |       |
|                                    |   |                 |       |            |   |        |   |          |       |                        |   |                    |       |
| **Total non-current**                   |   | **39,127**           | ** ** | **(3,707**      | **)**  | **(1,517**  | **)**  | **34,915**    | ** ** | **(289**                    | **)**  | **68,529**              | ** ** |
|                                    |   |                 |       |            |   |        |   |          |       |                        |   |                    |       |
| **Current**                             |   |                 |       |            |   |        |   |          |       |                        |   |                    |       |
| Divestiture program                     |   | 24,200               |       | (9,063          | )      | —      |   | 6,993         |       | —                      |   | 22,130                  |       |
| Provisions on equity method investments |   | 4,200                |       | (4,200          | )      | —      |   | 15,296        |       | (1,117                      | )      | 14,179                  |       |
| Employee-related provisions             |   | 21,047               |       | (4,993          | )      | (2,659      | )      | 472           |       | (1,429                      | )      | 12,438                  |       |
| Restructuring                           |   | 10,234               |       | (4,465          | )      | —      |   | 738           |       | —                      |   | 6,507                   |       |
| Litigation                              |   | 21,604               |       | (8,576          | )      | (2,270      | )      | 884           |       | —                      |   | 11,642                  |       |
| Other                                   |   | 55,578               |       | (15,248         | )      | (3,801      | )      | 3,113         |       | 311                         |   | 39,953                  |       |
|                                    |   |                 |       |            |   |        |   |          |       |                        |   |                    |       |
| **Total current**                       |   | **136,863**          | ** ** | **(46,545**     | **)**  | **(8,730**  | **)**  | **27,496**    | ** ** | **(2,235**                  | **)**  | **106,849**             | ** ** |

 

                Employee-relatedprovisions as of December 31, 2002, as shown under non-current provisionsrelate primarily to long-service bonuses. Employee-related provisions as ofDecember 31, 2002 as shown under current provisions relate primarily to paidvacation, severance payments and to part-time employment of employees prior totheir retirement.

 

 

F-42

----

 

**27.          Corporate debt**

 
|                                              |   | **December  31,  2002** |       | **December  31,  2001** |       |
|---------------------------------------------------|--------|-------------------------|------------|-------------------------|------------|
| **Non-current**                                   |   |                    |       |                    |       |
| Senior Notes                                      |   | 493,708                 |       | 550,000                 |       |
| Due to banks                                      |   | 728,490                 |       | 929,414                 |       |
| Finance leases                                    |   | 122,769                 |       | 130,827                 |       |
| Due to related parties                            |   | 35,854                  |       | 2,068                   |       |
| Other loans                                       |   | 539                     |       | 600                     |       |
|                                              |   | **1,381,360**           |       | **1,612,909**           |       |
|                                              |   |                    |       |                    |       |
| **Current**                                       |   |                    |       |                    |       |
| Due to banks                                      |   | 36,056                  |       | 32,868                  |       |
| Finance leases                                    |   | 15,494                  |       | 8,200                   |       |
| Due to related parties                            |   | 1,041                   |       | 1,342                   |       |
| Other loans                                       |   | 5,008                   |       | 8,368                   |       |
|                                              |   | **57,599**              |       | **50,778**              |       |
|                                              |   | 1,438,959               |       | 1,663,687               |       |
| Unamortized debt issuance costs                   |   | (63,541                 | )          | (82,448                 | )          |
|                                              |   |                    |       |                    |       |
| **TOTAL DEBT**                                    |   | **1,375,418**           | ** ** | **1,581,239**           | ** ** |
|                                              |   |                    |       |                    |       |
| Debt with fixed interest rate                     |   | 657,850                 |       | 695,227                 |       |
| Debt with floating interest rate (hedged)         |   | 638,715                 |       | 812,439                 |       |
| Debt with floating interest rate (not  hedged)    |   | 142,394                 |       | 156,021                 |       |
|                                              |   |                    |       |                    |       |
|                                              |   | **1,438,959**           |       | **1,663,687**           |       |
| Unamortized debt issuance costs                   |   | (63,541                 | )          | (82,448                 | )          |
|                                              |   |                    |       |                    |       |
| **Total**                                         |   | **1,375,418**           | ** ** | **1,581,239**           | ** ** |
|                                              |   |                    |       |                    |       |
| The weighted average nominal interest rates  are: |   |                    |       |                    |       |
| Due to Senior Notes holders                       |   | 10.375                  | %          | 10.375                  | %          |
| Due to banks including Hedges                     |   | 7.07                    | %          | 7.266                   | %          |
| Finance leases                                    |   | 6.04                    | %          | 5.858                   | %          |
| Other loans                                       |   | 5.10                    | %          | 6.288                   | %          |

 

                The weightedaverage interest rate on existing corporate debt including interest rate swapagreements but not including amortization of debt issuance costs was 8.05% and8.21% at December 31, 2002 and at December 31, 2001. A description of theCompany’s corporate debt instruments is included in Note 4 “Financingtransactions”.

 

                The Group had unused long-term credit lines of €294.0 million and€300.5 million at December 31, 2002 and December 31, 2001.

 

                Aggregateamounts of corporate debt maturing excluding unamortized debt issuance costsduring the next five years and thereafter are as follows:

 

| 2003       |   | 57,599        |   |
|------------|--------|---------------|--------|
| 2004       |   | 66,263        |   |
| 2005       |   | 84,903        |   |
| 2006       |   | 81,360        |   |
| 2007       |   | 122,876       |   |
| Thereafter |   | 1,025,958     |   |
|       |   |          |   |
|       |   | **1,438,959** |   |

 

                Principalrepayments on the Senior Term Disposal facility are due earlier upon the saleof certain subsidiaries identified as part of the disposal program. Inaddition, Messer is required to use 50% of its excess cash flow in any givenyear or 50% if the leverage ratio is less than four to one , as defined, torepay its outstanding loans.

 

 

F-43

----

 

                Future minimumlease payments under noncancelable finance and operating leases are as follows:

 
|                                 |   | **Finance  Leases** |       | **Operating  Leases** |       |
|--------------------------------------|--------|---------------------|------------|-----------------------|------------|
|                                 |   |                |       |                  |       |
| 2003                                 |   | 23,490              |       | 6,042                 |       |
| 2004                                 |   | 29,885              |       | 5,431                 |       |
| 2005                                 |   | 31,098              |       | 4,669                 |       |
| 2006                                 |   | 31,046              |       | 3,101                 |       |
| 2007                                 |   | 32,362              |       | 2,617                 |       |
| Thereafter                           |   | 18,054              |       | 23,015                |       |
|                                 |   |                |       |                  |       |
| **Total minimum payments**           |   | **165,935**         | ** ** | **44,875**            | ** ** |
|                                 |   |                | ** ** |                  | ** ** |
| **Amount representing interest**     |   | **(27,672**         | **)**      |                  | ** ** |
| **Obligations under finance leases** |   | **138,263**         | ** ** |                  | ** ** |
| **Obligations due within one year**  |   | **15,494**          | ** ** |                  | ** ** |

 

                Rentalexpenses under operating leases amounted to €8,561, €6,359, €2,720 and €9,358,for the twelve months ended December 31, 2002, the eight months ended December31 2001, the four months ended April 30, 2001, and for the twelve months endedDecember 31, 2000, respectively.

 

**28.          Miscellaneousliabilities**

 
|                                |   | **December  31,  2002** |       | **December  31,  2001** |       |
|-------------------------------------|--------|-------------------------|------------|-------------------------|------------|
|                                |   |                    |       |                    |       |
| Accrued interest                    |   | 23,910                  |       | 25,202                  |       |
| Advance payments received on orders |   | 2,018                   |       | 3,450                   |       |
| Liabilities due to customers        |   | 10,345                  |       | 11,633                  |       |
| Payroll liabilities                 |   | 29,983                  |       | 26,901                  |       |
| Taxes payable                       |   | 10,658                  |       | 17,366                  |       |
| Social security payable             |   | 4,083                   |       | 3,387                   |       |
| Deferred income                     |   | 2,261                   |       | 2,429                   |       |
| Bills of exchange payable           |   | 129                     |       | 850                     |       |
| Fair value of derivatives           |   | 28,260                  |       | 14,217                  |       |
| Other liabilities                   |   | 34,636                  |       | 45,014                  |       |
|                                |   |                    |       |                    |       |
| **Total**                           |   | **146,283**             | ** ** | **150,449**             | ** ** |

 

                The fairvalue of derivatives as of December 31, 2002 and December 31, 2001,respectively, includes interest rate swap agreements, which are designated ascash flow hedges.

 

**29.          Stockholders’equity**

 

***Issued Capital and additional Paid-in Capital***

 

**Successor**

 

                Stockholders’equity of the Successor prior to the acquisition transactions consisted of50,000 shares held by Hoechst with a balance of €51 (par value and additionalpaid-in capital). As part of the Acquisition Transactions (see Note 3“Acquisition transactions”), Hoechst and MIG contributed their shares in MesserGriesheim to the Company for 10,000 and 30,000 new shares, respectively,resulting in a total issued capital of 90,000 shares with a stated value of €1per share.

 

 

F-44

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                The sharesissued were recorded at the fair value of Messer Griesheim at April 30, 2001,the date of the acquisition transactions. As a result, the excess of fair valueover the stated value of the shares has been recorded as additional paid-incapital.

 

**Predecessor**

 

                Stockholders’equity of the Predecessor consisted of 276,098 shares held by Hoechst (184,065shares) and MIG (92,033 shares) with subscribed and additional paid-in capitalof €394,820 as of January 1, 2000. During fiscal 2000, the predecessor recordedan increase in additional paid-in capital arising from the disposal of Cutting& Welding (see Note 14 “Results from discontinuing operations”).

 

***Retained Earnings (Accumulated Deficit)***

 

**Successor**

 

                According tothe German Commercial Code, the Group may pay a dividend to its stockholdersonly from the unappropriated retained earnings of Messer Griesheim Holding AG.In addition, the German Stock Code requires the funding of statutory reserves(based upon 10% of annual net income) up to an amount no less than 10% of theissued capital (€90).

 

**Predecessor**

 

                Retainedearnings at December 31, 1999 include a €5,710 charge relating to the initialapplication of IAS 19 (revised 1998). On January 1, 2001, the Predecessorrecorded a €335 credit resulting from a transition adjustment pursuant to IAS39.

 

**30.          Minorityinterests**

 

                The followingrepresents minority stockholder interests in the equity of consolidatedsubsidiaries. Significant minority interests are held by third partystockholders in Germany, Serbia, Switzerland, Bulgaria, Guatemala and China.

 
| **Balance as of January 1, 2002**   |   | **88,138** | ** ** |
|-------------------------------------|--------|------------|------------|
| Dividend payments                   |   | (8,286     | )          |
| Profit after taxes                  |   | 11,120     |       |
| Exchange rate changes               |   | (6,960     | )          |
|                                |   |       |       |
| **Balance as of December 31, 2002** |   | **84,012** | ** ** |

 

**31.          Personnelexpenses**

 
|               |   | **Successor**                                 |   | **Predecessor**                              |   |
|--------------------|--------|-----------------------------------------------|--------|----------------------------------------------|--------|
|               |   | **Twelve  months  ended  December 31,  2002** |   | **Eight  months  ended  December 31,  2001** |   | **Four  months  ended  April 30,  2001** |   | **Twelve  months  ended  December 31,  2000** |   |
|               |   |                                          |   |                                         |   |   |   |   |   |
| Personnel expenses |   | 321,055                                       |   | 224,633                                      |   | 117,932 |   | 393,280 |   |

 

                Personnel expenses consist of wages, salaries and payments for socialsecurity and pensions.

 

 

F-45

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**32.          Numberof employees**

 

                The averagenumber of employees totaled:

 
|                          |   | **Successor**                                 |       | **Predecessor**                              |       |
|-------------------------------|--------|-----------------------------------------------|------------|----------------------------------------------|------------|
|                          |   | **Twelve  months  ended  December 31,  2002** |       | **Eight  months  ended  December 31,  2001** |       | **Four  months  ended  April 30,  2001** |   | **Twelve  months  ended  December 31,  2000** |   |
|                          |   |                                          |       |                                         |       |   |   |   |   |
| Germany                       |   | 2,208                                         |       | 2,244                                        |       | 2,395 |   | 2,589 |   |
| Western Europe                |   | 997                                           |       | 1,017                                        |       | 1,077 |   | 1,074 |   |
| Eastern Europe                |   | 2,283                                         |       | 2,369                                        |       | 2,484 |   | 2,569 |   |
| North America                 |   | 996                                           |       | 1,163                                        |       | 1,408 |   | 1,397 |   |
| Others(1)                     |   | 741                                           |       | 1,555                                        |       | 2,434 |   | 2,414 |   |
|                          |   |                                          |       |                                         |       |   |   |   |   |
| **Total number of employees** |   | **7,225**                                     | ** ** | **8,348**                                    | ** ** | **9,798** | ** ** | **10,043** | ** ** |

 

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(1)                                  Othersinclude the employees of the companies of the regions Asia, Africa and LatinAmerica.

 

**33.          Commitmentsand contingencies**

 

***Financial guarantees***

 

Obligationsfrom issuing guarantees as a guarantor (excluding product warranties) are asfollows:

 
|                                       |   | **Maximum potential future obligation** |   | **Amount recognized as a liability** |   |
|--------------------------------------------|--------|-----------------------------------------|--------|--------------------------------------|--------|
| **In millions of  €**            |   | **Dec. 31, 2002**                       |   | **Dec. 31, 2001**                    |   | **Dec. 31, 2002** |   | **Dec 31, 2001** |   |
| Guarantees  for third party liabilities    |   | 66,4                                    |   | 217,7                                |   | 3,8 |   | 0,0 |   |
| Guarantees  related to sale of investments |   | 125,0                                   |   | 123,1                                |   | 17,2 |   | 15,0 |   |

 

Guaranteesfor third party liabilities principally represent guarantees of indebtedness ofdeconsolidated and at equity consolidated subsidiaries and third parties. Theterm under these arrangements generally cover the range of the relatedindebtedness of the deconsolidated and at equity consolidated subsidiaries andthird parties. Messer Griesheim also provides guarantees to third parties ofcertain obligations of its consolidated subsidiaries. At December 31, 2002,these guarantees amounted to € 25.8 million. To a lesser extent,consolidated subsidiaries provide guarantees to third parties of obligations ofother consolidated and at equity consolidated subsidiaries. All intercompanyguarantees are eliminated in consolidation and therefore are not reflected inthe above table.

 

TheGroup is subject to potential liability under certain government regulationsand various claims and legal actions that are pending or may be assertedagainst the Group concerning environmental matters. The maximum potentialfuture obligation related to certain environmental guarantees cannot beestimated due to numerous uncertainties including the enactment of new laws andregulations, the development and application of new technologies, theidentification of new sites, for which the group may have remediationresponsibility and the apportionment and collectibility of remediation costswhen other parties are involved.

 

Inconnection with its divestiture program, Messer Griesheim has provided to thepurchasers normal and common guarantees for 

 

 

F-46

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representationsand warranties. These guarantees have expiration dates ranging from twelve tosixty months.

 

Whencircumstances indicate that payment is probable, guarantees made by the Groupare recognized as a liability in the consolidated balance sheet with anoffsetting amount recorded as an expense.

 

Inaddition to the above guarantees and warranties, in connection with itsproduction program, the Group has committed to purchase various levels of goodsand services over extended periods at market prices. The Group has alsocommitted to purchase or invest in the construction and maintenance of variousproduction facilities. Amounts under these guarantees represent commitments topurchase plant or equipment at market prices in the future. As of December 31,2002, commitments to purchase goods and services or to invest in plant andequipment are 67.4 million. These amounts are not reflected in the above table.

 

The Group also enters intooperating leases for equipment (see note 27 “Corporate debt”).

 

***Other financial obligations***

 

                Substantiallyall of the assets of the Group are pledged as security for the Group’s seniorfacilities at December 31, 2002 and December 31, 2001 (see Note 4 “Financingtransactions”).

 

                Otherfinancial obligations not included in the consolidated balance sheet relate tolong-term commitments for capital expenditures of €11.8 million and €32.0million at December 31, 2002 and 2001, respectively. Commitments underlong-term purchase agreements amounted to €55.6 million and €68.6 million atDecember 31, 2002 and 2001, respectively. Commitments for capital to be fundedto equity and cost method investees totaled €4.7 million and €22.8 million atDecember 31, 2002 and 2001, respectively.

 

                Pursuant tothe acquisition transactions and the related China sale and purchase agreement,Messer Griesheim has agreed to purchase ACIC’s [Aventis (China) Investment Co.Ltd.] interests in the six ACIC joint ventures, subject to certain conditions.The committed purchase price for the ACIC joint ventures is €32.0 million plusinterest from April 30, 2001 until the completion of the purchase of the ACICjoint ventures. The purchase agreement requires that the purchase close nolater than April 30, 2003. Upon acquiring the ACIC interests, Messer Griesheimhas agreed to assume the debt of the ACIC joint ventures upon the date ofcompletion of the transaction. As of December 31, 2002, such debt amounted toapproximately €12.1 million and as of December 31, 2001 such debt amounted toapproximately €17.1 million, respectively. Payment of the purchase price isguaranteed by Messer Griesheim Group, the Company’s parent.

 

**34.          Derivativefinancial instruments**

 

                IAS 39 *“FinancialInstruments: Recognition and Measurement”* sets standards forrecognition, measurement and reporting of information relating to financialinstruments of an enterprise as an asset or liability, including the reportingof hedging instruments. Under this Standard, all financial assets andliabilities are recognized on the balance sheet, including all derivatives.They are initially measured at cost. Subsequent to initial recognition, allfinancial assets are remeasured to fair value, with the exception of certainassets and liabilities listed in the standard. Adoption of this standard onJanuary 1, 2001 resulted in a €335 cumulative effect of change in accountingprinciples, net of deferred taxes totaling €223, and is reflected in equity.

 

                IAS 39 andFASB 133 “*Accountingfor Derivative Instruments and Hedging Activities”* require companiesto recognize all derivative instruments as either assets or liabilities in thestatement of financial position at fair value. The accounting for changes inthe fair value (i.e. gains or losses) of a derivative instrument depends onwhether it has been designated and qualifies as part of a hedging relationshipand further, on the type of hedging relationship. For those derivativeinstruments that are designated and qualify as hedging instruments, a companymust designate the hedging instrument, based upon the exposure being hedged, asa fair value hedge, cash flow hedge or a hedge of a net investment in a foreignoperation.

 

 

F-47

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                The Group hasentered into interest rate swap agreements that effectively convert a portionof its floating-rate indebtedness to a fixed rate basis for approximately thenext two years, thus reducing the impact of interest rate changes on futureinterest expense. Approximately 44% (€638.7) million of the Group’s outstandingindebtedness was designated as hedged due to interest rate swap agreements asof December 31, 2002. The fair values of the interest rate swaps designated forcash flow hedges were (€28.3) million as of December 31, 2002 and (€14.2)million as of December 31, 2001.

 

                Interest expense for the twelve months ended December 31, 2002 includesnet losses resulting from hedging activities of €2.0 million and €0 million forthe eight months ended December 31, 2001. Due to mandatory and voluntary loanprepayments in June 2002 amounting to €99.5 million, parts of the existingswaps have been terminated at the end of June 2002. The termination payments of€2.0 million of these swaps are shown as interest expense in the twelve monthsended December 31, 2002. For the other existing swaps, there was noineffectiveness in the cash flow hedges as the critical terms of the interestrate swaps (e.g. basis, re-pricing dates etc), matched the critical terms of thehedged loans. Unless otherwise noted, all components of the interest rate swapgains or losses are included in the assessment of hedge effectiveness.

 

                Changes inthe fair value of interest rate swaps designated as hedging instruments of thevariability of cash flow associated with floating-rate loans are reported inequity. The amount recorded in the comprehensive income related to the cashflow hedges was €7.8 million (net of deferred tax effect of €6.3 million) and€9.2 million (net of deferred tax effect of €5.0 million) for the twelve monthsended December 31, 2002 and the eight months ended December 31, 2001 and €0 forthe four months ended April 30, 2001 and the twelve months ended December 31,2000, respectively. As the hedge is deemed completely effective and held to thefull term, the swap market value changes are recorded as adjustments to theswap asset or liability and equity.

 

                A part of theforeign exchange forwards and the interest rate caps provide effective economichedges under the Group’s risk management policies, but do not qualify for hedgeaccounting under the specific rules in IAS 39. The fair values of these foreignexchange forwards and the interest rate caps were €8 and €3 as of December 31,2002, €(18) and €122 as of December 31, 2001. Changes in the fair value ofthese derivative instruments that do not qualify for hedge accounting under IAS39 are recognized immediately in the statement of operations. The Grouprecorded a (loss)/gain from changes in the fair value of €(93) and €106 in thetwelve months ended December 31, 2002 and the eight months ended December 31,2001, respectively.

 

**35.          Litigation**

 

                Messer is involved from time to time invarious claims and lawsuits incidental to the ordinary course of the business.

 

                Management isof the opinion that the risks connected with the pending or threatenedlitigations described below are adequately provided for.

 

**                Messer acquired its interest inBombay Oxygen Corporation Limited (Bombay Oxygen), a publicly traded company inIndia, in 1997 for a total of €12.2 million. It acquired this interest throughthe purchase of shares from Bombay Oxygen’s major shareholder, and purchasedadditional shares by way of a public offer. The shares in Bombay Oxygen held byMesser were transferred in 2000 to a company jointly owned by Messer andindirectly Goyal MG Gases Pvt. Ltd (Goyal MG). The Securities and ExchangeBoard of India is investigating whether some of the purchases of Bombay Oxygenshares by Messer or the subsequent transfer of such shares to the jointly ownedcompany involved a violation with respect to a change of control under Indiantakeover regulations. In addition, Messer was involved in litigation withrespect to this investment with the major shareholder of Bombay Oxygen. DuringDecember 2002, all such litigation with Bombay Oxygen was settled and Messer nolonger holds any investment in Bombay Oxygen.**

** **

**                Various law suits are pending orthreatened by Goyal MG and/or its major shareholders. Messer has received a**

** **

** **

**F-48**

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** **

**notice fromGoyal MG alleging that Messer has breached a confidentiality clause containedin a shareholders’ agreement among Messer, Goyal MG and certain othershareholders. The notice requests payment of Rupees 5.0 billion (approximately€100.1 million) for damages allegedly suffered on account of lost business dueto certain press announcements by Messer which allegedly prejudicially affectedthe business of Goyal MG.**

** **

                During 2001,Goyal MG defaulted on a bank loan. As a result, the Group, as guarantor, wasrequired to repay the US$4.7 million (approximately €4.5 million) loan in full.The Group is currently seeking reimbursement from Goyal MG for this amount.

 

                In 1999, theCompany’s Brazilian subsidiary, Messer Griesheim do Brazil Ltda., entered intoa letter of agreement to pursue research into a new technique for theproduction of ethanol with an individual, who in April 2001, following atermination of the agreement, filed a suit against Messer Griesheim do Brazil Ltda.and certain other affiliates. The claim, mainly for damages for lostopportunities and potential earnings as a result of the subsidiary’s allegedbreach of the agreement, is for an amount of Reals 593 million (approximately€159.8 million). In addition, in August 2001 a former employee filed a lawsuitagainst the Group’s Brazilian subsidiary for an amount of €4.3 million. Inconnection with the disposal of this Brazilian subsidiary, management agreed toindemnify the buyer for any loss relating to these claims.

 

                In August1999, Messer Griesheim GmbH discovered that one of its executives, who then hadsenior management responsibility in Central and South America, hadmisappropriated corporate funds, which he represented to others within MesserGriesheim had been paid to third parties in connection with our business. Thisexecutive is no longer an employee. In June 2000, Messer Griesheim was informedthat the U.S. Attorney’s Office for the Eastern District of Pennsylvania wasconducting an investigation relating to the conduct of this former executive.In April 2001, this former executive was arrested on a criminal complaintcharging him with three counts of fraud against Messer Griesheim Industries,our principal subsidiary in the United States. Thereafter, the employee pledguilty to wire fraud in connection with a scheme to defraud Messer GriesheimIndustries of US$ 550,000 and was sentenced to a prison term of 15 months. InApril 2002, the Assistant U.S. Attorney handling the matter notified attorneysfor the Company that the investigation was being dropped by their office andreferred to the U.S. Customs Agency for possible civil enforcement action. TheCompany is not aware of any action being pursued by the Customs Agency. TheCompany can give no assurance as to the ultimate scope or outcome of theoverall investigation. Under the business combination agreement entered into inconnection with the acquisitions described above, Hoechst has agreed toindemnify the Company with respect to any losses arising out of suchinvestigation of any related proceedings, although this indemnity is generallylimited to two-thirds of the loss incurred.

 

                MesserGriesheim has received a notice from NLP, a South American agent/serviceprovider for Merger & Acquisitions, alleging that Messer Griesheim has yetnot paid a fee for the procurement of potential investors for two subsidiariesof Messer Griesheim.

 

**                In 2001, the Group’s subsidiaryPT Aneka in Indonesia entered into an agreement for the purchase of machineryand equipment. In November 2001, the agreement partner filed suit against thesubsidiary due to the alleged unlawful termination of the contract by PT Aneka.The claim, mainly for damages for lost opportunities and potential earnings, isfor an amount of US$1.5 million (see Note 38 “Subsequent events”).**

 

                While therecan be no assurance as to the ultimate outcome of these matters due to theuncertainties involved in matters of litigation, management believes that theoutcome of all pending legal proceedings, either individually or in theaggregate, will not have a material effect on the Company’s consolidatedfinancial position, results of operations, or cash flows.

 

 

F-49

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**36.          Relatedparties**

 

***Hoechst***

 

                Prior to theacquisition transactions on April 30, 2001, Hoechst was the majoritystockholder of Messer Griesheim. Messer Griesheim has entered into certaintransactions relating to sale and service contracts with companies within theHoechst group which are not material. The transactions are settled at termssubstantially equivalent to similar transactions negotiated on an arm’s lengthbasis.

 

                Related partytransactions with respect to the Group's Singapore operations have beendescribed in note 18 “Equity method investments”. Hoechst has indemnified theGroup resulting in a payment of 9.4 million for bank guarantees provided toBombay Oxygen, which has been reflected as an advance towards capitalcontribution at April 30, 2001 and as equity at December 31, 2002 and December31, 2001, respectively.

 

***Allianz***

 

                As a resultof the acquisition transactions ACP, directly or indirectly, owns or controls33.08% of Messer Griesheim Group GmbH & Co. KGaA at December 31, 2002.

 

                ACP is a 20%shareholder in Mahler Italfilo Holding GmbH, which is currently in liquidation.During April 2001, Mahler Italfilo Holding GmbH acquired the shares of MahlerAGS GmbH and Italfilo Engineering S.r.l. from Messer Griesheim prior theconsummation of the acquisition transactions.

 

                ACP providedcertain financial advisory services to the Company and Messer Griesheim, forwhich it has been paid in aggregate approximately €3.0 million in advisory feesby Messer Griesheim during the eight month period ended December 31, 2001. Notransactions between the Group and ACP took place during the twelve monthsended December 31, 2002.

 

***Goldman Sachs***

 

                As a resultof the acquisition transactions six private equity funds managed by affiliatesof The Goldman Sachs Group, Inc. hold 33.08% of Messer Griesheim Group GmbH& Co. KGaA. Goldman Sachs International also is an affiliate of The GoldmanSachs Group, Inc. Goldman Sachs and its affiliates, in the ordinary course ofbusiness, engage in commercial banking, investment banking and financialadvisory transactions with Messer Griesheim Group GmbH & Co. KGaA and theGroup.

 

                Goldman SachsGroup, Inc., Goldman Sachs International and their affiliates have providedmerger and acquisition advisory services in connection with the acquisitiontransactions of the Group, and have received no related advisory fees for theseservices.

 

                Goldman SachsInternational was a lender under the mezzanine facility of Messer Griesheim.Goldman Sachs International also is a lender under the senior facilitiesprogram of Messer Griesheim. Goldman Sachs International received €20.4 millionin financing/syndication fees in connection with these transactions for theeight months ended December 31, 2001 and €0 million for the twelve months endedDecember 31, 2002.

 

                Goldman SachsInternational and its affiliates were the underwriters of the original SeniorNotes and the lead arrangers of the senior and mezzanine facilities of MesserGriesheim. In connection with these activities, approximately €14.4 millionwere paid during the eight months period ended December 31, 2001 and €0 millionfor the twelve months ended December 31, 2002.

 

                Goldman Sachswas our agent in repurchasing the Senior Notes during the twelve months endedDecember 31, 2002 and received fees for this service of €0.6 million.

 

                The Groupenters into derivative contracts to hedge their exposure to changes in interestrates and foreign currency. Affiliates of the Goldman Sachs Group act as acounterparty to certain interest rate swap contracts and forward 

 

 

F-50

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exchange contracts, which have a notional amount of €511.2 million and€0.9 million at December 31, 2002 and €622.6 million and €4.2 million atDecember 31, 2001. In addition on June 24, 2002 the Group entered into €386.0million notional forward interest rate swaps with the same counterparty, whichwill partly replace the existing swaps when they expire in 2004. The companymade termination payments of €0.9 million, €0 million and €0 million to GoldmanSachs for the twelve months ended December 31, 2002, the eight months endedDecember 31, 2001 and the four months ended April 30, 2001, respectively.

 

                Goldman SachsInternational and its affiliates are involved with providing investment bankingservices in connection with the Group’s divestiture program, and are entitledto receive fees based upon a percentage of debt relief to the Group achieved bycompleted divestitures on which it has advised the Company. Fees paid orpayable to Goldman Sachs International in connection with this arrangement,based on completed divestitures under the program, aggregated €7.5 million,€5.4 million and €0 million for the twelve months ended December 31, 2002, theeight months ended December 31, 2001 and the four months ended April 30, 2001,respectively.

 

                An affiliateof Goldman Sachs Group, Inc. is a 20% shareholder in Mahler Italfilo HoldingGmbH, which is currently in liquidation. On April 1, 2001, Mahler ItalfiloHolding GmbH acquired the shares of Mahler AGS GmbH and Italfilo EngineeringS.r.l. from the Messer Griesheim prior to the consummation of the acquisitiontransactions.

 

***Messer Industrie GmbH (“MIG”)***

 

                Prior to theacquisition transactions in April 30, 2001 MIG was the minority shareholder ofMesser Griesheim GmbH. As a result of the acquisition transactions MIG holds32.11% of Messer Griesheim Group GmbH & Co. KGaA. MIG owns through its 100%affiliate Bandinelli GmbH 22% of Mahler Italfilo Holding GmbH (currently inliquidation), which acquired two subsidiaries of the Group (Mahler AGS GmbH andItalfilo Engineering S.r.l) in April 2001. Bandinelli GmbH is also an 11%shareholder in Messer Singapore Holding GmbH, the transactions of which areexplained in Note 18 “Equity method investments”.

 

***Other***

 

                Related partytransactions with respect to the sale of operating companies in Cuba arediscussed in Note 5 “Divestment of Cuban subsidiaries”. See also “Loans torelated parties” below.

 

***Loans to and from related parties***

 

                As ofDecember 31, 2002 and 2001, loans to related parties primarily relate to anon-interest bearing note due from an equity method investment in Malaysia ofapproximately €5.1 million and €5.1 million, respectively.

 

                In October2002 Messer Griesheim has received a loan from its shareholder Messer GriesheimGroup amounting to €33.0 million. During October 18, 2002 to December 31, 2002the interest expense amounted to €335. The loan bears a fixed interest rate of5.0% per annum and has a maturity of five years. Interest is payable on theloan at such time as the principal amount is due and payable. The principalamount is due on the earlier of the maturity of the loan or the date followingthree months after either Messer Griesheim or Messer Griesheim Group declaresthe termination of the loan.

 

***Shareholders’ Agreement***

 

                MIG, ACP andthe GS Funds have entered into a shareholders’ agreement. The shareholders’agreement provides, among other things, for the corporate governance of theGroup and Messer Griesheim Group GmbH & Co. KGaA, including the right toappoint board members and other voting rights. The shareholders’ agreementgenerally allocates rights and obligations concerning matters between MIG, onthe one hand, and ACP and the GS Funds, on the other hand, considered 

 

 

F-51

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collectively, as the financial sponsors. The shareholders’ agreementprovides that all important decisions regarding Messer Griesheim’s management,in particular decisions on divestitures and capital expenditures are to betaken by Messer Griesheim Group GmbH & Co. KGaA and in certain casesrequires 75% of shareholder approval. This includes divestitures in Europe,with the exception of the United Kingdom. With respect to a sale of MesserGriesheim, a 75% approval will be required until September 30, 2004, thereafteronly a majority approval is required. The shareholders’ agreement also containsshare transfer restrictions, including rights of first offer, rights toparticipate in sales by other shareholders and provisions regarding change ofcontrol.

 

                Additionally,the shareholders’ agreement grants MIG a call option between April andSeptember 2004 for all shares held by the financial sponsors, subject tocertain significant conditions and requirements. After September 2004, ashareholder may freely transfer its shares if they have first been offered tothe other shareholder.

 

                Due tocertain antitrust considerations relating to ACP’s equity interest in acompetitor of Messer Griesheim, ACP and the GS Funds entered into a separateagreement. The agreement generally allocates the rights of ACP relating to thecorporate governance and management of the Group to the GS Funds, until suchtime the antitrust related considerations are no longer relevant. Accordingly,until then, the members of the shareholders’ committee appointed by the GSFunds will represent all votes of the ACP and the GS Funds, which as ofDecember 31, 2002 constitute 66.16% of all votes in the shareholders’committee. The agreement also limits ACP and the GS Fund’s ability to selltheir shares in Messer Griesheim Group GmbH & Co. KGaA independently ofeach other.

 

**37.          Stockpurchase and option plan**

 

                DuringNovember 2001, the shareholders of Messer Griesheim Group GmbH & Co. KGaAapproved a stock compensation plan for the benefit of key managers of theGroup. The plan allows these employees to purchase shares of Messer GriesheimGroup GmbH & Co. KGaA (original option). The shareholders of MesserGriesheim Group GmbH & Co. KGaA have agreed among each other that themaximum number of shares to be acquired by the managers under the stockpurchase and option plan shall be limited to 6.5% of the then-outstanding stockof Messer Griesheim Group GmbH & Co. KGaA. The options to acquire shareshave been priced at €74.25, the fair market value at the date of the change incontrol under the acquisition transactions (April 30, 2001). Upon exercise ofthe original options and for each share purchased, the participants receiveconditionally exercisable, non transferable options to acquire three new sharesin Messer Griesheim Group GmbH & Co. KGaA at the same price of €74.25. Theconditionally exercisable options become exercisable no earlier than two yearsafter the date of grant, and only upon the attainment of certain operatingperformance and investment yield targets, but in any case not before an exitevent.

 

                All sharesoffered under this plan are subject to certain put and call provisions upon theoccurrence of certain events. In November 2001, 176,563 original options weregranted. Subsequent to December 31, 2001, 156 participants had purchased atotal of 148,861 shares and were granted 446,583 conditionally exercisableoptions. None of these options were exercised, forfeited or expired as of andfor the twelve months  ended December31, 2002 and the eight months ended December 31, 2001, respectively.

 

                During thesecond quarter 2002, a substantially similar stock purchase and option plan wasapproved for certain members of the shareholders’ committee of the generalpartner of Messer Griesheim Group GmbH & Co. KGaA (the Messer GriesheimGroup), Messer Griesheim Beteiligungsverwaltungs GmbH. The participatingmembers were offered to acquire the shares in Messer Griesheim Group for apurchase price of €74.25, which was the fair market value at the date of thechange in control under the acquisition transactions (April 30, 2001). Inaddition to the shares acquired by them from the shareholders of MesserGriesheim Group, Messer Griesheim Group has issued to the participantsconditionally exercisable, non transferable convertible bonds for a purchaseprice of €1 each, convertible into one or more shares of Messer Griesheim Groupfor an additional payment of €73.25 for each share. The conversion rightsbecome exercisable only upon the attainment of certain operating performanceand investment yield targets and the number of years the participants haveserved as members of the shareholders’ committee, but in any case not before anexit event. All shares offered under this 

 

 

F-52

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plan are subject to certain put and call provisions upon the occurrenceof certain events. Subsequent to March 31, 2002, six participants had purchaseda total of 24,612 shares and 38,112 conditionally exercisable, non transferableconvertible bonds were issued for a purchase price of €1 each. None of theseconvertible bonds were exercised, forfeited or expired as of and for the twelvemonths ended December 31, 2002

 

                The Company’sstock purchase and option plans for management and the Board are accounted foras provided by APB Opinion No. 25. No compensation cost has been recognized inconnection with the granting of original options and convertible bonds for thetwelve months ended December 31, 2002, or the eight months ended December 31, 2001,respectively, as the purchase price the participants were required to pay wasequivalent to the fair value of the shares of the Company with like features onthe date of grant. With respect to the contingently exercisable options andconvertible bonds, compensation cost will be measured and recognizedimmediately upon the occurrence of the contingent exit event.

 

                As analternative to accounting for stock based compensation under APB No. 25, SFASNo. 123, “Accounting for Stock Based Compensation”, as amended by SFAS’ 148“Accounting for Stock Based compensation — Transition and Disclosures”establishes a fair value method of accounting for stock purchase and optionplan or similar equity instruments. Had compensation cost for these plans beendetermined in accordance with SFAS No. 123 as amended by SFAS 148, theCompany’s net earnings would not have been affected. Therefore, a pro formatable is not presented.

 

**38.          Subsequentevents**

 

                DuringJanuary 2003, the Company completed the sale of its activities in Indonesia toPT Tira Austenite Tbk. In connection with this divestiture the mainly claim fordamages for lost opportunities and potential earnings was settled (see Note 35“Litigations”). The impact of this transaction on the consolidated statementsof operations is not significant.

 

                In January2003, Messer Griesheim has received a claim for alleged breach of contractconcerning the sale of Messer Medical GmbH, claiming about €4.1 million.Management is in the process of investigating the matter. Based on the adviceof its counsel, management is in the opinion that the allegations have nomerit.

 

                In February2003, the Group successfully finalized and filed amendments to the seniorfacilities agreement. These amendments provide the Group with more favourableterms with respect to its required level of interest hedging, access to anancillary facility of €50 million for overdrafts, an increase in its ability toincur debt in the form of local facilities and a decrease in its ability toincur debt in the form of capital lease. As a result of these amendments to thesenior facilities agreement, the Group is no longer permitted to repurchasesenior notes in the future.

 

**39.          RestrictedAssets of Subsidiaries**

 

                As discussedin Note 1 “Background and basis of presentation”, Messer Griesheim Holding AGwas a dormant company until the acquisition transactions, at which time it wasestablished as a holding company. Messer Griesheim Holding AG has issueddebentures, which have been exchanged for senior notes in the capital markets.Since Messer Griesheim Holding AG has limited sources to generate fundsnecessary to repay the notes, it must look to the inter-company loan to itssubsidiary, Messer Griesheim GmbH to assist it in meeting its principal andinterest obligations. In the event that operations of Messer Griesheim GmbH arenot sufficiently profitable to generate sufficient funds to meet its principaland interest obligations on the inter-company loan, additional capitalcontributions by its shareholders may be necessary to avoid an event ofdefault. Certain of Messer Griesheim GmbH’s debt agreements contain restrictivecovenants which restrict, among other things, Messer Griesheim GmbH fromdeclaring or paying dividends, repurchasing any of its capital stock, or makingcash advances or guarantees of obligations of affiliates.

 

 

F-53

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                The condensedfinancial information of Messer Griesheim Holding AG (on a parent-only basisunder IFRS) as of December 31, 2002 and 2001 and for the twelve months endedDecember 31, 2002 and the eight months ended December 31, 2001 is as follows:

 
|                                                |   | **December  31,  2002** |       | **December  31,  2001** |       |
|-----------------------------------------------------|--------|-------------------------|------------|-------------------------|------------|
|                                                |   |                    |       |                    |       |
| **Condensed Balance Sheet:**                        |   |                    | ** ** |                    | ** ** |
| Investments in subsidiaries                         |   | 735,492                 |       | 903,428                 |       |
| Loans to subsidiaries                               |   | 550,000                 |       | 550,000                 |       |
| Other assets                                        |   | 4,782                   |       | 6,706                   |       |
| **Total assets**                                    |   | **1,290,274**           | ** ** | **1,460,134**           | ** ** |
|                                                |   |                    |       |                    |       |
| Senior notes, long term                             |   | 550,000                 |       | 550,000                 |       |
| Other liabilities, short term                       |   | 4,787                   |       | 6,745                   |       |
| **Total liabilities**                               |   | **554,787**             | ** ** | **556,745**             | ** ** |
|                                                |   |                    |       |                    |       |
| Capital subscribed                                  |   | 90                      |       | 90                      |       |
| Additional paid-in capital                          |   | 967,090                 |       | 967,090                 |       |
| Cumulative translation adjustment                   |   | (55,348                 | )          | 14,939                  |       |
| Hedging reserve                                     |   | (16,943                 | )          | (9,199                  | )          |
| Accumulated deficit                                 |   | (159,402                | )          | (69,531                 | )          |
| **Stockholders’ equity**                       |   | **735,487**             | ** ** | **903,389**             | ** ** |
|                                                |   |                    |       |                    |       |
| **Total liabilities and stockholders’ equity** |   | **1,290,274**           | ** ** | **1,460,134**           | ** ** |

 

 
|                                                         |   | **Twelve  months  ended  December 31,  2002** |       | **Eight  months  ended  December 31,  2001** |       |
|--------------------------------------------------------------|--------|-----------------------------------------------|------------|----------------------------------------------|------------|
|                                                         |   |                                          |       |                                         |       |
| **Condensed results of operations:**                         |   |                                          | ** ** |                                         | ** ** |
| Equity in earnings /(losses) of investments  in subsidiaries |   | (89,905                                       | )          | (69,448                                      | )          |
| Interest income                                              |   | 57,064                                        |       | 35,679                                       |       |
| Interest expense                                             |   | (57,062                                       | )          | (35,679                                      | )          |
| Other expenses, net                                          |   | 32                                            |       | (83                                          | )          |
| Net loss                                                     |   | (89,871                                       | )          | (69,531                                      | )          |
|                                                         |   |                                          |       |                                         |       |
| **Cash inflows (outflows) from:**                            |   |                                          | ** ** |                                         | ** ** |
| Operating activities:                                        |   |                                          |       |                                         |       |
| Interest received on inter-company loan                      |   | 57,064                                        |       | 35,679                                       |       |
| Interest paid on Senior Notes                                |   | (57,062                                       | )          | (35,679                                      | )          |
| Other                                                        |   | 149                                           |       | 52                                           |       |
| Net cash flows from operating activities                     |   | 151                                           |       | 52                                           |       |
| Investing activities:                                        |   |                                          |       |                                         |       |
| Inter-company loan to subsidiaries                           |   | —                                        |       | (550,000                                     | )          |
| Financing activities:                                        |   |                                          |       |                                         |       |
| Issuance of Senior Notes                                     |   | —                                        |       | 550,000                                      |       |
| Net cash flow for the period                                 |   | 151                                           |       | 52                                           |       |
| Cash balance at beginning of reporting  period               |   | 52                                            |       | —                                       |       |
| Cash balance at ending of reporting period                   |   | 203                                           |       | 52                                           |       |

 

                In 2002 and 2001 Messer Griesheim Holding AG received no cashdividends.

 

 

F-54

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**40.          Reconciliationto U.S. GAAP**

 

                The Group’sconsolidated financial statements have been prepared in accordance with IFRS,which differs in certain significant respects from accounting principlesgenerally accepted in the United States of America (“U.S. GAAP”). Thedifferences that have a significant impact on net loss and stockholders’ equityof the Group are set out below:

 

                Reconciliationof net loss to U.S. GAAP for the twelve months ended December 31, 2002, theeight months ended December 31, 2001, the four months ended April 30, 2001, andthe twelve months ended December 31, 2000, respectively:

 
|                                                                                 |   |      |   | **Successor**                                 |   | **Predecessor**                              |   |
|--------------------------------------------------------------------------------------|--------|-----------|--------|-----------------------------------------------|--------|----------------------------------------------|--------|
|                                                                                 |   | **Note**  |   | **Twelve  months  ended  December 31,  2002** |   | **Eight  months  ended  December 31,  2001** |   | **Four  months  ended  April 30,  2001** |   | **Twelve  months  ended  December 31,  2000** |   |
| Net loss as reported in the consolidated  statements of operations under IAS         |   |      |   | (89,871                                       | )      | (69,531                                      | )      | (13,498 | ) | (205,565 | ) |
| U.S. GAAP adjustments:                                                               |   |      |   |                                          |   |                                         |   |   |   |   |   |
| Amortization expense                                                                 |   | a,b,c,d,e |   | 28,697                                        |   | (2,864                                       | )      | — |   | — |   |
| Assets to be sold                                                                    |   | b         |   | 630                                           |   | 5,472                                        |   | — |   | — |   |
| Restructuring costs                                                                  |   | c         |   | (640                                          | )      | —                                       |   | — |   | — |   |
| Property, plant and equipment                                                        |   | f         |   | —                                        |   | —                                       |   | (74 | ) | 27,405 |   |
| Provisions for pensions and similar  obligations                                     |   | g         |   | 1,349                                         |   | (547                                         | )      | 176 |   | 542 |   |
| Financial instruments                                                                |   | h         |   | —                                        |   | —                                       |   | — |   | (2,495 | ) |
| Equity method investments expenses, net                                              |   | i         |   | 19,846                                        |   | —                                       |   | — |   | — |   |
| Tax effect of U.S. GAAP adjustments                                                  |   | j         |   | (280                                          | )      | 915                                          |   | (41 | ) | 334 |   |
| Net loss under U.S. GAAP before cumulative  effect of change in accounting principle |   |      |   | (40,269                                       | )      | (66,555                                      | )      | (13,437 | ) | (179,779 | ) |
| Cumulative effect of change in accounting  principle (net of taxes €0)          |   | a, i      |   | (27,559                                       | )      | —                                       |   | — |   | — |   |
|                                                                                 |   |      |   |                                          |   |                                         |   |   |   |   |   |
| Net loss under U.S. GAAP                                                             |   |      |   | **(67,828**                                   | **)**  | **(66,555**                                  | **)**  | **(13,437** | **)** | **(179,779** | **)** |

 

                Reconciliationof stockholders’ equity to U.S. GAAP as of December 31, 2002 and 2001,respectively:

 
|                                                                                |   | **Note**  |   | **December  31,  2002** |       | **December  31,  2001** |   |
|-------------------------------------------------------------------------------------|--------|-----------|--------|-------------------------|------------|-------------------------|--------|
| Stockholders’ equity as reported in the  consolidated balance sheets under IAS |   |      |   | 735,487                 |       | 903,389                 |   |
| U.S. GAAP adjustments:                                                              |   |      |   |                    |       |                    |   |
| Amortization expense                                                                |   | a,b,c,d,e |   | 25,833                  |       | (2,864                  | )      |
| Cumulative effect of change in accounting  principle                                |   | a,i       |   | (27,559                 | )          | —                  |   |
| Assets to be sold                                                                   |   | b         |   | 6,102                   |       | 5,472                   |   |
| Restructuring costs                                                                 |   | c         |   | (640                    | )          | —                  |   |
| Transaction costs                                                                   |   | d         |   | 33,200                  |       | 33,200                  |   |
| Provisions for pensions and similar  obligations                                    |   | g         |   | (10,917                 | )          | (547                    | )      |
| Equity method investments expenses                                                  |   | i         |   | 19,846                  |       | —                  |   |
| Tax effect of U.S. GAAP adjustments                                                 |   | j         |   | 4,280                   |       | 915                     |   |
| Cumulative translation adjustment                                                   |   | k         |   | (1,220                  | )          | —                  |   |
|                                                                                |   |      |   |                    |       |                    |   |
| Stockholders’ equity under U.S. GAAP                                           |   |      |   | **784,412**             | ** ** | **939,565**             |   |

 

 

F-55

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***a. Goodwill andOther Intangible Assets***

 

                The Group was required to adopt SFAS 142 *“Goodwill and Other Intangible Assets”*in its entirety on January 1, 2002. SFAS 142 requires that goodwill and intangibleassets with indefinite useful lives no longer be amortized, but instead testedfor impairment annually (or more frequently if impairment indicators arise) inaccordance with the provisions of SFAS 142. Under IFRS, goodwill and intangibleassets continue to be amortized on a systematic basis over their estimateduseful lives not to exceed twenty years. This difference in accountingtreatment results in a decrease in amortization expense under U.S. GAAP of€28,697 during the twelve months ended December 31, 2002. See “*New U.S.accounting pronouncements”*below for further discussion of theimpact of the implementation of this new standard.

 

                In the fourth quarter 2002 the Group finalized the second step of theimpairment test and changed the method of evaluating goodwill from therecoverability test based upon undiscounted cash flow to a fair value approach.Accordingly, the Group’s previously recognized goodwill was tested for impairmentbased on the fair value of the reporting units using a discounted cash flowanalysis. As a result of this analysis, the Company concluded that goodwill wasimpaired and recorded an impairment charge for the additional goodwill underU.S. GAAP in the amount of €6,802 and €911 for reporting units in North Americaand Eastern Europe, respectively. This impairment charge is recorded as acumulative effect of change in accounting principle (transition adjustmentresulting from adoption of SFAS 142).

 

                The transitional disclosure provisions of SFAS 142 require disclosuresof what reported income before extraordinary items and net income would havebeen in all periods presented exclusive of amortization expense (including anyrelated tax effects) recognized in those periods related to goodwill,intangible assets that are no longer being amortized, any deferred creditrelated to an excess over cost, equity method goodwill, and changes inamortization periods for intangible assets that will continue to be amortized(including any related tax effects). The amortization expense and adjusted netloss of Messer Griesheim Holding AG for the periods prior to the period ofinitial application are as follows:

 
|                                            |   | **Successor**                                | ** **                  | **Predecessor**                          | ** ** |
|-------------------------------------------------|--------|----------------------------------------------|-----------------------------|------------------------------------------|------------|
|                                            |   | **Messer  Griesheim  Holding AG**            | **Messer  Griesheim  GmbH** |
|                                            |   | **Eight  months  ended  December 31,  2001** |                        | **Four  months  ended  April 30,  2001** |       | **Twelve  months  Ended  December 31,  2000** |   | **Twelve  months  ended  December 31,  1999** |   | **Twelve  months  ended  December 31,  1998** |   | **Twelve  months  ended  December 31,  1997** |   |
| Reported net loss in accordance with U.S.  GAAP |   | (66,555                                      | )                           | (13,437                                  | )          | (179,779 | ) | (21,346 | ) | N/A |   | N/A |   |
| Add back: Goodwill amortization                 |   | 22,348                                       |                        | 5,978                                    |       | 9,322 |   | 8,181 |   | N/A |   | N/A |   |
| Adjusted net loss in accordance with U.S.  GAAP |   | (44,207                                      | )                           | (7,459                                   | )          | (170,457 | ) | (13,165 | ) | N/A |   | N/A |   |

 

                Such goodwill and other intangible assets were pushed down to theindividual reporting units upon adoption of SFAS 142 at January 1, 2002.

 

                The Group has decided to test for goodwill impairment in accordancewith SFAS 142 on January 1 of each fiscal year.

 

***b. Divestiture ofsubsidiaries***

 

                EITF Issue No. 87-11 *“Allocation of Purchase Price to Assets to Be Sold”*addresses issues relating to the allocation of the purchase price in a purchasebusiness combination when the acquiring enterprise intends to sell certainoperations of the acquired enterprise within one year of the date of thebusiness combination. This EITF provides that the (i) estimated cash flows fromthe date of acquisition until the date of sale, (ii) estimated interest onincremental debt incurred during the holding period to finance the purchase ofthese subsidiaries and (iii) expected sales price less costs to sell shouldusually not affect earnings or losses reported in the acquiring enterprise’sconsolidated statement of operations 

 

 

F-56

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for acquired operations that are expected tobe sold within one year of the date of the business combination. Instead, theseamounts should be considered in the purchase price allocation associated withthe business combination. IFRS does not allow a similar treatment in regards tothe (i) estimated cash flows from the date of acquisition until the date ofsale, or (ii) estimated interest on incremental debt incurred during the holdingperiod to finance the purchase of these operations.

 

                For the twelve months ended December 31, 2002 and the eight monthsended December 31, 2001 under U.S. GAAP these differences result in a reductionto net loss of €630 and €5,472 respectively. No deferred taxes have beenrecorded on these divestitures because under German tax law, the sale ofsubsidiaries is a non taxable transaction. Subsequent to April 30, 2002, theCompany has started to apply to EITF 90-6 “Accounting for Certain Events NotAddressed in Issue No. 87-11 Relating to an Acquired Operating Unit to be Sold”for the subsidiaries which were not sold during twelve months following thebeginning of the divestiture program. From that point forward results ofoperations and incremental interest expense incurred in financing the purchaseof those entities are reported in the operations of the Group under U.S. GAAP.

 

                The impact to the statement of operations of the goodwill difference,utilizing an estimated useful life of 20 years for the amortization of basisdifference, was €568 for the eight months ended December 31, 2001, which isreflected as a difference in the reconciliation of stockholders’ equity to U.S.GAAP as of both December 31, 2002 and December 31, 2001. In accordance withSFAS 142, goodwill and intangible assets with indefinite useful lives are nolonger amortized, but instead tested for impairment annually (or morefrequently if impairment indicators arise) in accordance with the provisions ofSFAS 142. See “*New U.S. accounting pronouncements”*below for furtherdiscussion of the impact of the implementation of this new standard.

 

                During the twelve months ended December 31, 2002 acquisition goodwillwas adjusted by €10,943 to €6,102 to reflect the difference between estimatedand released cash flow from the date of acquisition, estimated interest onincremental debt during the holding period to finance the purchase, for thosesubsidiaries sold until April 30, 2002.

 

***c. Restructuringcosts***

 

                In accordance with IAS 37, a provision for restructuring charges isrecognized when a detailed formal plan for the restructuring has been developedand the company has raised a valid expectation in those affected that it willcarry out the restructuring by starting to implement that plan or announcingits main features to those affected. U.S. GAAP (see “New U.S. accountingpronouncements” below for a discussion regarding the initial application ofSFAS 146) applies similar criteria to determine when a provision forrestructuring charges should be established. However, under U.S. GAAP, arebuttable presumption exists that an exit plan should be completed and allexit costs and involuntary employee termination costs should be incurred withinone year from the commitment date. No similar provisions exist under IFRS. Thisdifference in accounting treatment results in a €640 and €0 increase to netloss during the twelve months ended December 31, 2002 and the eight monthsended December 31, 2001, respectively.

 

                Based on the difference in provisions, an adjustment to decreaseacquisition goodwill totaling €7,147 was recorded under U.S. GAAP. Thisadjustment is primarily related to involuntary employee termination costsrecorded in association with the acquisition transactions not expected to beincurred within one year from the commitment date. The impact to the statementof operations of this difference, utilizing an estimated useful life of 20years for the amortization of basis difference, was a decrease to goodwillamortization of €238 for the eight months ended December 31, 2001, which isreflected as a difference in the reconciliation of stockholders’ equity to U.S.GAAP as of both December 31, 2002 and December 31, 2001. In accordance withSFAS 142, goodwill and intangible assets with indefinite useful lives are nolonger amortized, but instead tested for impairment annually (or morefrequently if impairment indicators arise) in accordance with the provisions ofSFAS 142. See “*New U.S. accounting pronouncements”*below for furtherdiscussion of the impact of the implementation of this new standard.

 

 

F-57

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***d. Transaction costs***

 

                Transaction costs totaling €33,200 were incurred by Messer GriesheimGroup GmbH & Co. KGaA in connection with the acquisition transactionsdescribed in Note 3 “Acquisition transactions”. Under IFRS, these transactioncosts would not be treated as part of the purchase consideration. However,under U.S. GAAP, these costs are required to be considered as part of thepurchase price allocation in the application of “push-down” accounting to theacquisition transactions. This difference in accounting treatment results in anincrease to acquisition goodwill and equity of €33,200 as of the acquisitiondate and an increase to goodwill amortization of €1,107 during the eight monthsended December 31, 2001 under U.S. GAAP, which is reflected as a difference inthe reconciliation of stockholders’ equity to U.S. GAAP as of both December 31,2002 and December 31, 2001. In accordance with SFAS 142, goodwill andintangible assets with indefinite useful lives are no longer amortized, butinstead tested for impairment annually (or more frequently if impairmentindicators arise) in accordance with the provisions of SFAS 142. See “*New U.S.accounting pronouncements”*below for further discussion of theimpact of the implementation of this new standard.

 

***e. Assembledworkforce***

 

                APB Opinion No. 17 *“Intangible Assets”* (“APB 17”) requiresthat the cost of identifiable intangible assets be separated from goodwill andassigned part of the total cost of assets acquired in a business combination.In accordance with APB 17, the Group recorded an intangible asset under U.S.GAAP totaling €15,657 associated with the Group’s assembled workforce as of thedate of the acquisition transactions described in Note 3 “Acquisitiontransactions”. This asset was amortized over an estimated useful life of 6years through December 31, 2001. Additionally, SFAS 109 *“Accounting for Income Taxes”*requiresthat deferred taxes be recognized for differences between the financialstatement carrying amount and the tax basis of all identifiable intangibleassets, excluding goodwill. Accordingly, the Group established a deferred taxliability of €6,263 associated with the Group’s assembled workforce as of thedate of the acquisition transactions, which resulted in a correspondingincrease in acquisition goodwill under U.S. GAAP. IAS 38 states that anenterprise typically has insufficient control over the expected future economicbenefits arising from a team of skilled staff and from training to considerthat these items meet the definition of an intangible asset. Accordingly, thecost of acquiring the Group’s assembled workforce forms part of the acquisitiongoodwill under IFRS and is being amortized over an estimated useful life of 20years. Under U.S. GAAP, these differences in accounting treatment resulted inan increase in intangible assets of €15,657 and a decrease in goodwill of€9,394 as of the acquisition date, as well as an increase in amortizationexpense of €1,427 for the eight months ended December 31, 2001, which isreflected as a difference in the reconciliation of stockholders’ equity to U.S.GAAP as of both December 31, 2002 and December 31, 2001.

 

                The Group was required to adopt SFAS 141 *“Business Combinations”*effectiveJuly 1, 2001, and SFAS 142 in its entirety on January 1, 2002. SFAS 141 statesexplicitly that an assembled workforce is not an identifiable intangible assetapart from goodwill if acquired in a purchase business combination.Additionally, at the date of adoption of SFAS 142, amortization has ceased forgoodwill and intangible assets determined to have indefinite lives. Anyintangible assets acquired in a business combination completed before July 1,2001 that do not meet the criteria for separate recognition in Statement 141must be subsumed into goodwill (e.g., assembled workforce). Accordingly,effective January 1, 2002, the Group was required to reallocate as additionalgoodwill the unamortized assembled workforce balance of €13,917 recorded by theGroup under prior U.S. GAAP standards in effect prior to the adoption of SFAS141 and SFAS 142. See “*New U.S. accounting pronouncements”*belowfor further discussion of the impact of the implementation of this newstandard.

 

***f. Property, plantand equipment***

 

          In accordance with IAS 23, foreign currencygains and losses on borrowing costs directly attributable to construction canbe capitalized. Such costs are not capitalizable under U.S. GAAP. An additional€47 of depreciation expense would have been recognized under U.S. GAAP duringthe four months ended April 30, 2001 as a result of not capitalizing suchforeign currency gains in prior years.

 

                Additionally, under IFRS, impairments must be reversed in certainsituations, while under U.S. GAAP 

 

 

F-58

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impairments on assets to be held for use maynot be reversed. During the four months ended April 30, 2001, the Groupreversed impairment charges under IFRS of €27 which are not reversed under U.S.GAAP.

 

***g. Provisions forpensions and similar obligations***

 

                The Group’s net obligation in respect of defined benefit pension plansand similar obligations is calculated using the projected unit credit methodunder IAS 19, which is the same valuation method required under U.S. GAAP. Inreconciling its defined benefit pension plans and similar obligations from IFRSto U.S. GAAP, the Company has applied SFAS 87 *“Employer’s Accounting for Pensions”*effective January 1, 1999, as it was not feasible to apply it as of January 1,1987, the date specified in the standard. The principal actuarial assumptionsused by the Company’s actuaries in determining pension provisions and relatedcosts under SFAS 87 are the same as those utilized in applying IAS 19. Inapplying the late adoption rules under SFAS 87, pension provisions and relatedcosts differ from those calculated under IAS 19, as the amortization componentsfor the transitional liabilities differ in certain respects. Further, underU.S. GAAP, when the accumulated benefit obligation (“ABO”) exceeds the fairvalue of the plan assets and the already recognized liability for unfundedaccrued pension costs, the excess is immediately recognized as an additionalminimum liability. The cost of this is capitalized as an intangible asset up tothe amount of any unrecognized net transition obligation, plus the unrecognizedprior service costs, and the remainder is charged through other comprehensiveincome. IAS 19 has no similar requirements equivalent to U.S. GAAP in suchcircumstances. These differences result in a decrease in net periodic pensioncost of €38 for the twelve months ended December 31, 2002 and a decreasein net periodic pension costs and other comprehensive income totaling €95 and€709, respectively, for the four months ended April 30, 2001 and an increase(decrease) in net periodic pension cost and other comprehensive loss totaling€(257) and €2,068, respectively, for the twelve months ended December 31,2000.As of May 1, 2001, all previously existing unrecognized net actuarial gains orlosses, prior service costs and transition obligations or assets related to theGroup’s pension plans have been eliminated as a result of the allocation of thepurchase price in the acquisition transactions (see Note 3 “Acquisitiontransactions”).

 

                At December 31, 2002 the fair value of certain foreign defined benefitplan assets was less than the accumulated benefit obligation, a situation thatrequires special treatment under SFAS 87. When the accumulated benefitobligation exceeds the fair value of the plan assets and the already recognizedliability for unfunded accrued pension costs, the excess is immediatelyrecognized as an additional minimum liability. If an additional minimumliability is recognized, SFAS 87 also prescribes that an amount shall berecognized as an intangible asset of no more than the unrecognized priorservice cost. The difference between the minimum liability and the intangibleasset is then a charge to other comprehensive income. No similar provisionexists under IFRS. These differences in accounting treatment result in adecrease in other comprehensive income totaling €8,074, for the twelve monthsended December 31, 2002.

 

                Under IFRS, the Group has established accruals for an estimated numberof employees that are expected to elect participation in a voluntary earlyretirement program. Under U.S. GAAP, such accruals are only established whenthe employee has entered into a binding contractual agreement (see “New U.S.accounting pronouncements” below for a discussion regarding the initialapplication of SFAS 146). In addition, the Group accrues certain amountsrelated to the early retirement program as a termination benefit that isrecognized when the plan is adopted under IFRS. Under U.S. GAAP, such amountsare accrued over the employees’ remaining service period. These differences resultin a reduction/(increase) in expense of €1,311, €(547), €81 and €(285) for thetwelve months ended December 31, 2002, the eight months ended December 31,2001, the four months ended April 30, 2001 and the twelve months ended December31, 2000, respectively.

 

***h. Financialinstruments***

 

                In accordance with IFRS effective prior to January 1, 2001, theGroup recognized losses from changes in fair values of currency and interestrate derivatives, however, the Group did not recognize income from gains relatedto such instruments. In comparison, U.S. GAAP during such period required therecognition of both gains and losses from changes in fair value unless certainhedging criteria were met. This adjustment reflects the recognition loss of€2,495 in 2000 

 

F-59

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related to currency and interest ratederivatives.

 

 

 

***i. Equity methodinvestments expense, net***

 

                On January 1, 2002, Constar adopted SFASNo. 142, and completed the required goodwill impairment test, which resulted inan impairment charge of approximately €19,846, which has been recorded as acomponent of Constar’s €20.7 million loss for the year ended December 31,2002. In accordance with the provisions of SFAS 142 and APB 18 “The EquityMethod of Accounting for Investments in Common Stock”, the Group’s share ofConstar’s goodwill impairment charge has been recorded in the Group’sconsolidated statement of operations as cumulative effect of change inaccounting principle as of January 1, 2002. The difference between theimpairment amount of €19,846 under U.S. GAAP and the impairment amount underIAS of €18,657 is due to the additional amortization of goodwill under IAS fromJanuary to October 2002, which has been recorded in proportionate share ofinvestees’ income (losses) under IAS (see Note 18 “Equity method investments”).

 

***j. Tax effect ofU.S. GAAP adjustments***

 

                This reconciliation item includes all tax effects due to theaforementioned reconciling items.

 

***k. Cumulativetranslation adjustment***

 

                Upon the adoption of SFAS 142 the Group allocated goodwill to theindividual reporting units. This reconciliation item represents the net foreignexchange effect of this allocation.

 

**Additional U.S. GAAP information**

 

***Acquisition transactions***

 

                As a resultof the acquisition transactions (see Note 3 “Acquisition transactions”), MesserGriesheim has become a wholly-owned subsidiary of Messer Griesheim Holding AG,which in turn was 100% acquired by Messer Griesheim Group GmbH & Co. KGaAin a purchase transaction. The series of transactions requires “push-down” ofthe Messer Griesheim Group GmbH & Co. KGaA’s basis under U.S. GAAP inaccordance with EITF Topic D-97 *“Push-Down Accounting”*, and SAB No. 54 *“ “Pushdown”Basis of Accounting in Financial Statements of Subsidiaries Acquired byPurchase”*. The “pushdown” of basis under U.S. GAAP differs from theallocation of cost to the net assets acquired under IFRS. The U.S. GAAPreconciliation of net loss for the twelve months ended December 31, 2002, theeight months ended December 31, 2001 and stockholders’ equity as of December31, 2002 and 2001 also reflect differences arising from the new bases ofaccounting under U.S. GAAP and IFRS.

 

                Theconsolidated financial statements reflect the deferred notes payable to Hoechst(see Note 3 “Acquisition transactions”) by the Group’s parent, Messer GriesheimGroup GmbH & Co. KGaA, as part of equity under IFRS and U.S. GAAP as theCompany does not meet any of the criteria enumerated in SAB No. 73, which wouldrequire the recognition of such obligation as a liability in the Groupconsolidated financial statements. Therefore, the interest payable by MesserGriesheim Group GmbH & Co. KGaA relating to these deferred notes is notrecorded under IFRS or U.S. GAAP.

 

***Statement of operations***

 

                Certain itemsin the consolidated statements of operations would be classified differentlyunder U.S. GAAP. These items include the reversal of certain provisions andallowances for doubtful accounts that would generally be recorded in the sameline items as the provisions were originally recorded under U.S. GAAP, ratherthan as other income.

 

                U.S. GAAPrequires the operating results of those subsidiaries which are expected to bedivested more than one year 

 

 

F-60

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from the measurement date to continue to be reflected in theconsolidated statement of operations. Under IFRS, the Company has exercised theoption of disclosing discontinuing operations in the notes to the financialstatements (see Note 13 “Divestiture program”). As a result, there is nodifference between IFRS and U.S. GAAP in sales, net income and total assets asreflected in the consolidated financial statements with respect to thesesubsidiaries.

 

***Balance sheet***

 

                Certain itemsin the consolidated balance sheets would be classified differently under U.S.GAAP, including the net assets of entities included in the divestiture programwhich are classified as “available for sale” under IFRS and which are no longerpresented as “available for sale” under U.S. GAAP.

 

                In accordancewith IFRS, all deferred tax assets and liabilities are classified asnon-current. Under U.S. GAAP, deferred tax assets and liabilities would beclassified as current or non-current depending on when the related benefit orexpense is expected to be realized. As of December 31, 2002 and December 31,2001 €22,737 and €6,227, respectively, would be classified as current deferredtax assets and €2,846 and €4,041, respectively, would be classified as currentdeferred tax liabilities. Additionally, under U.S. GAAP, tax loss carryforwards and other credits that are available to reduce future taxes arerecognized as deferred tax assets. Such amounts are reduced by a valuationallowance to the extent that it is deemed more likely than not that the taxbenefit related to the utilization of such tax loss carry forwards or creditswill not be realized. Under IFRS, a deferred tax asset should be recognized forthe carry forwards of unused tax losses and unused tax credits to the extentthat it is probable that future taxable profit will be available against whichthe unused tax losses and unused tax credits can be utilized. Deferred taxassets related to tax loss carry forwards amounted to €27,869 and €130,310, netof valuation allowances of €5,471 and €3,471 as of December 31, 2002 andDecember 31, 2001, respectively.

 

***Cash flow statement***

 

                The cash flow statement is prepared in accordance with IAS 7.

 

***Reporting of comprehensive income***

 

                SFAS No. 130 *“ReportingComprehensive Income”* requires the reporting of comprehensiveincome, which includes all changes in stockholders’ equity except thoseresulting from investments by or distributions to shareholders.

 

                Statement ofcomprehensive income for the twelve months ended December 2002, the eightmonths ended December 31, 2001, the four months ended April 30, 2001, and thetwelve months ended December 31, 2000, respectively:

 
|                                                                                                                          |   | **Successor**                                 |   | **Predecessor**                              |   |
|-------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|--------|----------------------------------------------|--------|
|                                                                                                                          |   | **Twelve  months  ended  December 31,  2002** |   | **Eight  months  ended  December 31,  2001** |   | **Four  months  ended  April 30,  2001** |   | **Twelve  months  ended  December 31,  2000** |   |
|                                                                                                                          |   |                                          |   |                                         |   |   |   |   |   |
| Net loss in accordance with U.S. GAAP                                                                                         |   | (67,828                                       | )      | (66,555                                      | )      | (13,437 | ) | (179,779 | ) |
| Other comprehensive income (loss), net of tax:                                                                                |   |                                          |   |                                         |   |   |   |   |   |
| Foreign currency translation adjustments                                                                                      |   | (71,507                                       | )      | 14,939                                       |   | 3,522 |   | 31,091 |   |
| Change in fair value of derivative financial instruments, net of  deferred taxes of €6,293 and €5,024, respectively |   | (7,744                                        | )      | (9,199                                       | )      | — |   | — |   |
| Additional minimum pension liability, net of deferred tax €3,645, €0,  €0 and €0, respectively            |   | (8,074                                        | )      | —                                       |   | (709 | ) | (2,068 | ) |
| Comprehensive loss, net of tax                                                                                                |   | (155,153                                      | )      | (60,815                                      | )      | (10,624 | ) | (150,756 | ) |

 

 

F-61

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***Hyperinflation***

 

                In accordancewith IFRS, the financial statements of certain subsidiaries of the Messer Grouphave been restated in accordance with IAS 29. This treatment is different fromthat which would have been calculated under U.S. GAAP. No difference isincluded within the reconciliation of U.S. GAAP as foreign private issuersapplying IAS 29 are granted relief from such requirement.

 

***New U.S. accounting pronouncements***

 

                In June 1998,the FASB issued SFAS 133 *“Accounting for Derivative Instruments and HedgingActivities”.* SFAS 133 was subsequently amended by SFAS 137 *“Deferral ofthe Effective Date of FASB 133”*, which allowed entities which hadnot adopted SFAS 133 to defer its effective date to all fiscal quarters of allfiscal years beginning after June 15, 2000, and SFAS 138 *“Accounting for Certain DerivativeInstruments and Certain Hedging Activities—an amendment of FASB Statement No.133”* which addresses a limited number of issues causingimplementation difficulties for entities that apply SFAS 133.

 

                SFAS 133, asamended, establishes accounting and reporting standards for derivativeinstruments, including derivative instruments embedded in other contracts, andhedging activities. Similar to IAS 39, SFAS 133, as amended, requires the Groupto recognize all derivatives in the consolidated balance sheet at fair value.The financial statement recognition of the change in fair value of a derivativedepends on a number of factors, including the intended use of the derivativeand the extent to which it is effective as part of a hedge transaction. SFAS133, as amended, was adopted by the Group effective January 1, 2001.

 

                Although IAS39 and SFAS 133, as amended, are similar in many respects, the transitionadjustments resulting from the adoption of IAS 39 must be reported inshareholders’ equity, whereas the transition adjustments resulting fromadoption of SFAS 133, as amended, must be reported in earnings or othercomprehensive income, as appropriate. Adoption of SFAS 133 did not have amaterial impact on the Group’s consolidated financial statements.

 

                In September2000, the FASB issued SFAS 140 *“Accounting for Transfers and Servicing of FinancialAssets and Extinguishments of Liabilities—a replacement of FASB No. 125”.*This statement revises the standards for accounting for securitizations andother transfers of financial assets and collateral and requires certainfinancial statement disclosures. SFAS 140 is effective for transactionsoccurring after March 31, 2001, except for certain disclosure requirementswhich were effective December 31, 2000. Adoption of this replacement standarddid not have a material effect on the Group’s consolidated financial statements.

 

                EffectiveJuly 1, 2001, the Group adopted Statement 141 *“Business Combinations”*andcertain provisions of SFAS 142 *“Goodwill and Other Intangible Assets”.** *TheGroup adopted SFAS 142 in its entirety on January 1, 2002. SFAS 141requires that the purchase method of accounting be used for all businesscombinations initiatedafter June 30, 2001, as well as all purchase method business combinationscompleted after June 30, 2001. SFAS 141 also specifies criteria intangibleassets acquired in a purchase method business combination must meet to berecognized and reported separately from goodwill, and also indicates that anypurchase price allocable to an assembled workforce may not be accounted forseparately. Additionally, SFAS 141 required, upon adoption of SFAS 142 in itsentirety, that the Group evaluate its existing intangible assets and goodwillthat were acquired in a prior purchase business combination, and to make anynecessary reclassifications in order to conform with the new criteria in SFAS141 for recognition apart from goodwill. SFAS 142 requires that goodwill andintangible assets with indefinite useful lives no longer be amortized, butinstead be tested for impairment annually (or more frequently if impairmentindicators arise) in accordance with the provisions of SFAS 142. Intangibleassets withdefinite useful lives are amortized over their respective estimated usefullives to their estimated residual values, and reviewed for impairment inaccordance with SFAS 144 *“Accounting for the Impairment or Disposal ofLong-Lived Assets”*.

 

                Goodwill andintangible assets acquired in business combinations completed before July 1,2001 continued to be 

 

 

F-62

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amortized through December 31, 2001. As of December 31, 2001, theamount of unamortized goodwill under U.S. GAAP was €598,756. Unamortizedassembled workforce totaled €13,917 as of December 31, 2001, was required to bereallocated to goodwill upon adoption of SFAS 141 and SFAS 142. Relateddeferred tax liabilities of €5,567 were also required to be eliminated througha corresponding reduction under U.S. GAAP. The amount of unamortized goodwillunder U.S. GAAP as of December 31, 2002 was €566,744.

 

                As discussedabove, upon adoption of SFAS 142, the Group was required to evaluate itsexisting intangible assets and goodwill that were acquired in a prior purchasecombination, and to make any reclassifications in order to conform with the newcriteria in SFAS 141 for recognition apart from goodwill. As a consequence, theGroup was required to reallocate as additional goodwill the unamortizedassembled workforce balance upon adoption of SFAS 142. This evaluation did notresult in any other significant reclassifications. Upon adoption of SFAS 142,the Group was also required to reassess the useful lives and residual values ofall intangible assets acquired, and make any necessary amortization periodadjustments by the end of the first interim period after adoption. Thisreassessment did not result in any significant amortization period adjustments. In addition, to theextent an intangible asset is identified as having an indefinite useful life,the Group is required to test the intangible asset for impairment in accordancewith the provisions of SFAS 142 within the first interim period. Any impairmentloss should be measured as of the date of adoption and recognized as thecumulative effect of a change in accounting principle in the first interimperiod. No impairment loss was recognized as a result of these impairmenttests, as the Group did not identify any intangible asset as having an indefiniteuseful life.

 

                SFAS 142requires the Group to perform an assessment of whether there is an indicationthat goodwill and/or equity method goodwill is impaired as of the date of adoption. Toaccomplish this, theGroup identified its reporting units and determined the carrying value of eachreporting unit by assigning the assets and liabilities, including the existinggoodwill and intangible assets, to those reporting units as of January 1, 2002.By June 30, 2002, the Group determined the fair value of each reporting unitand compared it to the carrying amount of the reporting unit. To the extent thecarrying amount of a reporting unit exceeded the fair value of the reporting unit,an indication existed that the reporting unit goodwill may be impaired and theGroup then had to perform the second step of the transitional impairment test.In the second step, the Group then, had to compare the implied fair value of the reportingunit goodwill with the carrying amount of the reporting unit goodwill, both ofwhich were measured as of the date of adoption. The implied fair value ofgoodwill is determined by allocating the fair value of the reporting unit toall of the assets (recognized and unrecognized) and liabilities of thereporting unit in a manner similar to a purchase price allocation, inaccordance with SFAS 141. The residual fair value after this allocation is theimplied fair value of the reporting unit goodwill. The Group has performed thissecond step of the impairment test in the fourth quarter 2002 and recognized atransitional impairment loss of €7,713 for the additional goodwill under U.S.GAAP as the cumulative effect of a change in accounting principle in thereconciliation of net loss to U.S. GAAP for the twelve months ended December31, 2002.

 

                In August2001, the FASB issued SFAS 143 *“Accounting for Asset Retirement Obligations”*.This Statement addresses financial accounting and reporting for obligationsassociated with the retirement of tangible long-lived assets and the associatedasset retirement costs. SFAS 143 requires an enterprise to record the fair valueof an asset retirement obligation as a liability in the period in which itincurs a legal obligation associated with the retirement of a tangiblelong-lived asset. SFAS 143 also requires the enterprise to increase thecarrying amount of the related long-lived asset by the associated assetretirement costs and to depreciate that cost over the remaining useful life ofthe asset. The liability is changed at the end of each period to reflect thepassage of time (i.e., accretion expense) and changes in the estimated futurecash flows underlying the initial fair value measurement. Enterprises arerequired to adopt SFAS 143 for fiscal years beginning after June 15, 2002. TheGroup has started its analysis of the new pronouncement, but has not yetdetermined if the adoption of the new pronouncement will have a material effecton its financial statements.

 

                In August2001, the FASB approved for issuance SFAS 144*.* This Statement addresses financial accountingand reporting for the impairment or disposal of long-lived assets. ThisStatement supersedes SFAS 121 and the accounting and reporting provisions ofAPB Opinion No. 30 *“Reporting the Results of Operations—Reporting theEffects of Disposal of a Segment of a Business, and Extraordinary, Unusual andInfrequently Occurring Events and Transactions”*, for the 

 

 

F-63

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disposal of a segment of a business (as previously defined in thatOpinion). This Statement also amends ARB No. 51 *“Consolidated Financial Statements”*to eliminate the exception to consolidation for a subsidiary for which controlis likely to be temporary. The Group adopted the provisions of this Statementon January 1, 2002. The adoption of the new pronouncement did not have amaterial effect on the Group’s consolidated financial statements. However, theGroup has noted that certain provisions of SFAS 144 will potentially impact itsaccounting and reporting for the remaining subsidiaries to be sold under itsdivestiture program. The Group has also noted that the provisions of SFAS 144supersede certain provisions of EITF 87-11 as they relate to allocation ofpurchase price in a business combination where the acquirer intends to sell aportion of the operations of the acquired enterprise (see Note 40b) and, as aresult, had SFAS 144 been applied in accounting for the acquisitiontransactions, certain of the differences between U.S. GAAP and IFRS relating tooperations and entities included in the divestiture program would not haveoccurred.

 

                The FASBissued SFAS 145 “*Rescission of FASB Statements No. 4, 44, and 64,*Amendment*of FASBStatement No. 13, and Technical Corrections”*, on April 30, 2002.SFAS 145 rescinds SFAS 4, which required all gains and losses fromextinguishment of debt to be aggregated and, if material, classified as anextraordinary item, net of related income tax effect. Upon adoption of SFAS145, the Group is required to apply the criteria in APB Opinion No. 30, indetermining the classification of gains and losses resulting from theextinguishment of debt. Additionally, SFAS 145 amends SFAS 13 to require thatcertain lease modifications that have economic effects similar tosale-leaseback transactions be accounted for in the same manner assale-leaseback transactions. The rescission of SFAS 4 is effective tofiscal years beginning after May 15, 2002. The provisions of SFAS 145related to SFAS 13 are effective for transactions occurring after May 15,2002. The adoption of these provisions had no impact on the Group’s consolidatedfinancial statements.

 

                In July 2002,the FASB issued Statement 146, *Accounting for Costs Associated with Exit or DisposalActivities*. SFAS 146 replaces previous accounting guidance providedby EITF 94-3, *Liability Recognition for Certain Employee Termination Benefits andOther Costs to Exit an Activity (including Certain Costs incurred in aRestructuring)*, and requires companies to recognize costs associatedwith exit or disposal activities when they are incurred (subsequent to acommitment to a plan) rather than at the date of a commitment to an exit ordisposal plan. Examples of costs covered by the standard include leasetermination costs and certain employee severance costs that are associated witha restructuring, discontinued operation, plant closing, or exit or disposalactivity. The provisions of SFAS 146 are to be applied prospectively to exit ordisposal activities initiated after December 31, 2002. The adoption of SFAS 146is not expected to have a material impact on the Group’s consolidated financialstatements.

 

                In November2002, the FASB issued Interpretation No. 45, *Guarantor’s Accounting and DisclosureRequirements for Guarantees, Including Indirect Guarantees of Indebtedness ofOthers*(“FIN No. 45”), which addresses the disclosure to be made bya guarantor in its interim and annual financial statements about its obligationunder guarantees. FIN No. 45 also requires the recognition of a liability by aguarantor at the inception of certain guaranties entered into or modifiedsubsequent to adoption. FIN No. 45 requires the guarantor to recognize aliability for the non-contingent component of the guarantee, this is theobligation to stand ready to perform in the event that specified triggeringevents or conditions occur. The initial measurement of this liability is thefair value of the guarantee at inception. The recognition of the liability isrequired even if it is not probable that payment will be required under theguarantee or if the guarantee was issued with a premium payment or as part of atransaction with multiple elements. The Group has adopted the disclosurerequirements (see Note 33 “Commitments and contingencies”) and will apply therecognition and measurement provisions for all guarantees entered into ormodified after December 31, 2002.

 

                In November2002, the Emerging Issue Task Force („EITF”) reached a final consensus on EITF00-21, „Revenue arrangements with Multiple Deliverables”. EITF 00-21 addressescertain aspects of the accounting of revenue arrangements with multiple deliverablesby a vendor. The Issue outlines an approach to determine when a revenuearrangement for multiple deliverables should be divided into separate units ofaccounting and, if separation is appropriate, how the arrangement considerationshould be allocated to the identified accounting units. The consensus reachedin the Issue will be effective for the Group in its financial statementsbeginning July 1, 2003. The Group will apply the consensus prospectivelyin 2003. The Group is currently determining the impact of the adoption of EITF00-21 on the Group’s consolidated financial statements but does not believethat the adoption of the consensus will have a material 

 

F-64

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impact.

 

                In December2002, the FASB issued Statement No. 148, Accounting for Stock-BasedCompensation — Transition and Disclosure, which amends FASB StatementNo. 123, Accounting for Stock-Based Compensation. Statement 148 providesalternative methods of transition for a voluntary change to the fair valuebased method of accounting for stock-based employee compensation. In addition,Statement 148 amends the disclosure requirements of Statement 123 to improvethe clarity and prominence of disclosures about the pro forma effects of usingthe fair value based method of accounting for stock-based compensation for allcompanies — regardless of the accounting method used — by requiring that thedata be presented more prominently and in a more user-friendly format in thefootnotes to the financial statements.

 

                Thetransition guidance and annual disclosure provisions of Statement 148 areeffective for fiscal years ending after December 15, 2002, with earlierapplication permitted in certain circumstances. The interim disclosureprovisions are effective for financial reports containing financial statementsfor interim periods beginning after December 15, 2002.

 

                The Group hasadopted the disclosure requirements of SFAS 148 as presented in Note 37, “Stockpurchase and option plan”.

 

                In January2003, the FASB issued FIN 46, “Consolidation of Variable Interest Entities— an interpretation of ARB No. 51”, which clarifies the application of theconsolidation rules to certain variable entities. FIN 46 established a newmulti-step model for the consolidation of variable interest entities when acompany has a controlling financial interest based either on voting interestsor variable interests. Consolidation based on variable interests is required bythe primary beneficiary if the equity investors lack essential characteristicsof a controlling financial interest or if the equity investment at risk is notsufficient for the entity to finance its activities without additionalsubordinated financial support from other parties. The primary beneficiary of avariable interest entity is the party that absorbs a majority of the entity’sexpected losses, receives a majority of its expected residual returns, or both,as a result of holding variable interests. FIN 46 also provides disclosurerequirements related to investments in variable interest entities, whether ornot those entities are consolidated. For the Group, FIN 46 appliesimmediately to variable interest entities created after January 31, 2003,and to variable interest entities in which the Group obtains an interest afterthat date. For variable interest entities created prior to February 1,2003, the consolidation requirements of FIN 46 will be effective as ofJuly 1, 2003.

 

                The adoptionof the disclosure requirements under Interpretation No. 46 did not have consequenceson the Group’s consolidated financial statements. Similarly, the full adoptionof Interpretation No. 46 is not expected to have a material impact on theGroup’s consolidated financial statements.

 

 

F-65

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**INDEX TO UNAUDITEDFINANCIAL STATEMENTS**

**SINGAPORESYNGAS PTE LTD.**

 
| Statement of Operations for the ten months  ended October 31, 2002 and the twelve months ended December 31, 2001  (unaudited)                           |   | F-67 |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------|--------|
| Balance Sheet as of year ended October 31, 2002 and December 31, 2001  (unaudited)                                                                      |   | F-68 |   |
| Statement of Changes in Stockholders’  Equity for the ten months ended October 31, 2002 and the twelve months ended  December 31, 2001 (unaudited) |   | F-69 |   |
| Cash Flow Statement for the ten months  ended October 31, 2002 and the twelve months ended December 31,  2001(unaudited)                                |   | F-70 |   |
| Notes to the Financial Statements  (unaudited)                                                                                                          |   | F-71 |   |

 

 

F-66

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**SINGAPORE SYNGAS PTELTD**

**STATEMENT OF OPERATIONS (unaudited)**

**For the ten monthsended October 31, 2002 and the twelve months ended December 31, 2001**

**(All amounts in thousands of US$, unlessotherwise stated)**

 
|                             |   | **Notes** |   | **Ten months  ended  October 31,  2002** |   | **Twelve  months ended  December 31,  2002** |   |
|----------------------------------|--------|-----------|--------|------------------------------------------|--------|----------------------------------------------|--------|
| Net sales                        |   | 3         |   | 39,773                                   |   | 34,933                                       |   |
| Cost of Sales                    |   |      |   | (34,275                                  | )      | (52,211                                      | )      |
| Gross Profit (Loss)              |   |      |   | 5,498                                    |   | (17,278                                      | )      |
| Distribution and Selling Costs   |   |      |   | (216                                     | )      | (430                                         | )      |
| General and Administrative Costs |   |      |   | (3,606                                   | )      | (5,578                                       | )      |
| Other Operating Expense          |   |      |   | (1,609                                   | )      | (7,252                                       | )      |
| Operating Profit (Loss)          |   |      |   | 67                                       |   | (30,538                                      | )      |
| Interest Expense, Net            |   | 4         |   | (5,117                                   | )      | (11,384                                      | )      |
| Loss before Income Taxes         |   |      |   | (5,050                                   | )      | (41,922                                      | )      |
| Income Taxes                     |   | 6         |   | —                                   |   | —                                       |   |
|                             |   |      |   |                                     |   |                                         |   |
| **Net Profit (Loss)**            |   |      |   | **(5,050**                               | **)**  | **(41,922**                                  | **)**  |

 

The accompanying notes are an integral part of these financialstatements.

 

 

F-67

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**SINGAPORE SYNGAS PTELTD**

**BALANCESHEET (unaudited)**

**As of October 31,2002 and as of December 31, 2001**

**(All amounts in thousands of US$, unlessotherwise stated)**

 
|                                                          |   | **Notes** |       | **2002**     |       | **2001**     |       |
|---------------------------------------------------------------|--------|-----------|------------|--------------|------------|--------------|------------|
| **Assets**                                                    |   |      |       |         |       |         |       |
| Land  improvement and building, plant and equipment           |   | 10        |       | 91,552       |       | 83,528       |       |
|                                                          |   |      |       |         |       |         |       |
| **Non-current assets**                                        |   |      |       | **91,552**   | ** ** | **83,528**   | ** ** |
| Trade  accounts receivable, net                               |   | 8         |       | 6,313        |       | 4,872        |       |
| Other  receivables and other assets                           |   | 9         |       | 276          |       | 334          |       |
| Receivables  From An Affiliated Corporation                   |   | 8         |       | —       |       | 1,443        |       |
| Cash and  cash equivalents                                    |   | 7         |       | 2,249        |       | 771          |       |
|                                                          |   |      |       |         |       |         |       |
| **Current assets**                                            |   |      |       | **8,838**    | ** ** | **7,420**    | ** ** |
|                                                          |   |      |       |         | ** ** |         | ** ** |
| **Total assets**                                              |   |      |       | **100,390**  | ** ** | **90,948**   | ** ** |
|                                                          |   |      |       |         |       |         |       |
| **Stockholders’ equity/(deficit) and liabilities**       |   |      | ** ** |         | ** ** |         | ** ** |
| Subscribed  capital of Singapore Syngas Pte Ltd               |   | 13        |       | 62           |       | 62           |       |
| Accumulated  deficit                                          |   |      |       | (181,156     | )          | (176,106     | )          |
|                                                          |   |      |       |         |       |         |       |
| **Stockholders’ (deficit)**                              |   |      |       | **(181,094** | **)**      | **(176,044** | **)**      |
| Finance  lease creditor, less current portion                 |   | 11        |       | 631          |       | 650          |       |
| Due to  shareholders                                          |   | 11        |       | 270,661      |       | 255,156      |       |
|                                                          |   |      |       |         |       |         |       |
| **Non-current liabilities**                                   |   |      |       | **271,292**  | ** ** | **255,806**  | ** ** |
| Trade  accounts payable                                       |   |      |       | 9,829        |       | 8,196        |       |
| Payables to  affiliated corporations                          |   |      |       | 306          |       | 2,544        |       |
| Other  creditors                                              |   |      |       | 11           |       | 415          |       |
| Finance  lease creditor                                       |   | 11        |       | 46           |       | 31           |       |
|                                                          |   |      |       |         |       |         |       |
| **Current liabilities**                                       |   |      |       | **10,192**   | ** ** | **11,186**   | ** ** |
|                                                          |   |      |       |         | ** ** |         | ** ** |
| **Total stockholders’ equity/(deficit) and liabilities** |   |      |       | **100,390**  | ** ** | **90,948**   | ** ** |

 

The accompanying notes are an integral part of these financialstatements.

 

 

F-68

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**SINGAPORE SYNGAS PTELTD**

**STATEMENT OF CHANGES IN STOCKHOLDERS’EQUITY/(DEFICIT) (unaudited)**

**For the ten monthended October 31, 2002 and twelve months ended December 31, 2001**

**(All amounts in thousands of US$, unlessotherwise stated)**

 
|                                |   | **Subscribed  Capital** |       | **Accumulated  deficit** |   | **Total  stockholders’  equity/(deficit)** |   |
|-------------------------------------|--------|-------------------------|------------|--------------------------|--------|-------------------------------------------------|--------|
| **Balance as of January 1, 2001**   |   | **62**                  | ** ** | (134,184                 | )      | (134,122                                        | **)**  |
|                                |   |                    |       |                     |   |                                            |   |
| Net loss                            |   | —                  |       | (41,922                  | )      | (41,922                                         | )      |
|                                |   |                    |       |                     |   |                                            |   |
| **Balance as of December 31, 2001** |   | **62**                  | ** ** | **(176,106**             | **)**  | **(176,044**                                    | **)**  |
|                                |   |                    |       |                     |   |                                            |   |
| Net loss                            |   | —                  |       | (5,050                   | )      | (5,050                                          | )      |
|                                |   |                    |       |                     |   |                                            |   |
| **Balance as of October 31, 2002**  |   | **62**                  | ** ** | **(181,156**             | **)**  | **(181,094**                                    | **)**  |

 

The accompanying notes are an integral part of these financialstatements.

 

 

F-69

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**SINGAPORE SYNGASPTE LTD**

**CASH FLOW STATEMENT (unaudited)**

**For the ten monthsended October 31, 2002 and the twelve months ended December 31, 2001**

**(All amounts in thousands of US$, unlessotherwise stated)**

 
|                                                              |   | **2002**    |       | **2001**    |       |
|-------------------------------------------------------------------|--------|-------------|------------|-------------|------------|
| Loss before  income taxes                                         |   | (5,050      | )          | (41,922     | )          |
| Adjustment  for:                                                  |   |        |       |        |       |
| Interest  income                                                  |   | (30         | )          | (95         | )          |
| Interest  expense                                                 |   | 5,107       |       | 11,479      |       |
| Depreciation                                                      |   | 4,071       |       | 2,961       |       |
| Loss On  Disposal Of Plant & Equipment                        |   | —      |       | 4,519       |       |
| Changes in  trade receivables, other receivables and other assets |   | (1,386      | )          | (546        | )          |
| Changes in  trade accounts payable and other liabilities          |   | 1,229       |       | (2,071      | )          |
| Affiliated  corporations                                          |   | (795        | )          | (4,318      | )          |
| Interest  received                                                |   | 30          |       | 95          |       |
|                                                              |   |        |       |        |       |
| **Cash flow from operating activities**                           |   | **3,176**   | ** ** | **(29,898** | **)**      |
|                                                              |   |        |       |        |       |
| Payment for  land improvement and building, plant and equipment   |   | (12,094     | )          | (1,215      | )          |
|                                                              |   |        |       |        |       |
| **Cash flow from investing activities**                           |   | **(12,094** | **)**      | **(1,215**  | **)**      |
|                                                              |   |        |       |        |       |
| Repayment Of  Corporate Debt                                      |   | —      |       | (131,000    | )          |
| Proceeds  from amounts from shareholders                          |   | 10,400      |       | 167,912     |       |
| Repayment of  finance lease liability                             |   | (4          | )          | (27         | )          |
| Interest  Expense Paid                                            |   | —      |       | (6,757      | )          |
|                                                              |   |        |       |        |       |
| **Cash flow from financing activities**                           |   | **10,396**  | ** ** | **30,128**  | ** ** |
|                                                              |   |        |       |        |       |
| **Cash flow from operating, investing and financing activities**  |   | **1,478**   | ** ** | **(985**    | **)**      |
| **Cash and cash equivalents:**                                    |   |        | ** ** |        | ** ** |
| **at beginning of year**                                          |   | **771**     | ** ** | **1,756**   | ** ** |
|                                                              |   |        | ** ** |        | ** ** |
| **at end of year**                                                |   | **2,249**   | ** ** | **771**     | ** ** |

 

The accompanying notes are an integral part of these financialstatements.

 

 

F-70

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**SINGAPORE SYNGAS PTE LTD**

**NOTES TO THE FINANCIAL STATEMENTS (unaudited)**

**As of October 31, 2002 (Amounts in thousandsof US$, unless otherwise stated)**

 

**1.             Background**

 

                The Companywas incorporated in Singapore on June 18, 1993. Under a contractual agreemententered into on January 31, 1998 between Messer Griesheim GmbH, incorporated inGermany and Texaco Nederland B.V., incorporated in the Netherlands, MesserGriesheim GmbH owns 75% equity interest and Texaco Nederland B.V. owns 25%equity interest in the Company. This arrangement was revised to a 50%-50%ownership interest per the amended and restated Shareholders’ Agreement datedDecember 21, 1999. In addition, a put option agreement dated December 20, 1999,was also entered into between Messer Griesheim GmbH and Texaco Nederland B.V.which granted Texaco Nederland B.V. a put option to reduce its shareholding to25% by requiring Messer Griesheim GmbH to re-purchase all or a portion of theoption shares.

 

                On April 30,2001, Messer Griesheim GmbH transferred its 50% interest in the Company toMesser Griesheim Singapore Holdings GmbH (formerly known as Diogenes NeunzehnteVermoegensverwaltungs GmbH), a limited liability company incorporated andexisting under the laws of Germany for €1.

 

                The putoption agreement was modified on March 29, 2001. Under the modified put optionagreement, Messer Griesheim GmbH purchased from Texaco Nederland B.V., theoutstanding shareholder loans made by Texaco Nederland B.V. to the Company inexcess of Texaco Nederland B.V.’s 25% proportionate equity interest in theCompany and related funding obligations. Messer Griesheim GmbH paid a purchaseprice of $15,139 for the loans. In exchange, Texaco Nederland B.V. agreed thatAventis S.A. (the holding corporation of Hoechst Aktiengesellschaft) canrequire Texaco Nederland B.V. to exercise the put option with respect to 25% ofthe shares in the Company at any time on or after May 1, 2001, and no laterthan June 30, 2001, for a consideration of US$1. In addition, the Company’sshares will be transferred directly to Messer Griesheim Singapore HoldingsGmbH, and not to Messer Griesheim GmbH.

 

                On June 20,2001, Texaco Nederland B.V. exercised the put option to transfer 25% of theshares in the Company to Messer Griesheim Singapore Holdings GmbH.

 

                As a resultof the transactions described above, the Company was 75% owned by MesserGriesheim Singapore Holdings GmbH and 25% owned by Texaco Nederland B.V. as atDecember 31, 2001. Messer Griesheim Singapore Holdings GmbH is owned by AventisRegional Treasury Asia Pacific Pte Ltd (39%), Messer International GmbH (39%),Bandinelli GmbH (11%) and Messer Singapore Management Holding GmbH (11%).

 

                During thisfinancial period, Messer Griesheim Singapore Holdings GmbH sold its 75%shareholdings in the Company to ChevronTexaco Singapore Energy Company, acompany incorporated in Mauritius.  Thistransaction was completed on October 30, 2002. As at October 31, 2002, the Company was 75% owned by ChevronTexacoSingapore Energy Company and 25% owned by Texaco Nederland B.V., and istherefore no longer related to Messer Griesheim Holding AG.

 

                The addressof the Company’s registered office is

 

                5 Shenton Way

                #26-05/07

                UIC Building

                Singapore068808

 

                The principalactivities of the Company are the designing, building and operation of asynthesis gas (“syngas”) plant for production and distribution of synthesis gasand other related products.

 

                There havebeen no significant changes in the nature of these activities during thefinancial period.

 

                The Companyhad sustained losses from its operations and had a net capital deficit ofUS$181,094 million as at 

 

 

F-71

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October 31, 2002. Due to technical difficulties encountered in thestart-up of the operation of the syngas plant, the syngas plant was unable toachieve a level of operation which is commercially viable as well as allowingthe Company to generate sufficient cash flows to service their operationalneeds and their debt obligations. The Company historically had relied on loansfrom third parties and shareholders to fund its operations. During thefinancial year ended December 31, 2002, the Company had made full repayment ofall outstanding bank loans, together with all other amounts due and owing underthe bank agreement from further loans given by the then existing shareholders(Messer Griesheim Singapore Holdings GmbH (“Messer Holding”) and TexacoNederland B.V.). On June 11, 2001, the syngas plant achieved commercialoperation. However, the cash flows from operations are not expected to fullycover the Company’s cash needs for the foreseeable future, expected due tosubstantial costs to overcome the initial technical difficulties encountered,as well as further costs required to ensure the continuous smooth operation ofthe plant. The Company had obtained letters of financial support from its thenexisting shareholders to delay repayment of the amounts due to them by theCompany for a period of at least twelve months from April 5, 2002 and,thereafter, would demand repayment only if the cash flows of the Company permitrepayment at that time. However, the Company was not able to obtain firmcommitments from the shareholders of Messer Holding to finance its operationsand to repay existing liabilities.

 

                The Companyhad obtained a letter of financial support from Texaco Nederland B.V. that itwill not demand repayment of the amounts due to Texaco Nederland B.V. by theCompany for a period of at least twelve months from April 5, 2002 and,thereafter, Texaco Nederland B.V. and the Company will negotiate the deferredand future payments due under the loan agreement and determine how the Companywill settle such payments.

 

                On thisbasis, a substantial doubt exists regarding the Company’s ability to continueas a going concern for the foreseeable future.

 

                Notwithstandingthis doubt, the directors of the Company believe that the shareholders will continueto provide required reasonable necessary funds needed to operate the syngasplant until the syngas plant will be able to generate sufficient cash flowsfrom operating activities to finance the operations of the syngas plant in thenormal course of business.

 

**2.             Accounting policies**

 

***Basis of preparation***

 

                The financialstatements are prepared in accordance with and comply with accountingprinciples generally accepted in Singapore (SGAAP).

 

In 2001, the Company adopted the following standards:

 
| SAS 8 (Revised  2000)  |   | Net Profit or Loss for the Period, Fundamental Errors and Changes in  Accounting Policies |   |
|------------------------|--------|-------------------------------------------------------------------------------------------|--------|
| SAS 10  (Revised 2000) |   | Events Occurring after the Balance Sheet Date                                             |   |
| SAS 17  (Revised 2001) |   | Employee Benefits                                                                         |   |
| SAS 31                 |   | Provisions, Contingent Liabilities and Contingent Assets                                  |   |
| SAS 32                 |   | Financial Instruments-Disclosure and Presentation                                         |   |

 

***Land improvement and building, plant andequipment***

 

                Landimprovement and building, plant and equipment are capitalized at acquisition ormanufacturing costs and depreciated over their estimated useful lives. Themanufacturing costs of self-constructed assets are based on directly allocableitemized costs and appropriate overhead costs. Finance costs related to theconstruction of land improvement and building, plant and equipment arecapitalized as part of the manufacturing costs. In the case of disposals, theassets and related accumulated depreciation are removed from the financialstatements and the net amount, less proceeds from disposal, is charged to the statementof operations. Repair costs are charged to expense when incurred.

 

 

F-72

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                Depreciationof land improvement and building, plant and equipment is calculated on astraight line basis over their expected useful lives as follows:

 

| Land improvement and building               |   | 25 years   |   |
|---------------------------------------------|--------|------------|--------|
| Plant, machinery and equipment              |   | 5-20 years |   |
| Office equipment and furniture and fittings |   | 3-5 years  |   |

 

***Receivables***

 

                Tradeaccounts receivable and other receivables are stated at net realizable value.An estimate is made for doubtful debts based on a review of all outstandingamounts at the year-end. Bad debts are written off during the financial year inwhich they are identified.

 

***Cash and cash equivalents***

 

                Cashcomprises cash at bank and in hand. Cash equivalents comprise highly liquidinvestments with a maturity of three months or less from the date ofacquisition.

 

***Impairment of assets***

 

                At eachbalance sheet date, an assessment is made as to whether there is any indicationthat the Company’s assets may be impaired. If any such indication exists, anassessment is made to establish whether the recoverable amount of the assetshas declined below the carrying amount of those assets as disclosed in thefinancial statements. When such a decline has occurred, the carrying amount ofthe asset is reduced to its recoverable amount. The amount of any suchreduction is recognized immediately as an expense in the statement ofoperations. Any subsequent increase in the recoverable amount of the assetswould be written back when the circumstances that led to the write-down orwrite-off cease to exist and there is persuasive evidence that the newcircumstances and events will persist for the foreseeable future that support ahigher carrying amount.

 

                Therecoverable amount is defined as the higher of the asset’s net selling price orvalue in use. The value in use of the assets is estimated based on forecastedfuture cash inflows and outflows to be derived from the continuing use of theassets and from the estimated net proceeds on disposal at the end of its usefullife, discounted to present value using an appropriate discount rate.

 

***Trade accounts payable and other liabilities***

 

                Trade accounts payable and other liabilities are carried at theexpected settlement amount.

 

***Deferred income taxes***

 

                Tax expenseis determined on the basis of tax effect accounting using the liability method.Deferred taxation is provided on timing differences arising from the differenttreatments in accounting and taxation of relevant items.

 

                In accountingfor timing differences, deferred tax assets are not accounted for unless thereis reasonable expectation of their realization.

 

***Pipeline sales and revenue recognition***

 

                The Company’s plant was constructed primarily for an agreement with amajor customer, Celanese Singapore (Pte) Ltd (“Celanese”) for the supply ofcarbon monoxide gas. The agreement is for a period of twenty years, andcontains take-or-pay minimum purchase requirements, price escalation provisionsand certain penalty provisions for non-performance. Under the terms of theagreement, revenue is recognized when delivery has taken place and thecustomers have accepted the product. If the deliverables are below the minimumlevel, the Company will accrue for the minimum amount of revenue due fromcustomers.

 

 

F-73

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                Interest income is accrued on a day to day basis.

 

***Affiliated corporations***

 

                In thesefinancial statements, the term “affiliated corporations” refers to companies orcorporations which are related to the shareholders.

 

***Provisions***

 

                Provisionsare recognized when the Company has a present legal or constructive obligationas a result of past events, it is probable that an outflow of resources will berequired to settle the obligation, and a reliable estimate of the amount can bemade. Where the Company expects a provision to be reimbursed, for example underan insurance contract, the reimbursement is recognized as a separate asset butonly when the reimbursement is virtually certain.

 

***Share capital***

 

                Ordinary shares are classified as equity.

 

***Use of estimates***

 

                Thepreparation of financial statements necessarily requires directors to makeestimates and assumptions that affect the reported amounts of assets, liabilities,revenues and expenses, as well as the disclosure of contingent assets andliabilities. Actual results could differ from those estimates.

 

***Currency translation***

 

                The Company’sfinancial records are maintained in United States dollars (US$). Transactionsin other currencies during the year, which are denominated in currencies otherthan US$, are converted to US$ at the rates of exchange prevailing on thetransaction dates. Monetary assets and liabilities expressed in currenciesother than US$ are converted into US$ at the rates of exchange ruling at thebalance sheet date. Differences on exchange are included in the statement ofoperations.

 

***Finance and operating leases***

 

                A distinctionis made between finance leases which effectively transfer from the lessor tothe lessee substantially all the risks and benefits incidental to the ownershipof the leased assets, and operating leases under which the lessor effectivelyretains substantially all such risks and benefits.

 

                Financeleases are capitalized at the estimated present value of the underlying leasepayments. Each lease payment is allocated between the liability and financecharges so as to achieve a constant finance rate on the outstanding balance.The corresponding rental obligations, net of finance charges, are included inthe balance sheet as finance lease creditor. The interest element of thefinance charge is charged to the statement of operations over the lease period.Plant and equipment acquired under finance leasing contracts are depreciated overthe useful lives of the assets.

 

                Operatinglease payments are charged to the statement of operations on a straight linebasis over the period of the lease.

 

                When anoperating lease is terminated before the lease period has expired, any paymentrequired to be made to the lessor by way of penalty is recognized as an expensein the period in which termination takes place.

 

**3.             Sales**

** **
|           |   | **2002** |   | **2001** |   |
|----------------|--------|----------|--------|----------|--------|
| Sale of  gases |   | 39,773   |   | 34,933   |   |

 

 

F-74

----

 

**4.             Interestexpense, net**

                
|                           |   | **2002** |   | **2001** |   |
|--------------------------------|--------|----------|--------|----------|--------|
| Interest on  bank deposits     |   | 30       |   | 95       |   |
|                           |   |     |   |     |   |
| Interest  expense              |   |     |   |     |   |
| —Bank loans               |   | —   |   | (4,026   | )      |
| —Loans from  shareholders |   | (5,107   | )      | (7,403   | )      |
| —Finance  leases          |   | (40      | )      | (50      | )      |
|                           |   | (5,147   | )      | (11,479  | )      |
| Interest  expense, net         |   | (5,117   | )      | (11,384  | )      |

 

 

**5.             Staffcosts**

                
|                                                    |   | **2002** |   | **2001** |   |
|---------------------------------------------------------|--------|----------|--------|----------|--------|
| Wages and  salaries costs                               |   | (2,336   | )      | (3,239   | )      |
| Employer’s  contribution to Central Provident Fund |   | (311     | )      | (355     | )      |
| Staff costs  recharged by shareholders                  |   | (491     | )      | (838     | )      |
|                                                    |   |     |   |     |   |
|                                                    |   | (3,138   | )      | (4,432   | )      |

 

                Number of persons employed atOctober 31, 2002:

 
|      |   | **2002** |   | **2001** |   |
|-----------|--------|----------|--------|----------|--------|
| Full time |   | 87       |   | 82       |   |

 

 

**6.             Taxation**

 

                At October 31, 2002, the Company has thefollowing estimated unutilized tax losses, unabsorbed capital allowances andunabsorbed investment allowances available for offsetting against futuretaxable income subject to confirmation by the tax authorities.

 

 
|                              |   | **2002** |   | **2001** |   |
|-----------------------------------|--------|----------|--------|----------|--------|
| Unutilized  tax losses            |   | (79,980  | )      | (79,000  | )      |
| Unabsorbed  capital allowances    |   | (233     | )      | (233     | )      |
| Unabsorbed  investment allowances |   | (61,000  | )      | (61,000  | )      |
|                              |   | (141,213 | )      | (140,233 | )      |

 

                Included in the above unutilized tax lossesare claims for tax deductions in respect of pre-operating expenses andcapitalized interests which may be disputed by the tax authorities and henceshould only be considered available subject to the agreement with the taxauthorities. Details of pre-operating expenses and capitalized interests are asfollows:

 
|                    |   | **2002** |   | **2001** |   |
|-------------------------|--------|----------|--------|----------|--------|
| Pre-operating  expenses |   | (4,409   | )      | (4,409   | )      |
| Capitalized  interests  |   | (9,655   | )      | (9,655   | )      |
|                    |   | (14,064  | )      | (14,064  | )      |

 

 

F-75

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                No deferred tax asset has been recognized inrelation to the unutilized tax losses, unabsorbed capital allowances andunabsorbed investment allowances as the directors of the Company do not have areasonable expectation of their realization against future income in the nearforeseeable future.

 

                In addition, the Company has potential taxbenefits of approximately US$21,500 representing the excess of impairmentcharges and depreciation for the plant over capital allowances claimedcalculated at the current tax rate of 22%. These potential tax benefits havenot been recognized in the financial statements.

 

**7.             Cashand cash equivalents**

** **
|                      |   | **2002** |   | **2001** |   |
|---------------------------|--------|----------|--------|----------|--------|
| Cash at bank  and on hand |   | 1,709    |   | 442      |   |
| Fixed  deposits           |   | 540      |   | 329      |   |
|                      |   | 2,249    |   | 771      |   |

 

                The fixed deposits have been placed assecurities for banker’s guarantees issued to the Company’s suppliers.

 

**8.             Receivables**

** **
|                                                                                |   | **2002** |   | **2001** |   |
|-------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|
| Trade  debtors                                                                      |   | 6,527    |   | 5,086    |   |
| Less:  Provision for doubtful trade debts                                           |   | (214     | )      | (214     | )      |
|                                                                                |   | 6,313    |   | 4,872    |   |
| Due from a  related company — trade                                            |   | —   |   | 1,941    |   |
| Due from  affiliated corporations non-trade                                         |   | —   |   | 2        |   |
| Less:  Provision for doubtful non-trade debts, related party                        |   | —   |   | (500     | )      |
|                                                                                |   | 6,313    |   | 6,315    |   |
| Movements in  provision for doubtful trade debts are as follows:                    |   |     |   |     |   |
| Balance at  the beginning of the financial period                                   |   | 214      |   | —   |   |
| Provision  made during the financial period                                         |   | —   |   | 214      |   |
| **Balance at the end of the financial period**                                      |   | 214      |   | 214      |   |
|                                                                                |   |     |   |     |   |
| Movements in  provision for doubtful non-trade debts, related party are as follows: |   |     |   |     |   |
| Balance at  the beginning of the financial period                                   |   | 500      |   | 400      |   |
| Provision  made during the financial year                                           |   | —   |   | 500      |   |
| Amount  written back during the financial year                                      |   | —   |   | (400     | )      |
| Amount  utilised during the financial period                                        |   | (500     | )      | —   |   |
| **Balance at the end of the financial period**                                      |   | 0        |   | 500      |   |

 

Due to thesale of the company, all intercompany relations with Messer Holding AG havebeen settled.

 

**9.             Othercurrent assets**

** **
|                |   | **2002** |   | **2001** |   |
|---------------------|--------|----------|--------|----------|--------|
| Sundry  deposits    |   | 142      |   | 320      |   |
| Sundry  prepayments |   | 131      |   | —   |   |
| Sundry  debtors     |   | 3        |   | 14       |   |
|                |   | 276      |   | 334      |   |

 

 

F-76

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**10.          Landimprovement and building, plant and equipment**

** **
|                                        |   | **Land********improvement********and building** |   | **Plant,********machinery********and********equipment** |   | **Office********equipment********and********furniture********and fittings** |   | **Capital********work in********progress** |   | **Total** |   |
|---------------------------------------------|--------|-------------------------------------------------|--------|---------------------------------------------------------|--------|-----------------------------------------------------------------------------|--------|--------------------------------------------|--------|-----------|--------|
| Acquisition or production cost              |   |                                            |   |                                                    |   |                                                                        |   |                                       |   |      |   |
| **Balance as of January 1, 2002**           |   | 2,646                                           |   | 82,908                                                  |   | 1,061                                                                       |   | 155                                        |   | 86,770    |   |
| Additions                                   |   | 2                                               |   | 11,205                                                  |   | 132                                                                         |   | 755                                        |   | 12,094    |   |
| **Balance as of October 31, 2002**          |   | 2,648                                           |   | 94,113                                                  |   | 1,193                                                                       |   | 910                                        |   | 98,864    |   |
| Accumulated  depreciation                   |   |                                            |   |                                                    |   |                                                                        |   |                                       |   |      |   |
| **Balance as of January 1, 2002**           |   | 445                                             |   | 2,347                                                   |   | 450                                                                         |   | —                                     |   | 3,242     |   |
| Depreciation  charge                        |   | 125                                             |   | 3,724                                                   |   | 221                                                                         |   | —                                     |   | 4,070     |   |
| **Balance as of October 31, 2002**          |   | 570                                             |   | 6,071                                                   |   | 671                                                                         |   | —                                     |   | 7,312     |   |
|                                        |   |                                            |   |                                                    |   |                                                                        |   |                                       |   |      |   |
| Net book  value as of January 1, 2002  |   | 2,201                                           |   | 80,561                                                  |   | 611                                                                         |   | 155                                        |   | 83,528    |   |
| Net book  value as of October 31, 2002 |   | 2,078                                           |   | 88,042                                                  |   | 522                                                                         |   | 910                                        |   | 91,552    |   |

 

(a)                                  At the balance sheet date, the net book value ofland improvement and building, plant and equipment of the Company under thefinance lease arrangements amounted to US$636.

 

(b)                                 On February 15, 1998, theCompany entered into an agreement with Celanese for the supply of carbonmonoxide gas. Under the terms of the agreement, the Company was required todesign and construct an integrated syngas plant for the production anddistribution of synthesis gas including carbon monoxide, hydrogen and othergases. The agreement with the Celanese required the Company’s plant to be ableto achieve “Commercial Operation” by July 1, 2000. “Commercial Operation”was defined in the agreement as the operations of the plant followingsuccessful completion of the Initial Demonstration that is, a test operationfor 10 consecutive days during which the plant shall produce carbon monoxidemeeting certain specified properties and volume. Although the plant wasconstructed by that date, the syngas plant was not able to operate at the levelto enable the Company to meet its obligation to supply carbon monoxide at therequired level because of technical and operational problems in theconstruction of the syngas plant. Substantial remediation work was carried outon the various processes, resulting in significant cost overruns.

 

                On April 1, 2001, the Company andCelanese agreed on an amended and restated agreement for a period of twentyyears commencing July 1, 2001. Under the amended and restated agreement,the supply period began on July 1, 2001 and continues for a period oftwenty years. The Company will be potentially liable to reimburse Celaneseliquidated damages up to a maximum amount of US$3.5 million per month orUS$42 million per year if the syngas plant does not meet CommercialOperation by April 1, 2001.

 

                The Company only achieved CommercialOperation on June 11, 2001, which resulted in liquidated damages payableto Celanese amounting to US$7 million for the period from April 1,2001 to May 31, 2001. This amount had been paid by the Company’s then twoshareholders.

 

**11.          Financelease creditor**

 

***(a)******                                ******Current***

*** ***
|                                |   | **2002** |   | **2001** |   |
|-------------------------------------|--------|----------|--------|----------|--------|
| Finance  lease liabilities (note 1) |   | 46       |   | 31       |   |

 

                The bank loans were to be repaid by 24semi-annual instalments commencing on June 20, 2001. On April 19,2001, the Company served an irrevocable notice to the bank that they shalleffect, on June 30, 2001, full repayment of all bank loans outstanding,together with all other amounts then due and owing under the bank agreement. OnJune 20, 2001, the 

 

 

F-77

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Company made full repayment ofall outstanding bank loans, together with all other amounts due and owing underthe bank agreement from further loans given by the then shareholders.

 

***(b)           Non-current***

*** ***
|                                         |   | **2002**    |       | **2001**    |   |
|----------------------------------------------|--------|-------------|------------|-------------|--------|
| Loans from  shareholders                     |   | 250,956     |       | 240,366     |   |
| Interest  payable on loans from shareholders |   | 19,705      |       | 14,790      |   |
| Due to  shareholders (note 1)                |   | 270,661     |       | 255,156     |   |
| Finance  lease liabilities (note 12)         |   | 631         |       | 650         |   |
|                                         |   | **271,292** | ** ** | **255,806** |   |

 

                One of the two current shareholders of theCompany had given its irrevocable commitment that it would not demand forrepayment of the amounts due by the Company for a period of at least twelvemonths from April 5, 2002 and, thereafter only if the cash flows of theCompany permit repayment at that time. The other shareholder had given itsirrevocable commitment that it would not demand for repayment of the amountsdue by the Company for a period of at least twelve months from April 5,2002 and, thereafter the shareholder and the Company will negotiate thedeferred and future payments due under the loan agreement and determine how theCompany will settle such payments. The loans from shareholders are unsecuredand are repayable by June 30, 2010.

 

***(c)           Effectiveinterest rates***

 

                The effective interest rates per annum on theCompany’s borrowings are as follows:

 
|                       |   | **2002**  |      | **2001**     |   |
|----------------------------|--------|-----------|-----------|--------------|--------|
| Loans from  shareholders   |   | 0 to 2.43 | %         | 2.58 to 6.81 | %      |
| Finance  lease liabilities |   | **7.5 %** | **7.5 %** |

 

***(d)******                                ******Carryingamounts and fair values***

 

(i)                                     The borrowing rates for the loansfrom shareholders are variable and are based on a fixed margin over the lendingbank’s cost of funds. The directors expect these rates to be similar to therates that would be available to the Company at the balance sheet date.Accordingly, the carrying amounts of the loans from shareholders approximatetheir fair values.

 

(ii)                                  The carrying amountsof the following financial assets and liabilities approximate to their fairvalue: cash, trade receivables and payables, other receivables and payables andfinance lease creditors.

 

**12.          Financelease liabilities**

** **
|                                                                   |   | **2002** |   | **2001** |   |
|------------------------------------------------------------------------|--------|----------|--------|----------|--------|
| Minimum lease  payments payable:                                       |   |     |   |     |   |
| Not later  than one financial year                                     |   | 94       |   | 81       |   |
| Later than  one financial year but not later than five financial years |   | 325      |   | 323      |   |
| Later than  five financial years                                       |   | 618      |   | 675      |   |
|                                                                   |   | 1,037    |   | 1,079    |   |
| Finance  charges allocated to future periods                           |   | (360     | )      | (398     | )      |
|                                                                   |   | 677      |   | 681      |   |
| Included in:                                                           |   |     |   |     |   |
| Current  liability [note 11(a)]                                        |   | 46       |   | 31       |   |
| Non-current  liabilities [note 11(b)]                                  |   | 631      |   | 650      |   |
|                                                                   |   | **677**  |   | **681**  |   |

 

 

F-78

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**13.          Subscribedcapital**

 

(a)                                  The authorized number of ordinaryshares is 100,000 shares with a par value of S$1 per share.

 

(b)*                                **Issued and fully paid ordinary share capital*

 
|                                                      |   | **2002** |   | **2001** |   |
|-----------------------------------------------------------|--------|----------|--------|----------|--------|
| Balance at  the beginning and end of the financial period |   |     |   |     |   |
| —100,000  ordinary shares of S$1 each                |   | 62       |   | 62       |   |

 

As at October30, 2002, Messer Griesheim Singapore Holdings GmbH sold its 75% shareholdingsin the Company to ChevronTexaco Singapore Energy Company as discussed in Note 1“Background”. Hence, the Company is no longer related to the Messer and Aventisgroups of companies.

 

**14.          Capitalcommitments**

 
|                                                                                                                         |   | **2002**  |       | **2001**  |   |
|------------------------------------------------------------------------------------------------------------------------------|--------|-----------|------------|-----------|--------|
| The Company  has the following commitments which are not provided for in the financial  statements at October 31, 2002: |   |      |       |      |   |
| Commitment  for expenditure on land improvement, building, plant and equipment                                               |   | 2,996     |       | 544       |   |
| Expenditure  approved by the directors                                                                                       |   | 4,437     |       | 1,601     |   |
|                                                                                                                         |   | **7,433** | ** ** | **2,145** |   |

 

**15.          Commitments**

 

***(a)******                                ******Operatinglease commitment***

 

                The Company has lease rental commitment inrespect of leasehold land that is due to expire on March 15, 2028. Thepresent annual rent of US$681 is subject to revision on March 16 everyyear based on the market rate at the date of the revision but subject to amaximum increment of 5.5% of the annual rent of the immediate preceding year.

 

                The future minimum lease payments undernon-cancellable operating lease are payable as follows:

 
|                                                                   |   | **2002**   |       | **2001**   |   |
|------------------------------------------------------------------------|--------|------------|------------|------------|--------|
| Not later  than one financial year                                     |   | 740        |       | 740        |   |
| Later than  one financial year but not later than five financial years |   | 2,961      |       | 2,961      |   |
| Later than  five financial years                                       |   | 15,132     |       | 15,699     |   |
|                                                                   |   | **18,833** | ** ** | **19,400** |   |

 

***(b)******                                ******Othercommitments***

 

(i)                                     On April 1, 2001, the Companyand Celanese agreed on an amended and restated agreement for a period of twentyyears commencing July 1, 2001. Under the amended and restated agreement,the supply period begins on July 1, 2001 and continues for a period oftwenty years. Under the terms of the agreement, the Company is required toprovide Celanese with a specified amount of carbon monoxide for which Celanesepays a Base Facility Fee. Should 

 

 

F-79

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the Companyfail to provide the minimum required amount of carbon monoxide as provided inthe amended and restated agreement, the Base Facility Fee will be reduced by anamount proportionate to the under-supplied carbon monoxide. Failure by eitherparty to honor the contract for its full twenty-year term is subject to legalaction under the laws of the State of New York.

 

(ii)                                  On December 21, 1999, theCompany entered into an agreement for the supply of oxygen gas with anaffiliated company. The agreement is for a period of twenty years and containstake-or-pay minimum purchase requirements and price escalation provisions. TheCompany is charged by the related company for the supply of oxygen gas at asubsidized rate in exchange for free supply of power to the affiliated companyto enable it to operate the air separation unit to supply this oxygen. As atOctober 29, 2002, the Company purchased this air separation unit from this affiliatedcompany. This agreement was therefore no longer applicable.

 

(iii)                               On May 21, 2001, the Companysigned a letter of intent with a third party supplier for the supply of naturalgas to the Company. Under the term of this letter of intent, the supplier willconstruct a facility, and the Company will be required to pay fixed andvariable fees to the supplier, beginning March 31, 2002. In the event,that the supply offtake agreement fails to be concluded, the Company would beliable to reimburse the supplier for the cost incurred in constructing thefacilities to enable the supply of gas up to an amount of US$303.

 

                During this financial period, the Companyfinalized and signed the supply offtake agreement.

 

**16.          Relatedparty transactions**

 

                During the financial period, the followingsignificant transactions took place between the Company and its affiliatedcorporations on terms agreed between the parties:

 
|                                                                                                                                 |   | **2002** |   | **2001** |   |
|--------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|
| Purchase of  fixed assets from affiliated company                                                                                    |   | 11,000   |   | —   |   |
| Interest on  loans payable to shareholders                                                                                           |   | 5,107    |   | 7,403    |   |
| Purchases of  materials in connection with operations of the plant from affiliated  companies                                        |   | 2,005    |   | 1,366    |   |
| Reimbursements  from an affiliated corporation for expenses incurred in connection with the  installation of an air separation unit  |   | —   |   | 551      |   |
| Reimbursements  from an affiliated corporation for operating expenses incurred                                                       |   | —   |   | 37       |   |
| Reimbursements  to affiliated corporations for operating expenses incurred                                                           |   | 612      |   | 11       |   |
| Reimbursements  to a related company for operating expenses incurred                                                                 |   | —   |   | 187      |   |
| Reimbursements  to affiliated corporations for plant and start-up support                                                            |   | —   |   | 1,511    |   |
| Reimbursements  from a related company for expenses incurred in connection with operating and  maintaining of an air separation unit |   | 3,899    |   | 2,067    |   |
| Reimbursements  from a related company for expenses incurred in connection with construction  of oxygen and nitrogen pipelines       |   | —   |   | 194      |   |

 

                In addition to the above-mentionedtransactions, the Company entered into the following transactions with arelated company:

 

(a)                                  The Company is charged for thesupply of oxygen gas by a related company at a subsidised rate in exchange forfree supply of power to the related company to enable it to operate the AirSeparation Unit to supply oxygen to the Company.

 

(b)                                 The Company charges an affiliatedcompany within the Messer Group for the supply of hydrogen gas at an agreedprice that is significantly lower than the price determined on an arms’ lengthbasis in consideration of the affiliated company constructing a vacuum flashunit for the use of the Company. The construction cost of the equipment ofUS$11,329 is fully borne by the affiliated company while the Company isrequired to upkeep and maintain the equipment. The estimated useful life of thevacuum flasher unit is twenty years and the Company has unrestricted rights touse this equipment. The notional depreciation charge related to this equipmentwhich was not recorded by the Company is US$566 per year.

 

 

F-80

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**17.          Reconciliationof SGAAP to IAS (Unaudited)**

 

                The financial statements have been preparedin accordance with SGAAP, which differs in certain significant respects fromIAS. Had IAS been adopted, it would not result in differences to net loss andstockholders’ deficit as reported in accordance with SGAAP.

 

**Additional IASinformation**

 

***Deferred taxation***

 

                Under SGAAP, deferred tax is accounted for bythe Company using the liability method. Under this method, deferred taxation isprovided on timing differences arising from the different treatments inaccounting and taxation of relevant items, and deferred tax assets are notaccounted for unless there is reasonable expectation of their realization.Under IAS 12, the use of a liability method based on temporary differencesbetween the financial reporting basis and tax basis of assets and liabilitiesis required. No difference is included within the reconciliation of IAS, as thetwo methods described above give rise to deferred tax assets balances that willbe precluded from being recognized.

 

***Cash flow statement***

 

                The cash flow statement is prepared inaccordance with SAS 7, which is comparable to IAS 7. Under SGAAP, expensesincurred during the construction of the plant are taken up as pre-operatingexpenses in the balance sheet and considered as investing activities. UnderIAS, such expenses are not directly related to the construction of the plantand are required to be expensed when incurred and are therefore considered asoperating activities. As a result in 2002, there were no payment forpre-operating expenses and other receivables, deposits and prepayments would bepresented as operating instead of investing activities.

 

**18.          Reconciliationof IAS to U.S. GAAP (Unaudited)**

 

                The financial statements prepared inaccordance with SGAAP have been reconciled to IAS as shown in Note 18. IASdiffers in certain significant respects from accounting principles generallyaccepted in the United States of America (U.S. GAAP). Had U.S. GAAP beenadopted, it would result in certain differences to net loss and stockholders’deficit as compared to the amounts reported in accordance with IAS. Thesedifferences are set out in the tables below:

 

                Reconciliation of net loss to U.S. GAAP: 

 
|                                                 |   | **Notes** |   | **2002** |   | **2001** |   |
|------------------------------------------------------|--------|-----------|--------|----------|--------|----------|--------|
| Net loss under  IAS                                  |   |      |   | (5,050   | )      | (41,922  | )      |
| U.S. GAAP  adjustments:                              |   |      |   |     |   |     |   |
| Land  improvement and building, plant and equipment  |   | a         |   | —   |   | —   |   |
| Depreciation  adjustment due to impairment provision |   | b         |   | (4,065   | )      | (2,439   | )      |
|                                                 |   |      |   |     |   |     |   |
| Net loss  under U.S. GAAP                            |   |      |   | (9,115   | )      | (44,361  | )      |

 

                Reconciliation of stockholders’ deficit toU.S. GAAP: 

 
|                                                                    |   | **Notes** |   | **2002** |   | **2001** |   |
|-------------------------------------------------------------------------|--------|-----------|--------|----------|--------|----------|--------|
| Stockholders’  deficit as reported in the balance sheets under IAS |   |      |   | (181,094 | )      | (176,044 | )      |
| U.S. GAAP  adjustments:                                                 |   |      |   |     |   |     |   |
| Land  improvement and building, plant and equipment                     |   | a         |   | 97,560   |   | 97,560   |   |
| Depreciation  adjustment due to impairment provision                    |   | b         |   | (6,504   | )      | (2,439   | )      |
|                                                                    |   |      |   |     |   |     |   |
| Stockholders’  deficit under U.S. GAAP                             |   |      |   | (90,038  | )      | (80,923  | )      |

 

 

F-81

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***a. Land improvementand building, plant and equipment***

 

                Under IAS 36, impairment of long-lived assetsis determined based on a comparison of the assets’ recoverable amount to thecarrying value. The recoverable amount is defined as the higher of the assets’net selling price and value in use. Value in use is based on discounted cashflows expected to arise from the continuing use of an asset and from itsdisposal at the end of its useful life. For assets held for use, fair value isgenerally computed using the discounted cash flows expected to arise from thecontinuing use of an asset and from its disposal at the end of its useful life.Under U.S. GAAP, if there is a triggering event, assets to be held and used areanalyzed for impairment based on a comparison of book value to the undiscountedcash flows expected to arise from the continuing use of an asset. If theundiscounted cash flows are less than the carrying value of the assets, then animpairment is recorded. The amount of the impairment to be recognized is the differenceof the fair value and the carrying amount of the assets.

 

                In fiscal 2000, the Company recorded animpairment charge of $97,560 under IAS for the integrated syngas plant that wasnot deemed impaired under U.S. GAAP.

 

                Additionally, under IAS, impairments must bereversed in the future under certain situations while under U.S. GAAPimpairments on assets to be held for use may not be reversed. The Company didnot reverse any impairment charge under IAS.

 

***b. Depreciationadjustment due to impairment provision***

 

                Under IAS, a lower depreciable asset base dueto the recognition of the impairment provision resulted in a lower depreciationamount. However, since this impairment provision was not recognized under U.S.GAAP, adjustment is made to increase the depreciation amount for the 10-months’financial period 2002 due to a higher depreciable asset base. The sameadjustment was only for a six month period in 2001, corresponding to the actualoperations of the plant.

 

**Additional U.S.GAAP information**

 

***Deferred taxation***

 

                Under IAS 12, tax loss carryforwards andother credits are recognized as deferred tax assets if future realization of atax benefit is probable. Under U.S. GAAP, tax loss carryforwards and othercredits that are available to reduce future taxes are recognized as deferredtax assets. Such amounts are reduced by a valuation allowance to the extentthat it is more likely than not that the tax benefit related to the utilizationof such tax loss carryforwards or credits will not be realized. Deferred taxasset (before valuation allowance) amounted to $31,067 at October 31,2002. A full valuation allowance for the deferred tax assets recognized underU.S. GAAP had been provided. As a result, no deferred tax effect exists as ofOctober 31, 2002.

 

***New U.S. accountingpronouncements***

 

                In June 1998, the FASB issuedSFAS 133 “Accounting for Derivative Instruments and Hedging Activities”.SFAS 133 was subsequently amended by SFAS 137 “*Deferral of the Effective Date of FASB133*”, which allowed entities which had not adopted SFAS 133 todefer its effective date to all fiscal quarters of all fiscal years beginningafter June 15, 2000, and SFAS 138 “*Accounting for Certain DerivativeInstruments and Certain Hedge Activities-an amendment of FASB StatementNo. 133*” which addresses a limited number of issues causingimplementation difficulties for entities that apply SFAS 133.

 

                SFAS 133, as amended, establishedaccounting and reporting standards for derivative instruments, includingderivative instruments embedded in other contracts, and hedging activities.Similar to IAS 39, SFAS 133, as amended, required the Group to recognizeall derivatives in the consolidated balance sheet at fair value. The financialstatement recognition of the change in fair value of a derivative depends on anumber of factors, including the intended use of the derivative and the extentto which it is effective as part of a hedge transaction. SFAS 133, asamended, was adopted by the 

 

 

F-82

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Company effectiveJanuary 1, 2001. Adoption of this standard did not have a material effecton the Company’s financial statements*.*

 

                In September 2000, the FASB issuedSFAS 140 “*Accounting for Transfers and Servicing of Financial Assets andExtinguishments of Liabilities-a replacement of FASB No. 125*”.This statement revised the standards for accounting for securitizations andother transfers of financial assets and collateral and required certainfinancial statement disclosures. SFAS 140 was effective for transactionsoccurring after March 31, 2001 except for certain disclosure requirementswhich were effected December 31, 2001. Adoption of this replacementstandard did not have a material effect on the Company’s consolidated financialstatements.

 

                In July 2001, the FASB issuedSFAS 141 “*Business Combinations*”, and SFAS 142 “*Goodwill andOther Intangible Assets*”. These pronouncements significantly changedthe accounting for business combinations, goodwill and intangible assets.SFAS 141 required that the purchase method of accounting be used for allbusiness combinations initiated after June 30, 2001 as well as allpurchase method business combinations completed after June 30, 2001.SFAS 141 also specified criteria intangible assets acquired in a purchasemethod business combination must meet to be recognized and reported apart fromgoodwill, noting that any purchase price allocable to an assembled workforcemay not be accounted for separately. Adoption of these standards did not have amaterial effect on the company’s financial statements.

 

                In August 2001, the FASB issuedSFAS 143 “*Accounting for Asset Retirement Obligations*”. This Statementaddressed financial accounting and reporting for obligations associated withthe retirement of tangible long-lived assets and the associated assetretirement costs. SFAS 143 requires an enterprise to record the fair valueof an asset retirement obligation as a liability in the period in which itincurs a legal obligation associated with the retirement of a tangible long-livedasset. SFAS 143 also requires the enterprise to increase the carryingamount of the related long-lived asset by the associated asset retirement costsand to depreciate that cost over the remaining useful life of the asset. Theliability is changed at the end of each period to reflect the passage of time(i.e., accretion expense) and changes in the estimated future cash flowsunderlying the initial fair value measurement. Enterprises are required toadopt SFAS 143 for fiscal years beginning after June 15, 2002. TheCompany has not yet completed its analysis of the new pronouncement and has notyet determined if the adoption of the new pronouncement will have a materialeffect on its financial statements.

 

     In August 2001, the FASB approved forissuance SFAS 144 “*Accounting for the Impairment or Disposal ofLong-Lived Assets*”. This Statement addresses financial accountingand reporting for the impairment or disposal of long-lived assets. ThisStatement supersedes SFAS 121 and the accounting and reporting provisionsof APB Opinion No. 30 “*Reporting the Results of Operations-Reporting theEffects of Disposal of a Segment of a Business, and Extraordinary, Unusual andInfrequently Occurring Events and Transactions*”, for the disposal ofa segment of a business (as previously defined in that Opinion). This Statementalso amends ARB No. 51 “*Consolidated Financial Statements*” toeliminate the exception to consolidation for a subsidiary for which control islikely to be temporary. The provisions of this Statement are effective forfinancial statements issued for fiscal years beginning after December 15,2001, with earlier adoption encouraged. The Company has not yet completed itsanalysis of the new pronouncement and has not yet determined whether theadoption of the new pronouncement will have a material effect on the financialstatements.

 

In July 2002, the FASB issued Statement 146, *Accountingfor Costs Associated with Exit or Disposal Activities*. SFAS 146replaces previous accounting guidance provided by EITF 94-3, *LiabilityRecognition for Certain Employee Termination Benefits and Other Costs to Exitan Activity (including Certain Costs incurred in a Restructuring)*,and requires companies to recognize costs associated with exit or disposalactivities when they are incurred (subsequent to a commitment to a plan) ratherthan at the date of a commitment to an exit or disposal plan. Examples of costscovered by the standard include lease termination costs and certain employeeseverance costs that are associated with a restructuring, discontinuedoperation, plant closing, or exit or disposal activity. The provisions of SFAS146 are to be applied prospectively to exit or disposal activities initiatedafter December 31, 2002. The adoption of SFAS 146 is not expected to have a materialimpact on the Group’s consolidated financial statements.

 

The FASB issued SFAS 145 “*Rescissionof FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, andTechnical Corrections”*, on April 30, 2002. SFAS 145 rescinds SFAS 4,which required all gains and losses from extinguishment of debt to beaggregated and, if material, classified as an extraordinary item, net ofrelated income tax effect. Upon adoption of SFAS 145, the Group will berequired to apply the criteria in APB Opinion No. 30, in 

 

 

F-83

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determining the classification of gains andlosses resulting from the extinguishment of debt. Additionally, SFAS 145 amendsSFAS 13 to require that certain lease modifications that have economic effectssimilar to sale-leaseback transactions be accounted for in the same manner assale-leaseback transactions. While early adoption of the provisions related tothe rescission of statement No. 4 is encouraged, the Group has decided to adoptSFAS 145 effective January 1, 2003. Upon adoption, the Group will have toreclassify prior period items that do not meet the extraordinary itemclassification criteria in Opinion No. 30. Adoption of this standard is notexpected to have a material effect on the Group’s consolidated financialstatements.

 

 

F-84

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**INDEX TO FINANCIAL STATEMENTS**

**SINGAPORE SYNGAS PTELTD.**

 

 
| Independent Auditors’ Report                                                                                                     | F-86 |
|---------------------------------------------------------------------------------------------------------------------------------------|------|
| Statements of Operations for the years  ended December 31, 2000, 1999 (unaudited) and 1998 (unaudited)                           | F-87 |
| Balance  Sheets as of December 31, 2000 and 1999 (unaudited)                                                                     | F-88 |
| Statements of Changes in Stockholders’  Equity for the years ended December 31, 2000, 1999(unaudited) and 1998  (unaudited) | F-89 |
| Cash Flow Statements for the years ended  December 31, 2000, 1999 (unaudited) and 1998 (unaudited)                               | F-90 |
| Notes to the Financial Statements                                                                                                     | F-91 |

 

 

F-85

----

 

**REPORTOF INDEPENDENT ACCOUNTANTS**

 

 

To the Shareholders and Board of Directors

of Singapore Syngas Pte Ltd

 

                We haveaudited the accompanying balance sheet of Singapore Syngas Pte Ltd (the“Company”) as of December 31, 2000, and the related statement of operations, ofcash flows and of changes in stockholders’ equity for the year ended December31, 2000, all expressed in United States of America dollar (US $). Thesefinancial statements are the responsibility of the Company’s directors. Ourresponsibility is to express an opinion on these financial statements based onour audit.

 

                We conductedour audit in accordance with auditing standards generally accepted in theUnited States of America. Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements arefree of material misstatement. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements. Anaudit also includes assessing the accounting principles used and significantestimates made by directors, as well as evaluating the overall financialstatement presentation. We believe that our audit provides a reasonable basisfor our opinion.

 

                In ouropinion, the financial statements referred to above present fairly, in allmaterial respects, the financial position of the Company at December 31, 2000,and the results of its operations and its cash flows for the year endedDecember 31, 2000, in conformity with accounting principles generally acceptedin Singapore (SGAAP).

 

                Theaccompanying financial statements have been prepared assuming that the Companywill continue as a going concern. As discussed in Note 1 to the financialstatements, the Company has been impacted by operational difficulties resultingin losses from operations and it has a net capital deficiency that raisessubstantial doubt about its ability to continue as a going concern. Management’splans in regard to these matters are described in Note 1. The financialstatements do not include any adjustments that might result from the resolutionof this uncertainty.

 

                SGAAP variesin certain significant respects from International Accounting Standards (IAS).The application of the latter would have affected the determination of resultsof operations expressed in US $ for the year ended December 31, 2000 and thedetermination of stockholders’ equity also expressed in US $ at December 31,2000 to the extent summarized in Note 20 to the financial statements.

 

                IAS varies incertain significant respects from accounting principles generally accepted inthe United States of America and as allowed by Item 17 of Form 20-F. Theapplication of the latter would have affected the determination of results ofoperations expressed in US $ for the year ended December 31, 2000 and thedetermination of stockholders’ equity also expressed in US $ at December 31,2000 to the extent summarized in Note 21 to the financial statements.

 

 

PricewaterhouseCoopers

Singapore

 

June 27, 2001

 

 

F-86

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**SINGAPORE SYNGAS PTE LTD**

**STATEMENTSOF OPERATIONS**

**For the years ended December 31, 2000, 1999and 1998**

**(All amounts in thousands of US$, unlessotherwise stated)**

** **
|                                                                            |   | **Notes** |   | **2000**     |   | **1999**        |   | **1998**        |   |
|---------------------------------------------------------------------------------|--------|-----------|--------|--------------|--------|-----------------|--------|-----------------|--------|
|                                                                            |   |      |   |         |   | **(unaudited)** |   | **(unaudited)** |   |
|                                                                            |   |      |   |         |   |            |   |            |   |
| Net sales                                                                       |   |      |   | 3,505        |   | —          |   | —          |   |
| Cost of sales                                                                   |   |      |   | (23,055      | )      | —          |   | —          |   |
| Gross loss                                                                      |   |      |   | (19,550      | )      | —          |   | —          |   |
| Distribution and selling costs                                                  |   |      |   | (275         | )      | —          |   | —          |   |
| General and administrative costs                                                |   |      |   | (2,431       | )      | —          |   | —          |   |
| Other operating expense                                                         |   |      |   | (2,682       | )      | —          |   | —          |   |
| Provision for impairment of land  improvement and building, plant and equipment |   | 7         |   | (97,560      | )      | —          |   | —          |   |
| Amortization on pre-operating expenses                                          |   | 8         |   | (4,442       | )      | —          |   | —          |   |
| Operating loss                                                                  |   | 3         |   | **(126,940** | **)**  | —          |   | —          |   |
| Interest expense, net                                                           |   | 4         |   | (7,244       | )      | —          |   | —          |   |
| Loss before income taxes                                                        |   |      |   | **(134,184** | **)**  | —          |   | —          |   |
| Income taxes                                                                    |   | 6         |   | —       |   | —          |   | —          |   |
| **Net loss**                                                                    |   |      |   | **(134,184** | **)**  | —          |   | —          |   |

 

The accompanying notes are anintegral part of these financial statements.

 

 

F-87

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**SINGAPORE SYNGAS PTE LTD**

**BALANCESHEETS**

**As of December 31, 2000 and 1999**

**(All amounts in thousands of US $, unlessotherwise stated)**

** **
|                                                           |   | **Notes** |   | **2000**   |       | **1999**        |   |
|----------------------------------------------------------------|--------|-----------|--------|------------|------------|-----------------|--------|
|                                                           |   |      |   |       |       | **(unaudited)** |   |
| **Assets**                                                     |   |      |   |       |       |            |   |
| Land improvement and building, plant and  equipment            |   | 7         |   | 89,793     |       | 122,121         |   |
| Pre-operating expenses                                         |   | 8         |   | —     |       | 4,442           |   |
| Non-current assets                                             |   |      |   | 89,793     |       | 126,563         |   |
| Trade accounts receivable, net                                 |   |      |   | 3,048      |       | —          |   |
| Other receivables and other assets                             |   | 9         |   | 1,612      |       | 1,013           |   |
| Receivables from an affiliated corporation                     |   | 10        |   | 573        |       | —          |   |
| Cash and cash equivalents                                      |   | 11        |   | 1,756      |       | 1,796           |   |
| Current assets                                                 |   |      |   | 6,989      |       | 2,809           |   |
| **Total assets**                                               |   |      |   | **96,782** | ** ** | **129,372**     |   |
|                                                           |   |      |   |       |       |            |   |
| **Stockholders’ equity/(deficit) and liabilities**        |   |      |   |       |       |            |   |
| Subscribed capital of Singapore Syngas Pte  Ltd                |   | 12        |   | 62         |       | 62              |   |
| Accumulated deficit                                            |   |      |   | (134,184   | )          | —          |   |
| Stockholders’ (deficit)/equity                            |   |      |   | (134,122   | )          | 62              |   |
| Commitments and contingencies                                  |   | 17        |   | —     |       | —          |   |
| Finance lease creditor, less current  portion                  |   | 13        |   | 679        |       | —          |   |
| Corporate debt, less current portion                           |   | 14        |   | —     |       | 81,422          |   |
| Due to shareholders, less current portion                      |   | 15        |   | 79,841     |       | —          |   |
| Non-current liabilities                                        |   |      |   | 80,520     |       | 81,422          |   |
| Corporate debt                                                 |   | 14        |   | 131,000    |       | 31,664          |   |
| Trade accounts payable                                         |   |      |   | 10,150     |       | —          |   |
| Payables to affiliated corporations                            |   |      |   | 5,992      |       | 4,925           |   |
| Due to shareholders                                            |   | 15        |   | —     |       | 6,982           |   |
| Other creditors                                                |   | 16        |   | 3,213      |       | 4,317           |   |
| Finance lease creditor                                         |   | 13        |   | 29         |       | —          |   |
| Current liabilities                                            |   |      |   | 150,384    |       | 47,888          |   |
| **Total stockholders’ equity/(deficit) and  liabilities** |   |      |   | **96,782** | ** ** | **129,372**     |   |

 

The accompanying notes are anintegral part of these financial statements.

 

 

F-88

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**SINGAPORE SYNGAS PTE LTD**

**STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY/(DEFICIT)**

**For the years ended December 31, 2000, 1999and 1998**

**(All amounts in thousands of US$, unlessotherwise stated)**

 

** **
|                                            |   | **Subscribed  capital** |       | **Accumulated  deficit** |       | **Total  stockholders’ equity/(deficit)** |       |
|-------------------------------------------------|--------|-------------------------|------------|--------------------------|------------|------------------------------------------------|------------|
|                                            |   |                    |       |                     |       |                                           |       |
| **Balance as of January 1, 1998 (unaudited)**   |   | —                  |       | —                   |       | —                                         |       |
| Share capital                                   |   | 62                      |       | —                   |       | 62                                             |       |
| Net loss                                        |   | —                  |       | —                   |       | —                                         |       |
| **Balance as of December 31, 1998 (unaudited)** |   | **62**                  | ** ** | **—**               | ** ** | **62**                                         | ** ** |
| Net loss                                        |   | —                  |       | —                   |       | —                                         |       |
| **Balance as of December 31, 1999**             |   | **62**                  | ** ** | **—**               | ** ** | **62**                                         | ** ** |
| Net loss                                        |   | —                  |       | (134,184                 | )          | (134,184                                       | )          |
| **Balance as of December 31, 2000**             |   | **62**                  | ** ** | **(134,184**             | **)**      | **(134,122**                                   | **)**      |

The accompanying notes are anintegral part of these financial statements.

 

 

F-89

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**SINGAPORE SYNGAS PTE LTD**

**STATEMENTSOF CASH FLOWS**

**For the years ended December 31, 2000, 1999and 1998**

**(All amounts in thousands of US$, unlessotherwise stated)**

** **
|                                                                     |   | **2000**    |       | **1999**        |       | **1998**        |   |
|--------------------------------------------------------------------------|--------|-------------|------------|-----------------|------------|-----------------|--------|
|                                                                     |   |        |       | **(unaudited)** |       | **(unaudited)** |   |
|                                                                     |   |        |       |            |       |            |   |
| Loss before income taxes                                                 |   | (134,184    | )          | —          |       | —          |   |
| Adjustment for:                                                          |   |        |       |            |       |            |   |
| Interest income                                                          |   | (114        | )          | —          |       | —          |   |
| Interest expense                                                         |   | 7,358       |       | —          |       | —          |   |
| Depreciation                                                             |   | 259         |       | —          |       | —          |   |
| Amortization of pre-operating expenses                                   |   | 4,442       |       | —          |       | —          |   |
| Impairment charge on land improvement and  building, plant and equipment |   | 97,560      |       | —          |       | —          |   |
| Changes in trade receivables, other receivables  and other assets        |   | (3,647      | )          | —          |       | —          |   |
| Changes in trade accounts payable and other  liabilities                 |   | 6,537       |       | —          |       | —          |   |
| Affiliated corporations                                                  |   | (65         | )          | (1,045          | )          | —          |   |
| Interest received                                                        |   | 114         |       | —          |       | —          |   |
| **Cash flow from operating activities**                                  |   | **(21,740** | **)**      | **(1,045**      | **)**      | **—**      |   |
| Payment for land improvement and building,  plant and equipment          |   | (58,963     | )          | (88,171         | )          | (21,721         | )      |
| Payment for pre-operating expenses                                       |   | —      |       | (4,061          | )          | (360            | )      |
| Other receivables, deposits and prepayments                              |   | —      |       | (950            | )          | (62             | )      |
| **Cash flow from investing activities**                                  |   | **(58,963** | **)**      | **(93,182**     | **)**      | **(22,143**     | **)**  |
| Capital increases                                                        |   | —      |       | —          |       | 62              |   |
| Increase in amount due from affiliated  corporations-non-trade           |   | —      |       | —          |       | 1,951           |   |
| Proceeds from additions to corporate debts                               |   | 58,620      |       | 113,087         |       | —          |   |
| Repayment of corporate debts                                             |   | (40,706     | )          | —          |       | —          |   |
| Proceeds from amounts due to shareholders                                |   | 72,456      |       | 2,728           |       | 22,710          |   |
| Repayment of amounts due to shareholders                                 |   | (2,730      | )          | (22,372         | )          | —          |   |
| Repayment of finance lease liability                                     |   | (17         | )          | —          |       | —          |   |
| Interest expense paid                                                    |   | (6,960      | )          | —          |       | —          |   |
| **Cash flow from financing activities**                                  |   | **80,663**  | ** ** | **93,443**      | ** ** | **24,723**      |   |
| **Cash flow from operating, investing and  financing activities**        |   | **(40**     | **)**      | **(784**        | **)**      | **2,580**       |   |
| **Cash and cash equivalentsat beginning of  year**                       |   | **1,796**   | ** ** | **2,580**       | ** ** | **—**      |   |
|                                                                     |   |        |       |            |       |            |   |
| **at end of year**                                                       |   | **1,756**   | ** ** | **1,796**       | ** ** | **2,580**       |   |

 

The accompanying notes are anintegral part of these financial statements.

 

 

F-90

----

 

**SINGAPORE SYNGAS PTE LTD**

**NOTESTO THE FINANCIAL STATEMENTS**

**As of December 31, 2000, 1999 and 1998**

**(All amounts in thousands of US $, unlessotherwise stated)**

 

 

**1.             Background**

 

**               **TheCompany was incorporated in Singapore on June 18, 1993. Under a contractualagreement entered into on January 31, 1998 between Messer Griesheim GmbH,incorporated in Germany and Texaco Nederland B.V., incorporated in theNetherlands, Messer Griesheim GmbH owns 75% equity interest and TexacoNederland B.V. owns 25% equity interest in the Company. This arrangement wasrevised to a 50%-50% ownership interest per the amended and restatedShareholders’ Agreement dated December 21, 1999. In addition, a put optionagreement dated December 20, 1999, was also entered into between MesserGriesheim GmbH and Texaco Nederland B.V. which granted Texaco Nederland B.V. aput option to reduce its shareholding to 25% by requiring Messer Griesheim GmbHto re-purchase all or a portion of the option shares. The put option wassubsequently exercised in full in the manner described in Note 19 “Subsequentevents”. Resulting from the exercise of the put option and the subsequenttransfers of ownership, the Company is now 75% owned by Messer GriesheimSingapore Holdings GmbH and 25% owned by Texaco Nederland B.V.. MesserGriesheim Singapore Holdings GmbH is owned 39% by Hoechst, 39% by MesserGriesheim GmbH, 11% by Bandinelli GmbH and 11% by Messer Singapore ManagementHolding GmbH.

 

                In thesefinancial statements, the term “affiliated corporations” refers to companies orcorporations which are related to the then two shareholders, Messer GriesheimGmbH and Texaco Nederland B.V..

 

                The Companyis incorporated and domiciled in Singapore. The address of the Company’sregistered office is

 

                                5Shenton Way

                                #2605/07

                                UICBuilding

                                Singapore068808

 

                The principalactivities of the Company are the designing, building and operation of asynthesis gas (syngas) plant for the production and distribution of synthesisgas and other related products.

 

                Thesignificant activities that took place during the year are as described in Note7(c) “Land improvement and building, plant and equipment” to the financialstatements.

 

                The Companyhas suffered losses from its operations and has a net capital deficit as atDecember 31, 2000. Due to technical difficulties encountered in the start-up ofthe operation of the syngas plant through December 31, 2000, the syngas plantwas unable to achieve a level of operation which is commercially viable as wellas allowing the Company to generate sufficient cash flows to service theiroperational needs and their debt obligations. The Company has historicallyrelied on loans from third parties and shareholders to fund its operations andsubsequent to December 31, 2000, the Company has made full repayment of alloutstanding bank loans, together with all other amounts due and owing under thebank agreement from further loans given by the current shareholders (MesserGriesheim Singapore Holdings GmbH (“Messer Holding”) and Texaco NetherlandB.V.). At December 31, 2000, the Company has taken an impairment charge of$97,560 under Singapore GAAP on the syngas plant for the reason set out in Note7 “Land improvement and building, plant and equipment”. On June 11, 2001, thesyngas plant achieved commercial operation. Although the directors believe thatthe syngas plant will be able to generate sufficient cash flows from operatingactivities to finance the operations of the syngas plant in the normal courseof business from October 1, 2001, the cash flows from operations are notexpected to fully meet the Company’s cash needs for the foreseeable futurebecause it has incurred substantial costs (including rectification costs) toenable it to overcome the technical difficulties encountered. The Company hasobtained letters of financial support from its current shareholders that theywould not demand repayment of the amounts due to them by the Company for aperiod of at least twelve months from June 27, 2001, and thereafter, only ifthe cash flows of the Company permit repayment at that time. However, theCompany was not able to obtain firm commitments from the shareholders of MesserHolding to finance its operations and to repay 

 

 

F-91

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existing liabilities (other than the existing shareholders’ loans as atJune 27, 2001, which included further shareholders loans to enable the Companyto repay its outstanding bank loans as discussed in Note 14 “Corporate debt”).

 

                On thisbasis, substantial doubt exists regarding the Company’s ability to continue asa going concern for the foreseeable future.

 

                However, thedirectors of the Company believe that from October 1, 2001, the syngas plantwill be able to generate sufficient cash flows from operating activities tofinance the operations of the syngas plant in the normal course of business andthat in the interim period the shareholders will continue to provide requiredreasonably necessary funds needed to operate the syngas plant.

 

**2.             Accounting policies**

 

                The financialstatements are prepared in accordance with and comply with accountingprinciples generally accepted in Singapore (SGAAP).

 

***Land improvement andbuilding, plant and equipment***

 

                Landimprovement and building, plant and equipment are capitalized at acquisition ormanufacturing costs and depreciated over their estimated useful lives. Themanufacturing costs of self-constructed assets are based on directly allocableitemized costs and appropriate overhead costs. Finance costs related to theconstruction of land improvement and building, plant and equipment arecapitalized as part of the manufacturing costs. In the case of disposals, theassets and related accumulated depreciation are removed from the accounts andthe net amount, less proceeds from disposal, is charged to the statement ofoperations. Repair costs are charged to expense when incurred.

 

                Depreciationof land improvement and building, plant and equipment is based on astraight-line basis over the assets’ useful lives as follows:

 
| Land improvement and building               |   | 25 years       |   |
|---------------------------------------------|--------|----------------|--------|
| Plant, machinery and equipment              |   | 10 to 25 years |   |
| Office equipment and furniture and fittings |   | 3 to 5 years   |   |

 

                Nodepreciation is provided on plant under construction.

 

***Receivables***

 

                Tradeaccounts receivable and other receivables are stated at net realizable value.An estimate is made for doubtful debts based on a review of all outstandingamounts at the year-end. Bad debts are written off during the financial year inwhich they are identified.

 

***Cash and cashequivalents***

 

                Cashcomprises cash at bank and in hand. Cash equivalents comprise highly liquidinvestments with a maturity of three months or less from the date ofacquisition.

 

***Impairment oflong-lived assets***

 

                During August2000, SAS 36 “Impairment of Assets” which replaces the requirements relating torecoverability of assets in SAS 14 “Property, Plant and Equipment”, wasapproved by the Council of the Institute of Certified Public Accountants ofSingapore. SAS 36 became applicable for accounting periods beginning on orafter October 1, 2000, and early adoption is encouraged. The Company has chosento adopt SAS 36 for preparation of these financial statements for the yearended December 31, 2000.

 

 

F-92

----

 

                At eachbalance sheet date, an assessment is made as to whether there is any indicationthat the Company’s assets may be impaired. If any such indication exists, anassessment is made to establish whether the recoverable amount of the assetshas declined below the carrying amount of those assets as disclosed in thefinancial statements. When such a decline has occurred, the carrying amount ofthe assets is reduced to the recoverable amount. The amount of any suchreduction is recognized immediately as an expense in the statement ofoperations. Any subsequent increase in the recoverable amount of the assetswould be written back when the circumstances that led to the write-down orwrite-off cease to exist and there is persuasive evidence that the newcircumstances and events will persist for the foreseeable future that support ahigher carrying amount.

 

                Therecoverable amount is defined as the higher of the asset’s net selling price orvalue in use. The value in use of the assets is estimated based on forecastedfuture cash inflows and outflows to be derived from the continuing use of theassets and from the estimated net proceeds on disposal at the end of its usefullife, discounted to present value using an appropriate discount rate.

 

***Trade accountspayable and other liabilities***

 

                Tradeaccounts payable and other liabilities are carried at the expected settlementamount.

 

***Deferred incometaxes***

 

                Tax expenseis determined on the basis of tax effect accounting using the liability method.Deferred taxation is provided on timing differences arising from the differenttreatments in accounting and taxation of relevant items.

 

                In accountingfor timing differences, deferred tax assets are not accounted for unless thereis reasonable expectation of their realization.

 

***Pipeline sales andrevenue recognition***

 

                The Company’splant was constructed primarily for an agreement with a major customer,Celanese Singapore (Pte) Ltd (“Celanese”) for the supply of carbon monoxidegas. The agreement is for a period of twenty years, and contains take-or-payminimum purchase requirements, price escalation provisions and certain penaltyprovisions for non-performance. Under the terms of the agreement, revenue isrecognised when delivery has taken place and the customers have accepted theproduct. If the deliverables are below the minimum level, the Company willaccrue for the minimum amount of revenue due from customers.

 

                Interestincome is accrued on a day to day basis.

 

***Pre-operatingexpenses***

 

                Pre-operatingexpenses are amortized in equal amounts over a period of 5 years from thecommencement of operations to match them with the economic benefits which areexpected to arise.

 

                Arising from thetechnical and operational problems as described in Note 7(c) “Land improvementand building, plant and equipment” which resulted in significant cost overruns,the Company revised the period of amortization of pre-operating expenses from 5years to 1 year during the year ended December 31, 2000. As a result of therevision, an amortization charge of $4,442 was recorded in the statement ofoperations for the year ended December 31, 2000.

 

***Reclassifications***

 

                Certainreclassifications have been made to the prior year financial statements inorder to conform with current year presentation.

 

 

F-93

----

 

***Use of estimates***

 

                Thepreparation of financial statements necessarily requires directors to makeestimates and assumptions that affect the reported amounts of assets,liabilities, revenues and expenses, as well as the disclosure of contingentassets and liabilities. Actual results could differ from those estimates.

 

***Currency translation***

 

                The Company’sfinancial records are maintained in United States dollars (US $). Transactionsin other currencies during the year, which are denominated in currencies otherthan US $, are converted to US $ at the rates of exchange prevailing on thetransaction dates. Monetary assets and liabilities expressed in currenciesother than US $ are converted into US $ at the rates of exchange ruling at thebalance sheet date. Differences on exchange are included in the statement ofoperations.

 

***Finance andoperating leases***

 

                A distinctionis made between finance leases which effectively transfer from the lessor tothe lessee substantially all the risks and benefits incidental to the ownershipof the leased assets, and operating leases under which the lessor effectivelyretains substantially all such risks and benefits.

 

                Financeleases are capitalized at the estimated present value of the underlying leasepayments. Each lease payment is allocated between the liability and financecharges so as to achieve a constant finance rate on the outstanding balance.The corresponding rental obligations, net of finance charges, are included inthe balance sheet as finance lease creditor. The interest element of thefinance charge is charged to the statement of operations over the lease period.Plant and equipment acquired under finance leasing contracts is depreciatedover the useful life of the asset.

 

                Operatinglease payments are charged to the statement of operations on a straight linebasis over the period of the lease.

 

                When anoperating lease is terminated before the lease period has expired, any paymentrequired to be made to the lessor by way of penalty is recognized as an expensein the period in which termination takes place.

 

**3.             Operating loss**

** **
|                                                                |   | **2000** |   | **1999**        |   | **1998**        |   |
|---------------------------------------------------------------------|--------|----------|--------|-----------------|--------|-----------------|--------|
|                                                                |   |     |   | **(unaudited)** |   | **(unaudited)** |   |
| Operating loss includes:                                            |   |     |   |            |   |            |   |
| Depreciation of land improvement and  building, plant and equipment |   |     |   |            |   |            |   |
| —Land improvement and building                                 |   | 53       |   | —          |   | —          |   |
| —Plant, machinery and equipment                                |   | 28       |   | —          |   | —          |   |
| —Office equipment and furniture and  fittings                  |   | 178      |   | —          |   | —          |   |
| Net foreign exchange loss                                           |   | 162      |   | —          |   | —          |   |
| Amortization on pre-operating expenses                              |   | 4,442    |   | —          |   | —          |   |
| Rental expense-operating leases                                     |   | 589      |   | —          |   | —          |   |
| Provision for doubtful debts                                        |   | 400      |   | —          |   | —          |   |

 

**4.             Interest expense, net**

** **
|                          |   | **2000**   |   | **1999**        |       | **1998**        |       |
|-------------------------------|--------|------------|--------|-----------------|------------|-----------------|------------|
|                          |   |       |   | **(unaudited)** |       | **(unaudited)** |       |
| Interest income               |   | 114        |   | —          |       | —          |       |
| Interest expense              |   |       |   |            |       |            |       |
| —Bank loans              |   | (5,076     | )      | —          |       | —          |       |
| —Loans from shareholders |   | (2,248     | )      | —          |       | —          |       |
| —Finance leases          |   | (34        | )      | —          |       | —          |       |
| **Interest expense, net**     |   | **(7,244** | **)**  | **—**      | ** ** | **—**      | ** ** |

 

 

F-94

----

 

**5.             Staff costs**

** **
|                                                                         |   | **2000** |   | **1999**        |   | **1998**        |   |
|------------------------------------------------------------------------------|--------|----------|--------|-----------------|--------|-----------------|--------|
|                                                                         |   |     |   | **(unaudited)** |   | **(unaudited)** |   |
| Wages and salaries costs                                                     |   | 4,054    |   | 914             |   | —          |   |
| Less:                                                                        |   |     |   |            |   |            |   |
| Amounts capitalized into land improvement  and building, plant and equipment |   | (856     | )      | (914            | )      | —          |   |
|                                                                         |   | 3,198    |   | —          |   | —          |   |

 

**               **Thenumber of employees at December 31, 2000, 1999 and 1998 totaled 72, 34 and nil,respectively.

 

 

**6.             Income taxes**

 

**               **Asat December 31, 2000, the Company has estimated unutilized tax losses of$45,000, unabsorbed capital allowances of $233 and unabsorbed investmentallowances of $61,000, available for offsetting against future taxable incomesubject to confirmation by the tax authorities and there being no substantialchange in shareholders in accordance with the relevant provisions of the IncomeTax Act.

 

                Included inthe above tax losses are claims for tax deductions in respect of pre-operatingexpenses and capitalized interest of $4,409 and $9,655, respectively which maybe disputed by the tax authorities and hence should only be consideredavailable subject to the agreement with the tax authorities.

 

                No deferredtax asset has been recognized in relation to the tax losses as the directors ofthe Company do not have a reasonable expectation of their realization againstfuture income.

 

 

F-95

----

 

**7.             Land improvement and building,plant and equipment**

 

**               **
|                                                     |   | **Plant  under  construction** |       | **Land  improvement and building** |       | **Office  equipment and furniture and fittings** |       | **Plant,  machinery  and  equipment** |       | **Total**   |       |
|----------------------------------------------------------|--------|--------------------------------|------------|------------------------------------|------------|--------------------------------------------------|------------|---------------------------------------|------------|-------------|------------|
| **Acquisition or production cost**                       |   |                           |       |                               |       |                                             |       |                                  |       |        |       |
| Balance as of January 1, 1999 (unaudited)                |   | 29,352                         |       | —                             |       | 26                                               |       | —                                |       | 29,378      |       |
| Additions                                                |   | 92,469                         |       | —                             |       | 303                                              |       | —                                |       | 92,772      |       |
| Disposals                                                |   | —                         |       | —                             |       | (5                                               | )          | —                                |       | (5          | )          |
| **Balance as of December 31, 1999 (unaudited)**          |   | **121,821**                    | ** ** | **—**                         | ** ** | **324**                                          | ** ** | **—**                            | ** ** | **122,145** | ** ** |
|                                                     |   |                           |       |                               |       |                                             |       |                                  |       |        |       |
| Additions                                                |   | 64,514                         |       | 73                                 |       | 599                                              |       | 305                                   |       | 65,491      |       |
| Transfers                                                |   | (186,335                       | )          | 1,930                              |       | —                                           |       | 184,405                               |       | —      |       |
| Impairment charge                                        |   | —                         |       | —                             |       | —                                           |       | (97,560                               | )          | (97,560     | )          |
| **Balance as of December 31, 2000**                      |   | **—**                     | ** ** | **2,003**                          | ** ** | **923**                                          | ** ** | **87,150**                            | ** ** | **90,076**  | ** ** |
|                                                     |   |                           |       |                               |       |                                             |       |                                  |       |        |       |
| **Accumulated depreciation**                             |   |                           |       |                               |       |                                             |       |                                  |       |        |       |
| Balance as of January 1, 1999 (unaudited)                |   | —                         |       | —                             |       | 8                                                |       | —                                |       | 8           |       |
| Disposals                                                |   | —                         |       | —                             |       | (2                                               | )          | —                                |       | (2          | )          |
| Depreciation charge                                      |   | —                         |       | —                             |       | 18                                               |       | —                                |       | 18          |       |
| **Balance as of December 31, 1999 (unaudited)**          |   | **—**                     | ** ** | **—**                         | ** ** | **24**                                           | ** ** | **—**                            | ** ** | **24**      | ** ** |
|                                                     |   |                           |       |                               |       |                                             |       |                                  |       |        |       |
| Depreciation charge                                      |   | —                         |       | 53                                 |       | 178                                              |       | 28                                    |       | 259         |       |
| **Balance as of December 31, 2000**                      |   | **—**                     | ** ** | **53**                             | ** ** | **202**                                          | ** ** | **28**                                | ** ** | **283**     | ** ** |
|                                                     |   |                           |       |                               |       |                                             |       |                                  |       |        |       |
| **Book value as of December 31, 2000**              |   | **—**                     | ** ** | **1,950**                          | ** ** | **721**                                          | ** ** | **87,122**                            | ** ** | **89,793**  | ** ** |
|                                                     |   |                           |       |                               |       |                                             |       |                                  |       |        |       |
| **Book value as of December 31, 1999  (unaudited)** |   | **121,821**                    | ** ** | **—**                         | ** ** | **300**                                          | ** ** | **—**                            | ** ** | **122,121** | ** ** |

** **

**               **(a)           At the balance sheet date, the netbook value of land improvement and building, plant and equipment of the Companyunder the finance lease arrangements amounted to $725 (1999: Nil).

 

                (b)           Interest capitalized in landimprovement and building, plant and equipment during the year comprises:

 
|                          |   | **2000** |   | **1999**        |   |
|-------------------------------|--------|----------|--------|-----------------|--------|
|                          |   |     |   | **(unaudited)** |   |
| Interest on:                  |   |     |   |            |   |
| —Bank loans              |   | 4,343    |   | 173             |   |
| —Loans from shareholders |   | 885      |   | 3,650           |   |
|                          |   | 5,228    |   | 3,823           |   |

 

                (c)           On February 15, 1998, the Companyentered into an agreement with Celanese for the supply of carbon monoxide gas.Under the terms of the agreement, the Company is required to design andconstruct an integrated syngas plant for the production and distribution ofsynthesis gas including carbon monoxide, hydrogen and other gases. Theagreement with 

 

 

F-96

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Celanese requires the Company’s plant to be able to achieve “CommercialOperation” by July 1, 2000. “Commercial Operation” is defined in the agreementas the operations of the plant following successful completion of the InitialDemonstration, that is, a test operation for 10 consecutive days during whichthe plant shall produce carbon monoxide meeting certain specified propertiesand volume. Although the plant was constructed by that date, the syngas plantwas not able to operate at the level to enable the Company to meet itsobligation to supply carbon monoxide at the required level because of technicaland operational problems in the construction of the syngas plant. Substantialrectification work was carried out on the various processes resulting insignificant increase in cost. However, by December 31, 2000, the plant wasstill not able to operate at the required level.

 

                As part ofthe agreement, the Company’s then two shareholders also issued a jointcompletion guarantee to Celanese. Under the terms of the completion guarantee,these two shareholders guaranteed that the syngas plant will be completed forCommercial Operation by July 1, 2000. Otherwise, the Company’s then twoshareholders may be liable for reasonable costs incurred by Celanese up to$150,000. The original agreement also provided for liquidated damages up to amaximum of $5,400 if the required property and volume specifications were notreached by July 1, 2000 and/or the plant was not operational by that date.

 

                On January10, 2001, Celanese served a formal notice of non-performance on the Company.This led to a settlement agreement entered into between the Company, its thentwo shareholders and Celanese on March 20, 2001, for the settlement of alloutstanding claims under the original agreement. The settlement amount was$32,500. The Company’s then two shareholders have informed the Company that thesettlement amount will be borne by them and not by the Company. As part of thesettlement agreement, the trade receivable amount of $3,038 due from Celaneseas at December 31, 2000, has been paid subsequently.

 

                On April 1,2001, the Company and Celanese agreed on an amended and restated agreement fora period of twenty years commencing July 1, 2001. Under the amended andrestated agreement, the supply period begins on July 1, 2001, and continues fora period of twenty years. The Company will be potentially liable to reimburseCelanese liquidated damages to a maximum amount of $3,500 per month or $42,000per year if the syngas plant does not meet Commercial Operation by April 1,2001. The Company only achieved Commercial Operation on June 11, 2001, and thisresulted in liquidated damages payable to Celanese amounting to $7,000 for theperiod from April 1, 2001 to May 31, 2001. This amount has been paid by theCompany’s then two shareholders and they have informed the Company that thesettlement amount will be borne by them and not by the Company. This amount wasnot accrued at December 31, 2000.

 

                The Companyhas since narrowed the technical and operational problems of the syngas plantto that which is related to impediment in process flow in a specific processingunit of the syngas plant. Measures have been taken by the Company to rectifythis problem. By May 31, 2001, the Company believes the problems wererectified.

 

                On June 11,2001, the plant successfully completed the Initial Demonstration run and hastherefore achieved Commercial Operation per the agreement.

 

                (d)           Arising from the technical andoperational problems as described in Note 7(c) “Land improvement and building,plant and equipment” which resulted in significant cost overruns, there wereindications that the Company’s land improvement and building, plant andequipment may be impaired. An evaluation of recoverability was performed andthe discounted future cash flows of the syngas plant indicated that animpairment had occurred. As a result, an impairment charge of $97,560 has beenrecorded and taken to the statement of operations for the year ended December31, 2000.

 

                Theimpairment charge represents the difference between the book value of the plantand the estimated recoverable amount of the plant based on its value in use. Indetermining the value in use, the Company has discounted the forecast cashflows taking into account the revised terms set out in the amended and restatedagreement with Celanese.

 

 

F-97

----

 

**8.             Pre-operating expenses**

** **
| Balance as of January 1, 1999 (unaudited)       |   | 360       |       |
|-------------------------------------------------|--------|-----------|------------|
| Costs incurred during the year                  |   | 4,082     |       |
| **Balance as of December 31, 1999 (unaudited)** |   | **4,442** | ** ** |
| Expensed to statement of operations             |   | (4,442    | )          |
| **Balance as of December 31, 2000**             |   | —    |       |

 

**9.             Other receivables and other assets**

** **
|                                |   | **2000** |   | **1999**        |   |
|-------------------------------------|--------|----------|--------|-----------------|--------|
|                                |   |     |   | **(unaudited)** |   |
| Goods and services tax receivable   |   | 739      |   | 637             |   |
| Sundry deposits                     |   | 331      |   | 306             |   |
| Deposit on purchase of fixed assets |   | 17       |   | —          |   |
| Prepayments                         |   | 290      |   | 69              |   |
| Sundry debtors                      |   | 235      |   | 1               |   |
|                                |   | 1,612    |   | 1,013           |   |

 

**10.          Receivables from an affiliatedcorporation**

 

                Thereceivables from an affiliated corporation are unsecured, interest free andhave no fixed terms of repayment.

 
|                                                       |   | **2000** |   | **1999**        |   |
|------------------------------------------------------------|--------|----------|--------|-----------------|--------|
|                                                       |   |     |   | **(unaudited)** |   |
| Receivables from an affiliated  corporation—non-trade |   | 973      |   | —          |   |
| Less: Provision for doubtful debts                         |   | (400     | )      | —          |   |
|                                                       |   | 573      |   | —          |   |

 

                Movements inprovision for doubtful debts are as follows:

** **
|                                                                              |   | **2000** |   | **1999**        |   |
|-----------------------------------------------------------------------------------|--------|----------|--------|-----------------|--------|
|                                                                              |   |     |   | **(unaudited)** |   |
| Balance as of January 1, 1999 (unaudited)  and December 31, 1999 (unaudited) |   | —   |   | —          |   |
| Provision made during the year                                                    |   | 400      |   | —          |   |
| Balance as of December 31, 2000                                                   |   | 400      |   | —          |   |

 

**11.          Cash and cash equivalents**

** **
|                     |   | **2000** |   | **1999**        |   |
|--------------------------|--------|----------|--------|-----------------|--------|
|                     |   |     |   | **(unaudited)** |   |
| Cash at bank and in hand |   | 1,756    |   | 1,796           |   |

 

**12.          Subscribed capital**

** **
|                                |   | **2000** |   | **1999**        |   |
|-------------------------------------|--------|----------|--------|-----------------|--------|
|                                |   |     |   | **(unaudited)** |   |
| *Authorized*                        |   |     |   |            |   |
| 100,000 ordinary shares of S$1 each |   | 62       |   | 62              |   |
|                                |   |     |   |            |   |
| *Issued and fully paid*             |   |     |   |            |   |
| 100,000 ordinary shares of S$1 each |   | 62       |   | 62              |   |

 

 

F-98

----

 

**               **Eachordinary share has one vote at shareholders’ meetings. The Company wasincorporated with initial paid-in share capital of 2 Singapore dollars (S$)which comprised two ordinary shares with a par value of S$1 each. During theyear ended December 31, 1998, the Company increased its issued and paid-incapital from S$2 to S$100,000 by the allotment of 99,998 ordinary shares of S$1each.

 

**13.          Finance lease creditor**

** **
|                                               |   | **2000** |   | **1999**        |   |
|----------------------------------------------------|--------|----------|--------|-----------------|--------|
|                                               |   |     |   | **(unaudited)** |   |
| Minimum lease payments payable:                    |   |     |   |            |   |
| Not later than one year                            |   | 81       |   | —          |   |
| Later than one year but not later than five  years |   | 323      |   | —          |   |
| Later than five years                              |   | 755      |   | —          |   |
|                                               |   | 1,159    |   | —          |   |
| Finance charges allocated to future periods        |   | (451     | )      | —          |   |
|                                               |   | 708      |   | —          |   |
|                                               |   |     |   |            |   |
| Included in:                                       |   |     |   |            |   |
| Current liabilities                                |   | 29       |   | —          |   |
| Non-current liabilities                            |   | 679      |   | —          |   |
|                                               |   | 708      |   | —          |   |

 

**14.          Corporate debt**

 

**               **TheCompany took out three term loans from banks during the year ended December 31,1999 (nil in the year ended December 31, 1998). Corporate debt consists of thefollowing:

** **
|                         |   | **2000** |   | **1999**        |   |
|------------------------------|--------|----------|--------|-----------------|--------|
|                         |   |     |   | **(unaudited)** |   |
| US Dollar Equity Bridge Loan |   | —   |   | 31,664          |   |
| US Dollar Commercial Loan    |   | 89,000   |   | 26,105          |   |
| US Dollar Guaranteed Loan    |   | 42,000   |   | 55,317          |   |
| Less: Current portion        |   | (131,000 | )      | (31,664         | )      |
|                         |   | —   |   | 81,422          |   |

 

**               **TheEquity Bridge Loan had an original amount of $31,664 and the proceeds were usedin the construction of the syngas plant. The loan was fully repaid on March 15,2000. The interest rate at March 15, 2000 was 6.24%. Interest expense on thisloan was $504 and $46 for the years ended December 31, 2000 and 1999,respectively.

 

                TheCommercial Loan had an original amount of $55,317 and the proceeds were used inthe construction of the syngas plant. The interest rate at December 31, 2000was 7.66%. Interest expense on this loan was $6,120 and $87 for the years endedDecember 31, 2000 and 1999, respectively.

 

                TheGuaranteed Loan had an original amount of $26,105, and the proceeds were usedin the construction of the syngas plant. The interest rate at December 31, 2000was 7.46%. Interest expense on this loan was $2,810 and $40 for the years endedDecember 31, 2000 and 1999, respectively. This loan is guaranteed by MesserGriesheim GmbH.

 

                All the loansare collateralized by land improvement and building, plant and equipment whichhas a net book value of $89,793 and $122,121 at December 31, 2000 and 1999,respectively, charge over all revenues, debts, monetary claims of the Companyand all rights and interests and claims under all policies of insurance, chargeover all bank accounts of the 

 

 

F-99

----

 

Company and floating charge on all present and future assets andundertaking of the Company.

 

                The Companywas required to maintain a debt to equity ratio of not more than 72/18 and debtservice coverage ratio of not less than 1.2 as defined in the bank agreement,as well as to achieve Commercial Operation by June 30, 2001. The bankborrowings would be repayable on demand if the Company failed to meet the abovementioned covenants.

 

                Theoutstanding corporate debts as at December 31, 2000, are repayable by 24semi-annual instalments commencing on June 20, 2001. On April 19, 2001, theCompany served an irrevocable notice to the bank that it shall effect, on June30, 2001, full repayment of all bank loans outstanding, together with all otheramounts then due and owing under the Facilities Agreement. On June 20, 2001,the Company has made full repayment of all outstanding bank loans, togetherwith all other amounts due and owing under the bank agreement from furtherloans given by the shareholders. The shareholders of the Company have giventheir irrevocable commitment that they would not demand for repayment of theamounts due to them by the Company for a period of at least twelve months fromJune 27, 2001, and thereafter, only if the cash flows of the Company permitrepayment at that time. As such, the outstanding bank loans are classified ascurrent in the balance sheet as at December 31, 2000.

 

**15.          Due to shareholders**

** **
|                      |   | **2000** |   | **1999**        |   |
|---------------------------|--------|----------|--------|-----------------|--------|
|                      |   |     |   | **(unaudited)** |   |
| Loans                     |   | 72,454   |   | —          |   |
| Advances                  |   | —   |   | 2,728           |   |
| Interest payable on loans |   | 7,387    |   | 4,254           |   |
|                      |   | 79,841   |   | 6,982           |   |
|                      |   |     |   |            |   |
| Current                   |   | —   |   | 6,982           |   |
| Non-current               |   | 79,841   |   | —          |   |
|                      |   | 79,841   |   | 6,982           |   |

 

**               **TheCompany took out loans from the shareholders - Messer Griesheim GmbH and TexacoNederland B.V. during the year ended December 31, 1998. The loans had anoriginal amount of $22,711 and the proceeds were used in the construction ofthe syngas plant. The loans were fully repaid in 1999. Additional loans fromthe two shareholders were obtained in 2000. The loans were unsecured andinterest was payable at a rate of 6% to 7.05% per annum. The shareholders ofthe Company have given their irrevocable commitment that they would not demandfor repayment of the amounts due to them by the Company for a period of atleast twelve months from June 27, 2001, and thereafter, only if the cash flowsof the Company permit repayment at that time.

 

**               **Theadvances from shareholders in 1999 were short-term, unsecured and interestfree. The advances from shareholders were fully repaid in 2000.

 

**16.          Other creditors**

** **
|                                                  |   | **2000** |   | **1999**        |   |
|-------------------------------------------------------|--------|----------|--------|-----------------|--------|
|                                                  |   |     |   | **(unaudited)** |   |
| Amounts payable to contractors                        |   | —   |   | 3,699           |   |
| Amounts payable for the purchase of office  equipment |   | 93       |   | 140             |   |
| Interest payable on bank loans                        |   | 2,681    |   | 173             |   |
| Other creditors                                       |   | 439      |   | 305             |   |
|                                                  |   | 3,213    |   | 4,317           |   |

 

 

F-100

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**17.          Commitments and contingencies**

 

*Capital commitments*

 

                Capitalexpenditure contracted for at the balance sheet date but not recognized in thefinancial statements is as follows: 

** **
|                                      |   | **2000** |   | **1999**        |   |
|-------------------------------------------|--------|----------|--------|-----------------|--------|
|                                      |   |     |   | **(unaudited)** |   |
| Commitments in respect of contract placed |   | 38       |   | 10,259          |   |

 

*Operating lease commitment*

 

**               **TheCompany has lease rental commitment in respect of leasehold land that is due toexpire on March 15, 2028. The present annual rent of S$1,473,000 (1999:S$1,529,000) is subject to revision on March 16, every year based on the marketrate at the date of the revision but subject to a maximum increment of 5.5%(1999: 5.5%) of the annual rent of the immediate preceding year.

 

                The futureminimum lease payments under non-cancellable operating lease are payable asfollows: 

** **
|                                               |   | **2000** |   | **1999**        |   |
|----------------------------------------------------|--------|----------|--------|-----------------|--------|
|                                               |   |     |   | **(unaudited)** |   |
| Not later than one year                            |   | 850      |   | 917             |   |
| Later than one year but not later than five  years |   | 3,402    |   | 3,669           |   |
| Later than five years                              |   | 18,889   |   | 21,290          |   |
|                                               |   | 23,141   |   | 25,876          |   |

 

*Other commitments*

 

**               **OnApril 1, 2001, the Company and Celanese agreed on an amended and restatedagreement for a period of twenty years commencing July 1, 2001. Under theamended and restated agreement, the supply period begins on July 1, 2001 andcontinues for a period of twenty years. Under the terms of the agreement, theCompany is required to provide Celanese with a specified amount of carbonmonoxide for which Celanese pays a Base Facility Fee. Should the Company failto provide the minimum required amount of carbon monoxide as provided in theamended and restated agreement, the Base Facility Fee will be reduced by anamount proportionate to the under supplied carbon monoxide. Failure by eitherparty to honor the contract for its full twenty year term is subject to legalaction under contract laws of Singapore.

 

                On December21, 1999, the Company entered into an agreement for the supply of oxygen gaswith an affiliated corporation. The agreement is for a period of twenty yearsand contains take-or-pay minimum purchase requirements and price escalationprovisions. The Company is charged by the affiliated corporation for the supplyof oxygen gas at a subsidized rate in exchange for free supply of power to theaffiliated company to enable it to operate the air separation unit to supplythis oxygen.

 

**18.          Related party transactions**

 

**               **Duringthe year, there were the following significant transactions between the Companyand its affiliated corporations on terms agreed between the parties:

 

 

F-101

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|                                                                                                                                     |   | **2000** |   | **1999**        |   |
|------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|-----------------|--------|
|                                                                                                                                     |   |     |   | **(unaudited)** |   |
| Interest on loans payable to shareholders                                                                                                |   | 3,133    |   | 3,915           |   |
| Purchases of equipment from affiliated  corporations                                                                                     |   | 2,168    |   | 7,766           |   |
| Purchases of materials in connection with  operations of the plant from affiliated corporations                                          |   | 1,501    |   | —          |   |
| Reimbursements to affiliated corporations  for expenses incurred in connection with the construction of the plant                        |   | 565      |   | 1,344           |   |
| Reimbursements to affiliated corporations  for pre-operating expenses incurred                                                           |   | —   |   | 117             |   |
| Reimbursements from an affiliated  corporation for expenses incurred in connection with the installation of an  air separation unit      |   | 4,737    |   | 1,045           |   |
| Reimbursements from an affiliated  corporation for operating expenses incurred                                                           |   | 142      |   | —          |   |
| Reimbursements to affiliated corporations  for operating expenses incurred                                                               |   | 231      |   | —          |   |
| Reimbursements to affiliated corporations  for plant and start-up support                                                                |   | 4,030    |   | —          |   |
| Reimbursements from an affiliated  corporation for expenses incurred in connection with the installation of a  Hydrogen Loading Facility |   | 8        |   | —          |   |

 

**               **Inaddition to the above mentioned transactions, the Company entered into thefollowing transactions with an affiliated company:

 

                (a)           The Company is charged for the supplyof oxygen gas by an affiliated company at a subsidized rate in exchange forfree supply of power to the affiliated company to enable the affiliated companyto operate the air separation unit to supply oxygen to the Company, asdiscussed in Note 17 “Commitments and contingencies”.

 

                (b)           The Company charges an affiliatedcompany for the supply of hydrogen gas at an agreed price that is significantlylower than the price determined on an arm’s length basis in consideration ofthe affiliated company constructing a vacuum flash unit for the use of theCompany. The construction cost of the equipment of $11,329 is fully borne bythe affiliated company while the Company is required to upkeep and maintain theequipment. The estimated useful life of the vacuum flash unit is twenty yearsand the Company has unrestricted rights to use this equipment. The notionaldepreciation charge related to this equipment which was not recorded by theCompany is $566 per year.

 

**19.          Subsequent events**

 

**               **OnApril 30, 2001, one of the shareholders, Messer Griesheim GmbH transferred its50% interest in the Company to Messer Griesheim Singapore Holdings GmbH(formerly known as Diogenes Neunzehnte Vermoegensverwaltungs GmbH), a limitedliability company incorporated and existing under the laws of Germany for aconsideration of €1.

 

                The putoption agreement dated December 20, 1999, between Messer Griesheim GmbH andTexaco Nederland B.V., was modified by an agreement dated March 29, 2001. Theoriginal put option agreement gave Texaco Nederland B.V. an option to sell 25%of the shares in the Company to Messer Griesheim GmbH. Under the modified putoption agreement, Messer Griesheim GmbH purchased from Texaco Nederland B.V.,the outstanding shareholder loans made by Texaco Nederland B.V. to the Companyin excess of Texaco Nederland B.V.’s 25% proportionate equity interest in theCompany and related funding obligations. Messer Griesheim GmbH paid a purchaseprice of $15,139 for the loans. In exchange, Texaco Nederland B.V. agreed thatAventis S.A. (the holding corporation of Hoechst Aktiengesellschaft) canrequire Texaco Nederland B.V. to exercise the put option with respect to 25% ofthe shares in the Company at any time on or after May 1, 2001, and no laterthan June 30, 2001, for a consideration of US$1. In addition, the Company’sshares will be transferred directly to Messer Griesheim Singapore HoldingsGmbH, and not to Messer Griesheim GmbH.

 

                On June 20,2001, Texaco Nederland B.V. exercised the put option to transfer 25% of theshares in the Company to Messer Griesheim Singapore Holdings GmbH.

 

                Resultingfrom the exercise of the put option, the Company is now 75% owned by MesserGriesheim Singapore Holdings GmbH and 25% owned by Texaco Nederland B.V..Messer Griesheim Singapore Holdings GmbH is owned 39% by Hoechst, 39% by MesserGriesheim GmbH, 11% by Bandinelli GmbH and 11% by Messer Singapore ManagementHolding GmbH.

 

 

F-102

----

 

**20.          Reconciliation of SGAAP to IAS**

 

**               **Thefinancial statements have been prepared in accordance with SGAAP, which differsin certain significant respects from IAS. Had IAS been adopted, it would resultin certain differences to net loss and stockholders’ deficit as reported inaccordance with SGAAP. The following reconciliation of net loss andstockholders’ deficit to IAS is not required under SGAAP, IAS or U.S. GAAP, butis being presented for convenience purposes only. These differences are set outin the tables below:

 

                Reconciliationof net loss to IAS: 

 
|                         |   | **Notes** |   | **2000** |   | **1999**        |   | **1998**        |   |
|------------------------------|--------|-----------|--------|----------|--------|-----------------|--------|-----------------|--------|
|                         |   |      |   |     |   | **(unaudited)** |   | **(unaudited)** |   |
| Net loss under SGAAP         |   |      |   | (134,184 | )      | —          |   | —          |   |
| IAS adjustments:             |   |      |   |     |   |            |   |            |   |
| Pre-operating expenses       |   | a         |   | 4,442    |   | (4,082          | )      | (360            | )      |
| Tax effect of IAS adjustment |   | b         |   | —   |   | —          |   | —          |   |
| Net loss under IAS           |   |      |   | (129,742 | )      | (4,082          | )      | (360            | )      |

 

**               **Reconciliationof stockholders’ deficit to IAS: 

 
|                                                                      |   | **Notes** |   | **2000** |   | **1999**        |   | **1998**        |   |
|---------------------------------------------------------------------------|--------|-----------|--------|----------|--------|-----------------|--------|-----------------|--------|
|                                                                      |   |      |   |     |   | **(unaudited)** |   | **(unaudited)** |   |
| Stockholders’ deficit as reported in the  balance sheets under SGAAP |   |      |   | (134,122 | )      | 62              |   | 62              |   |
| IAS adjustments:                                                          |   |      |   |     |   |            |   |            |   |
| Pre-operating expenses                                                    |   | a         |   | —   |   | (4,442          | )      | (360            | )      |
| Tax effect of IAS adjustment                                              |   | b         |   | —   |   | —          |   | —          |   |
| Stockholders’ deficit under IAS                                      |   |      |   | (134,122 | )      | (4,380          | )      | (298            | )      |

 

***a. Pre-operatingexpenses***

 

**               **TheCompany had incurred pre-operating expenses prior to 2000 and had capitalizedthese costs under SGAAP. Under IAS 38, the Company is required to expensepre-operating costs when incurred.

 

***b. Tax effect of IASadjustment***

 

**               **Thereis no tax effect on the aforementioned reconciling item as the Company will bein a net loss position for the financial periods presented and a recognition ofa deferred tax asset is precluded as the future realization of a tax benefit isnot probable.

 

**AdditionalIAS information**

 

**                *Deferredtaxation***

 

**               **UnderSGAAP, deferred tax is accounted for by the Company using the liability method.Under this method, deferred taxation is provided on timing differences arisingfrom the different treatments in accounting and taxation of relevant items, anddeferred tax assets are not accounted for unless there is reasonableexpectation of their realization. Under IAS 12, the use of a liability methodbased on temporary differences between the financial reporting basis and taxbasis of assets and liabilities is required. No difference is included withinthe reconciliation of IAS, as the two methods described above give rise todeferred tax assets balances that will be precluded from being recognized.

 

**                *Cash flowstatement***

 

**               **Thecash flow statement is prepared in accordance with SAS 7, which is comparableto IAS 7. Under SGAAP, expenses incurred during the construction of the plantare taken up as pre-operating expenses in the balance sheet and considered asinvesting activities. Under IAS, such expenses are not directly related to theconstruction of the plant and are required to be expensed when incurred and aretherefore considered as operating activities. As a result, in 1999 and 1998, 

 

 

F-103

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payment for pre-operating expenses and other receivables, deposits andprepayments would be presented as operating instead of investing activities.

 

**                *New IASaccounting standards***

 

**               **In1998, the International Accounting Standards Committee (IASC) issued IAS 39“Financial Instruments: Recognition and Measurement”. IAS 39 is effective forfiscal periods beginning after December 31, 2000. The standard significantlyincreases the use of fair values in accounting for financial instruments. Inaddition, it establishes specific criteria relating to hedge accounting.

 

**               **In2000, the IASC issued IAS 40 “Investment Property”. IAS 40 is effective forfiscal periods beginning on or after January 1, 2001. This standard providesguidance on the valuation of investment property.

 

                In 2000, theIASC revised IAS 12 “Income Taxes”. The revised IAS 12 is effective for fiscalperiods beginning on or after January 1, 2001. IAS 12 has been revised tospecify the accounting and disclosure requirements for the income taxconsequences of dividends.

 

                In 2000, theIASC revised IAS 19 “Employee Benefits”. IAS 19 (revised 2000) is effective forfiscal periods beginning on or after January 1, 2001. The standard changes thedefinition of plan assets and introduces recognition, measurement anddisclosure requirements for reimbursements.

 

                Adoption ofthese standards is not anticipated to have a material effect on the Company’sfinancial statements.

 

**21.          Reconciliation of IAS to U.S. GAAP**

 

**               **Thefinancial statements prepared in accordance with SGAAP have been reconciled toIAS as shown in Note 20 “Reconciliation of SGAAP to IAS”. IAS differs incertain significant respects from accounting principles generally accepted inthe United States of America (U.S. GAAP). Had U.S. GAAP been adopted, it wouldresult in certain differences to net loss and stockholders’ deficit as comparedto the amounts reported in accordance with IAS. The reconciliation below isprovided pursuant to Item 17 of Form 20-F. These differences are set out in thetables below:

 

**               **Reconciliationof net loss to U.S. GAAP:

** **
|                                                |   | **Notes** |   | **2000** |   | **1999**        |   |
|-----------------------------------------------------|--------|-----------|--------|----------|--------|-----------------|--------|
|                                                |   |      |   |     |   | **(unaudited)** |   |
| Net loss under IAS                                  |   |      |   | (129,742 | )      | (4,082          | )      |
| U.S. GAAP adjustments:                              |   |      |   |     |   |            |   |
| Land improvement and building, plant and  equipment |   | a         |   | 97,560   |   | —          |   |
| Provision for liquidated damages                    |   | b         |   | (32,500  | )      | —          |   |
| Tax effect of U.S. GAAP adjustments                 |   | c         |   | —   |   | —          |   |
| Net loss under U.S. GAAP                            |   |      |   | (64,682  | )      | (4,082          | )      |

 

                Reconciliationof stockholders’ deficit to U.S. GAAP:

 
|                                                                    |   | **Notes** |   | **2000** |   | **1999**        |   |
|-------------------------------------------------------------------------|--------|-----------|--------|----------|--------|-----------------|--------|
|                                                                    |   |      |   |     |   | **(unaudited)** |   |
| Stockholders’ deficit as reported in the  balance sheets under IAS |   |      |   | (134,122 | )      | (4,380          | )      |
| U.S. GAAP adjustments:                                                  |   |      |   |     |   |            |   |
| Land improvement and building, plant and  equipment                     |   | a         |   | 97,560   |   | —          |   |
| Provision for liquidated damages                                        |   | b         |   | —   |   | —          |   |
| Tax effect of U.S. GAAP adjustments                                     |   | c         |   | —   |   | —          |   |
| Stockholders’ deficit under U.S. GAAP                              |   |      |   | (36,562  | )      | (4,380          | )      |

 

 

F-104

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***a. Land improvementand building, plant and equipment***

 

**               **UnderIAS 36, impairment of long-lived assets is determined based on a comparison ofthe assets’ recoverable amount to the carrying value. The recoverable amount isdefined as the higher of the assets’ net selling price and value in use. Valuein use is based on discounted cash flows expected to arise from the continuinguse of an asset and from its disposal at the end of its useful life. For assetsheld for use, fair value is generally computed using the discounted cash flowsexpected to arise from the continuing use of an asset and from its disposal atthe end of its useful life. Under U.S. GAAP, if there is a triggering event,assets to be held and used are analyzed for impairment based on a comparison ofbook value to the undiscounted cash flows expected to arise from the continuinguse of an asset. If the undiscounted cash flows are less than the carryingvalue of the assets, then an impairment is recorded. The amount of theimpairment to be recognised is the difference of the fair value and thecarrying amount of the assets.

 

**               **In2000, the Company recorded an impairment charge of $97,560 under IAS for theintegrated syngas plant that is not deemed impaired under U.S. GAAP.

 

                Additionally,under IAS, impairments must be reversed in the future under certain situationswhile under U.S. GAAP impairments on assets to be held for use may not bereversed. The Company did not reverse any impairment charge under IAS.

 

***b. Provision forliquidated damages***

 

**               **OnFebruary 15, 1998, the Company entered into an agreement with Celanese for thesupply of carbon monoxide gas for a period of twenty years. In addition to thecompletion guarantee issued by the Company’s then two shareholders, theagreement also provided for penalty provisions if the required property andvolume specifications were not reached by July 1, 2000, and/or the syngas plantwas not operational by July 1, 2000. As of December 31, 2000, the syngas plantstill did not meet required specifications and therefore liquidated damagesaccrued. In March 2001, the Company and its then two shareholders entered intoa settlement agreement with Celanese for liquidated damages. These twoshareholders have agreed to pay the liquidated damages on the Company’s behalf,without reimbursement from the Company.

 

                Liquidateddamages were not recorded by the Company under SGAAP and IAS.

 

                In certainsituations, expenses incurred by principal shareholders of a company arerecorded in that company’s U.S. GAAP financial statements.

 

                Since theliquidated damages related solely to the Company’s non-performance under thesupply agreement, the $32.5 million paid by the Company’s then two shareholdershas been recognised as an expense and a capital contribution for U.S. GAAPpurposes in 2000.

 

***c. Tax effect ofU.S. GAAP adjustments***

 

**               **Thereis no income tax effect on the aforementioned reconciling items as (a) theimpairment charge of $97,560 was not recognized for either tax or U.S. GAAPfinancial reporting (it is not a deductible expense for Singapore tax purposes)and therefore, no difference exists for financial reporting under U.S. GAAP andSingapore tax and (b) the capital contribution of $32,500 represents apermanent difference as it will never be expensed in determining the income taxof the Company.

 

**AdditionalU.S. GAAP information**

 

**                *Deferredtaxation***

 

**               **UnderIAS 12, tax loss carryforwards and other credits are recognized as deferred taxassets if future realization of a tax benefit is probable. Under U.S. GAAP, taxloss carryforwards and other credits that are available to reduce future taxesare recognized as deferred tax assets. Such amounts are reduced by a valuationallowance to the extent that it is more likely than not that the tax benefitrelated to the utilization of such tax loss carryforwards or credits will notbe realized. Deferred 

 

 

F-105

----

 

tax asset (before valuation allowance) amounted to $26,373 and $2,178at December 31, 2000 and 1999, respectively. A full valuation allowance for thedeferred tax assets recognized under U.S. GAAP had been provided for bothyears. As a result, no deferred tax effect exists as of December 31, 2000 and1999.

 

**                *New U.S.accounting pronouncements***

 

**               **Statementof Financial Accounting Standards (“SFAS”) No. 133, “Accounting for DerivativeInstruments and Hedging Activities” is effective for fiscal periods beginningafter June 15, 2000. The statement requires that all derivatives, includingembedded derivatives, be recognized in the balance sheet as either assets orliabilities and measured at fair value. In addition, all hedging relationshipsmust be designated, documented and reassessed pursuant to the provisions in thestandard. Adoption of this standard is not anticipated to have a materialeffect on the Company’s financial statements.

 

                In September2000, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 140,“Accounting for Transfers and Servicing of Financial Assets and Extinguishmentsof Liabilities—a replacement of FASB No. 125”. This statement revises thestandards for accounting for securitizations and other transfers of financialassets and collateral and requires certain financial statement disclosures. SFASNo. 140 is effective for transactions occurring after March 31, 2001. Adoptionof this replacement standard is not anticipated to have a material effect onthe Company’s financial statements.

 

**                *Subsequentevent (unaudited)***

 

**               **InJuly 2001, FASB approved SFAS No. 141, “Business Combinations”. The Statementestablishes accounting and reporting standards for business combinations andprohibits the use of the pooling-of-interest method of accounting for businesscombinations. SFAS No. 141 is applicable to all business combinations initiatedafter June 30, 2001. SFAS No. 141 is also applicable to all businesscombinations accounted for by the purchase method that are completed after June30, 2001. Adoption of this standard is not anticipated to have a material effecton the Company’s financial statements.

 

                In July 2001,FASB approved SFAS No. 142, “Goodwill and Other Intangible Assets”. TheStatement establishes accounting and reporting standards for goodwill andintangible assets. The provisions of SFAS No. 142 apply to all acquiredintangible assets whether acquired singly, as part of a group, or in a businesscombination. Under this Statement, goodwill should not be amortized but shouldbe tested for impairment at least annually at the reporting unit level, andintangible assets should be amortized over their useful lives unless the assetshave an indefinite useful life. The Statement also sets forth requirements fortreatment of goodwill and intangibles by subsidiaries and equity investees.SFAS No. 142 is applicable for fiscal years beginning after December 15, 2001,and applies to all goodwill and other intangible assets recognized in anentity’s statement of financial position at that date, regardless of when thoseassets were initially recognized. Adoption of this standard is not anticipatedto have a material effect on the Company’s financial statements.

 

 

F-106

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